Suppose the Quality of Beef Changes Over Time,but the Quality

question 156

Multiple Choice

Suppose the quality of beef changes over time,but the quality change goes unmeasured for the purpose of computing the consumer price index.In which of the following instances would the bias resulting from the unmeasured quality change be least severe?

• A)The quality of beef deteriorates and beef becomes more expensive relative to other goods.
• B)The quality of beef deteriorates and beef becomes less expensive relative to other goods.
• C)The quality of beef improves and beef becomes more expensive relative to other goods.
• D)The quality of beef improves and the price of beef relative to other prices remains unchanged.

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Definitions:

Estimated Costs

Costs that are predicted or forecasted based on current information and experience, used for budgeting and planning purposes.

Installment Contract

A contract that requires payments to be made in regular intervals over a period in exchange for goods or services.

Net Realizable Value

The estimated selling price in the ordinary course of business minus the costs of completion, disposal, and transportation.