The following scenarios illustrate why price indexes such as the UPI might overstate inflation in the cost of going to college:
- As the price of premium streaming services rose, fewer students decided to buy them, opting instead to borrow log-in information from friends and relatives. This means the actual cost to students may be less than what the index suggests.
- A new, cheaper internet option rolled out services nationwide. If the price index does not quickly adjust to include this cheaper option, it may overstate the cost of internet services.
- Energy drinks became increasingly popular on college campuses due to significant improvements in flavor, but this quality change is hard to measure. The price index may overstate inflation if it doesn't account for the improved quality justifying a higher price.
In contrast, the scenario where professors required each student to buy 10 textbooks, regardless of price, would not cause an overstatement of inflation by the price index.