Answer to Question #239116 in Macroeconomics for vie

Question

Beginning in 1994, environmental regulations have required that gasoline contain a new additive to reduce air pollution. This requirement raised the cost of gasoline. The Bureau of Labor Statistics (BLS) decided that this increase in cost represented an improvement in quality. a. Given this decision, did the increased cost of gasoline raise the CPI? b. What is the argument in favor of the BLS’s decision? What is the argument for a different decision

Answer 1

The increased cost of gasoline never increased the CPI since the costs incurred due to increase in price are covering the ones that were used in controlling pollution. Sometimes pollution may take more expenditure that its control measures.

BLS's decision is based on the fact that the producers may have taken more initiative to help in controlling the pollution that may be caused by gasoline. The production may have undergone several processes that before creating more costs during the measures. Such practices force firms to increase the price.