Question

Complete a essay to answer the following statement. Thank you!.

THE INTRODUCTION OF CELL PHONES AND THE BIAS IN THE CPI

Answer 1

The consumer price index refers to the index that shows the movement in the prices of the basket of goods. It shows the inflation rate of the basket of goods used by the consumers and it acts as a representation of the price level in the whole economy. But, it includes biases because it does not consider the product that is now widely used by the consumers. One such product is cellphones that is now widely used by the consumers. Though, it is not given a due and timely place in the basket of goods that makes the first case for CPI to be biased. Further, the second case of bias is the consideration of change in price of the cellphone. The price of the cellphone comes down on year on year basis. But, CPI considers the increased level of price of the cellphone product. It brings a significant level of bias. The third case of the bias is the type, nature and features owned by the cellphones that are considered in a basket of goods. It brings bias and does not represent the true industrial outlook. Hence, it is said that the cellphone is the representation of biases in the consumer price index. Though, it is the one case, there are many other technology based products, that are either late included or price consideration is not correctly taken into the account, cause bias in the CPI.