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.
Frequently asked questions
What is the correct answer to this question?
Because part of the higher price may pay for quality improvement
Why is this the correct answer?
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.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
