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Quality or New Goods Bias - Explained

What is a Quality or New Goods Bias?

Written by Jason Gordon

Updated at March 28th, 2023

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What is a Quality or New Goods Bias?

The other major problem in using a fixed basket of goods as the basis for calculating inflation is how to deal with the arrival of improved versions of older goods or altogether new goods. 

Ideally, one would like to know how much of the higher price is due to the quality change, and how much of it is just a higher price. The Bureau of Labor Statistics, which is responsible for computing the Consumer Price Index, must deal with these difficulties in adjusting for quality changes.


We can think of a new product as an extreme improvement in quality—from something that did not exist to something that does. However, the basket of goods that was fixed in the past obviously does not include new goods created since then. The basket of goods and services in the Consumer Price Index (CPI) is revised and updated over time, and so new products are gradually included. However, the process takes some time. 

The birth of many novel inventions has continued, with the CPI inevitably lagging a few years behind.

The arrival of new goods creates problems with respect to the accuracy of measuring inflation. The reason people buy new goods, presumably, is that the new goods offer better value for money than existing goods. Thus, if the price index leaves out new goods, it overlooks one of the ways in which the cost of living is improving. In addition, the price of a new good is often higher when it is first introduced and then declines over time. If the new good is not included in the CPI for some years, until its price is already lower, the CPI may miss counting this price decline altogether. 

Taking these arguments together, the quality/new goods bias means that the rise in the price of a fixed basket of goods over time tends to overstate the rise in a consumer’s true cost of living, because it does not account for how improvements in the quality of existing goods or the invention of new goods improves the standard of living. 

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  • Inflation Spiral (Wage-Price Spiral)
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  • Basket of Goods and Services
  • Indexing and Index Number
  • Base Year
  • Consumer Price Index
  • Substitution Bias
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  • Core Inflation Index
  • Producer Price Index
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  • Deflation
  • Pigou Effect
  • Hyperinflation (Economics)
  • Biflation
  • Inflation and Redistribution of Purchasing Power
  • Inflation Blurs Price Signals
  • Inflation Affects Long-Term Planning
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