Question

Create a list of at least 3 unique goods or services whose quality has improved over time in such a way that current prices do not accurately reflect their real prices, even adjusted for inflation. Now try to come up with at least 1 item where the quality has decreased over time. Which was easier to come up with? What does this say about inflation and deflation?

P.S. Please include definitions words such as nominal prices, inflation, deflation, nominal income, real price, productivity, disposable incomes, real income, or constant quality price.

Economics Book: The Economics of Macro Issues 8th Edition "Ch.16 Is it Real, or Is It Nominal?"

Answer 1

Three goods can be:

1-The internet. Its speed and reliability have increased manifold, while it's costs have come down, in both nominal and real terms.

2-Information storage- Earlier, storage devices like disks and floppies were expensive and had low capacity. Not only has their capacity increased, but their costs have also come down, again, in both nominal and real terms.

3-Healthcare- Its quality and reach have increased. Even though healthcare costs have risen in a lot of countries, they are still underpriced or heavily subsidized.

One good whose quality has fallen over time is water. Heavy pollution and contamination have deteriorated the water quality tremendously.

We see that though inflation in nominal terms is quite common, in real terms, a lot of important services are still underpriced. On the other hand, deflation is much less common.