Which of the problems in the construction of CPI might be illustrated by each of the following situations invention of iPod introduction of airbags in cars?

Answer 1

The invention of the iPod illustrates the problem of the substitution bias in the Consumer Price Index (CPI), as consumers may shift their spending from traditional music formats to digital devices, leading to an underestimation of inflation if the CPI doesn't adequately capture this shift. The introduction of airbags in cars highlights the quality adjustment issue, where improvements in safety features may not be fully reflected in the price changes measured by the CPI, potentially misrepresenting the true cost of living. Both situations underscore the challenges CPI faces in accurately reflecting consumer preferences and product quality changes over time.