Price indexes can overstate inflation because they
A) omit some quality improvements.
B) do not contain the prices of any used goods.
C) do not contain the prices of foreign goods.
D) do not contain the prices of services.

Question

Quizplus · Accepted Answer

Price indexes can overstate inflation because they often fail to fully account for quality improvements in goods and services. When the quality of a product increases, its value to the consumer increases even if the price remains the same or increases. However, many price indexes do not adequately adjust for these quality improvements, thus potentially overstating the rate of inflation.

Price Indexes Can Overstate Inflation Because They