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Why may a simple price comparison overstate inflation when a new good has much better quality than the old product?

Answer and explanation

Correct answer: Because part of the higher price may pay for quality improvement

The governing concept is quality adjustment in price measurement. A higher price may reflect both general inflation and an improved product, such as a faster phone or a safer car. If the entire price rise is treated as inflation, the measured increase in the price level is overstated. Therefore option A is correct; the other options incorrectly deny the role of quality or make unsupported claims about output and imports.

Related tags

Quality AdjustmentNew GoodsInflation MeasurementGdp DeflatorGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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