00:01
All right, here we're taking a look at measuring the cost of living, and we know that the consumer price index or the cpi is often used, but there's still a number of issues that can arise in its calculation and the construction of the cpi.
00:13
So let's go ahead and take a look at some examples and try to determine exactly what the issue is with these particular occurrences.
00:21
So first, let's suppose that there is the invention of cell phones.
00:25
Well, as great as the invention of cell phones has been for the majority of us, we run into the issue of the introduction of new goods.
00:34
Intro of new goods.
00:37
Now, this occurs because this gives consumers more variety and greater possibility of maintaining a similar level of utility or happiness that they had prior to cell phones.
00:48
But because the cpi is this fixed basket of goods, it maybe doesn't take into account that our value of our dollar has actually increased.
00:58
Because to us, we can now get more with our dollar because we can afford these cell phones.
01:03
It can give us more happiness.
01:06
And the cpi doesn't reflect that increase.
01:10
Now let's take a look at the introduction of airbags in cars.
01:15
Well, the problem that arises here is unmeasured quality change.
01:25
Now, unmeasured quality change is an issue here because the cpi, again, it takes into account a fixed basket of goods.
01:32
And within this fixed basket, sure, cars sit somewhere in there, but it's assuming this constant quality of cars.
01:40
But by introducing these airbags to the cars as a consumer, we may perceive these cars to be more valuable to us because we're all of a sudden safe for being in there.
01:49
So the cpi doesn't measure that quality change that is really very real for us consumers purchasing vehicles.
01:58
Now another one to take a look at is the increase in computer purchases due to a lower -border.
02:04
Price of these.
02:04
So we know that when prices go down, we oftentimes want to buy more of that item...
