5. Which of the problems in the construction of the CPI might be illustrated by each of the following situations? (a) The invention of the iPod The introduction of new goods is not incorporated into the calculation of the CPI. When there are more goods available, we expect standards of living to rise. However, this is not included in the calculation of CPI due to the fixed nature of the basket. (b) The introduction of air bags in cars Unmeasured quality changes also improve standards of living. It is highly difficult to measure these improvements and this is another shortcoming of the CPI. (c) Increased personal computer purchases in response to a decline in their price When prices fluctuate, consumers respond by purchasing more of the good that is "relatively cheaper". This process creates substitution bias. Since the CPI has a fixed basket of goods, the higher standard of living that comes from substituting relatively cheaper goods is not included. Thus, it is a problem in the construction of the CPI. (d) More scoops of raisins in each package of Raisin Bran -When you get more scoops of raisins in each package of Raisin Bran, there is an improvement in the quality of the good. However, the CPI does not include the improvement in standard of living that comes from having more pieces of cereal in each box. Thus, the CPI will overestimate the cost of living in this case. -An argument can also be made that it is simply difficult to measure any improvements in life from having a greater quantity of raisins O this is excluded from the measurement of CPI