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Q. Explain the problem involved in consumer price Index?
To explain the problems involved in calculating CPI we consider MP3 players. If you measure the average price of MP3 players at two points in time, let's say one year apart, you possibly will find that average price hasn't changed.
Though, this isn't the whole story because the products on the market would have changed. Characteristically, products at the later measurement are more advanced than products at the first measurement. If you were to compare prices of MP3 players with same performance, you would possible find that prices have fallen. Without adjusting for changes in quality andperformance, you will generally overestimate the rise in price index.
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Price/Feeder Quantity Demanded Quantity Supplied $300 500 1800 270 600 1700 240 700 1600 210 800 1500 180 1000 1400 150 1100 1300 120 1200 1200 90 1300 1100 60 1400 1000 30 1500 90
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