When the quality of a good deteriorates,the purchasing power of the dollar
A)increases,so the CPI overstates the change in the cost of living if the quality change is not accounted for.
B)increases,so the CPI understates the change in the cost of living if the quality change is not accounted for.
C)decreases,so the CPI overstates the change in the cost of living if the quality change is not accounted for.
D)decreases,so the CPI understates the change in the cost of living if the quality change is not accounted for.

Question

Quizplus · Accepted Answer

If the quality of a good deteriorates, it means that its value to the consumer has decreased, and they would be willing to pay less for it. This decrease in value means that the purchasing power of the dollar has decreased, i.e., it can buy fewer goods than before. If this change in quality is not accounted for in the Consumer Price Index (CPI), then the CPI will overstate the change in the cost of living because it does not reflect the decrease in value that has occurred. Therefore, the correct answer is D - the CPI understates the change in the cost of living if the quality change is not accounted for.

When the Quality of a Good Deteriorates,the Purchasing Power of the Dollar