A Quality-Change Bias in the Construction of the CPI Arises

question 30

Multiple Choice

A quality-change bias in the construction of the CPI arises because

• A)new goods and services are routinely introduced and many of them are not incorporated into the market basket that makes up the CPI.
• B)big box stores that carry electronic goods routinely run sales to reduce their inventories before stocking new models.
• C)prices of most durable goods do not reflect improvements in quality of these goods.
• D)quality differences between the goods priced in two different periods cannot be accurately measured and deducted from the accompanying price difference between the goods.

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Definitions:

IFRS

International Financial Reporting Standards, a set of accounting standards developed by the International Accounting Standards Board that is used globally for the preparation of public company financial statements.

Inventory Holding Gains

Gains resulting from an increase in the value of inventory that a company holds over a period.

Consignment

The process of placing goods with a third party who has the authority to sell the goods on behalf of the owner, but the ownership of the goods remains with the consignor until sold.

Inventory Valuation

A method used to assess the cost or market value of inventories a company holds at the end of a period.