Refrigerators, air conditioners, and other appliances are now more durable and energy efficient. If there is an increase in the price of these products, which of the following is true?
A) Statisticians involved in the construction of price indexes will be able to fully separate the difference between improved product quality and inflation.
B) Statisticians involved in the construction of price indexes will not be able to fully differentiate between improved product quality and inflation.
C) All of the price increase reflects inflation rather than the improvement in the quality of the product.
D) There will be no effect on inflation.

Question

Refrigerators, air conditioners, and other appliances are now more durable and energy efficient​.  If there is an increase in the price of these products, which of the following is true?
A) Statisticians involved in the construction of price indexes will be able to fully separate the difference between improved product quality and inflation.
B) Statisticians involved in the construction of price indexes will not be able to fully differentiate between improved product quality and inflation.
C) All of the price increase reflects inflation rather than the improvement in the quality of the product.
D) There will be no effect on inflation.

Quizplus · Accepted Answer

Statisticians involved in the construction of price indexes will not be able to fully differentiate between improved product quality and inflation. This is because it is difficult to disentangle the price increase that results from an improvement in product quality from the price increase due to inflation. As a result, the increase in the price of these products could lead to an overestimation of inflation if statisticians do not accurately account for the improved quality of the products.

Refrigerators, Air Conditioners, and Other Appliances Are Now More Durable