Reply To: changes in the quality of goods over time


Entrepreneurs will provide the spectrum of quality that people’s demands make profitable. The spectrum will range from used goods to tailored made. If your friend is noticing a deterioration of quality in the clothes, phones, cars, and so on she is used to buying, it might just be a change in brand positioning by the entrepreneurs whose products she frequents. It’s likely that there are higher quality brands available.

Though it’s an empirical not theoretical question, one would suspect that as standards of living rise, people’s demands would skew towards higher quality and so entrepreneurs would adjust production accordingly. Government policies that make us poorer, then, would tend to reduce quality. This effect will likely be specific to markets which government intervention burdens more heavily. If the government imposes costs on producing certain goods, entrepreneurs react by lowering other costs, including perhaps buying cheaper, lower quality inputs. Price inflation works in a similar way on product quality. If an entrepreneur is producing a good for which input prices are rising faster than output prices, then he may lower the quality of his product or the size of a unit of it to best adjust to people’s demands. But the effect of rising prices on quality comes from the disproportional increases in the prices of different goods and not price inflation per se. If all prices rose in proportion, then, entrepreneurs would make no adjustments in production.