![]() ![]() Controversy over using Hedonic adjustments They will make an estimate of what percentage the price increase is due to better quality and what percentage is actually higher prices.Īnother example, if the price of a banana increases 10%, this is more straightforward for calculating inflation, a banana is pretty much the same as it was last year. But, officials will not count the increase in price as 400% because it is effectively a different product. ![]() On first glance the price of tv’s on the market has increased by 400%.A popular model, readily available is maybe a 40″ plasma tv with built-in recorder.Now, that 24″ tv is no longer available.10 years ago, a standard 24″ CRT tv may cost $200.It becomes difficult to work out – how much of price rise is due to inflationary pressures and how much is due to the changing nature of the product. However, if the quality of the TV has changed, and you are paying 10% more price for a 20% bigger TV, then it is more complicated- the higher price reflects a combination of higher prices and higher quality. If a TV increases in price by 10%, and the TV was exactly the same, that would mean it reflects inflation of 10%. It is used in the US and UK calculation of inflation. Hedonics is the science of trying to work out how much product quality has changed and adjusting inflation to take account of the fact more expensive products are not just inflation, but also improved quality.
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