A price index is most likely to overestimate inflation if it is computed using market-basket weights that reflect purchase patterns:

late in the series of years and if product quality falls.
late in the series of years and if product quality rises.
early in the series of years and if product quality falls.
early in the series of years and if product quality rises.


Suppose that the quality of a product such as a camera improves but the price of the product does not change. The effect:

is to lower the true cost of living.
is to raise the true cost of living.
is to leave the true cost of living unchanged.
on the true cost of living cannot be determined unless we know how the market basket changes.


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