Plz explain this ques
Ans given in core is B i.e upward biase
A/c to me ans is downward biase and intution behind my thinking is
If price of product is Rs20 in base year which is a part of CPI but if over time quality is improved and if we put quality effect then price may be greater than 20 but price remain constant. So how we xan say that it is upward biase??
Consider a product say ‘ An Iphone’. The price of an Iphone increases every year, agreed. But isn’t the the quality of Iphone in terms of features also increasing? The answer is obviously yes. So, CPI doesn’t consider this effect i.e the quality effect. It shows only that the price of the product , in this case Iphone has increased. It will never show that why the price of iPhone has increased? The price increase is accompanied by greater quality and satisfaction which CPI does not capture. The inflation is overstated and thus is biased upwards.
Hope it helps!
But the question states that the price is constant and as per the reading which states if the price of a product increases because the product has improved, the price increase is not due to inflation but still increases the price.
So how can we relate to this?
In the question, it is said that the price is constant. It has not changed.
Yes , so whats the perfect solution and reason of this ques??
If price increase is a function of quality increase there is no effect of inflation it because of quality improvement therefore inflation is unaffected