The Radio Shack commercial from 1989 showed a cell phone that was sale priced at $799....

The Radio Shack commercial from 1989 showed a cell phone that was sale priced at $799. What type(s) of problems with measuring consumer prices is illustrated by the cell phone example? Explain.

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Expert Solution

During 1989, a cell phone costed $799.

If we use the year 1989 as a base year to estimate consumer prices with regard to mobile phones , it will lead to over estimation of consumer prices.

The technology is much improved and advanced today, the amount of production has increased, the price of a cell phone is much lower than $799 today.

If we continue to use the price at year 1989 for measuring real GDP , we will be overestimating the real

consumer price as we produce much larger amount of cell phones currently than before.

Hence, a large price multiplied by a larger quantity will give rise to an even larger consumer price.

Hence over estimation is a problem while using prices of 1989.

Rahul Sunny answered 2 years ago

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