Suppose the quality of lawn mowers, which are part of the CPI basket, has improv

Question

Suppose the quality of lawn mowers, which are part of the CPI basket, has improved, while their price has remained the same. If Statistics Canada wants to adjust the CPI so that the effect of better quality on the cost of living is accounted for, what should Statistics Canada do? A.  Keep the CPI unchanged since the price has not changed. B.  Increase the CPI because better quality means higher value C.  Keep the CPI unchanged because lower maintenance costs are offset by higher value D.  Decrease the CPI because better quality means lower maintenance costs Suppose the quality of lawn mowers, which are part of the CPI basket, has improved, while their price has remained the same. If Statistics Canada wants to adjust the CPI so that the effect of better quality on the cost of living is accounted for, what should Statistics Canada do? A.  Keep the CPI unchanged since the price has not changed. B.  Increase the CPI because better quality means higher value C.  Keep the CPI unchanged because lower maintenance costs are offset by higher value D.  Decrease the CPI because better quality means lower maintenance costs

Explanation / Answer

one of the problems with CPI is that it fails to account for changes in quality.

When the quality of a good improves, the purchasing power of the dollar increases, so the CPI overstates the change in the cost of living if the quality change is not accounted for.

inorder to normalize it,

d) Decrease the CPI because better quality means lower maintenance costs

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