Determine the problems there with consumer price index, Macroeconomics

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Determine the Problems evolved with Consumer Price Index

To illustrate problems involved in calculating CPI we consider MP3 players. If you measure average price of MP3 players at two points in time, let's say one year apart, you may find that average price hasn't changed.

Though, this isn't whole story as products on the market would have changed. Essentially, the products at later measurement are more advanced than products at the first measurement. If you were to compare prices of MP3 players with same performance, you will probably find that prices have fallen. Without adjusting for changes in quality and performance, you will generally overestimate the rise in price index.

 


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