Question

Why the consumer price index seems to be an imperfect measure of the cost of living?

Answer 1

Explanation:-The consumer price index is not a standared for determining quality of goods and improvement of goods.So CPI imitate only the growth in price without any obligation for extra benefit to consumers.The proportion variation in the consumer price index measures the rising of price only(inflation rate).The consumer price index is an imperfect measures of the cost of living for these reasons

1.substitution bias-It is the weakness in the CPI ,that exaggerate inflation because CPI doesn't calculate the substitution result.

2.Introduction of fresh products-Which is not reflected speedly in consumer price index.

3.Unmeasured variation in product quality