QUESTION TEXT: The consumer price index is a measure…
QUESTION TYPE: Flaw
CONCLUSION: Government benefits sometimes are raised too high compared to the true increase in the cost of goods and services.
REASONING: The consumer price index is used to measure changes in the cost of retail goods. But the consumer price index doesn’t take into account technological innovations that reduce the cost of producing goods.
ANALYSIS: This is a subtle question. The cost of production of a product can be very different from its retail price. We should care about the price people pay in the store (retail price).
We only know how technology affects production costs. We have no idea how this affects retail prices, so it’s irrelevant information.
- If the consumer price index didn’t change then it’s still possible that costs fell due to technology. In that case, benefits should have shrunk.
- It doesn’t matter which goods are included as long as the CPI accurately reflects changes in retail goods.
- What does this matter? The CPI is designed to measure general changes that affect the population on average. Obviously some people will be affected more than others if the things they buy rise more or less in price.
- Actually, the CPI measures the past and the government benefits are changed to reflect past changes. The future is not relevant.
- CORRECT. The CPI measures retail prices. Technology affects the cost of producing things but we don’t know if it affects retail prices.
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