Which of the following statements best explains the concept of "shrinkflation" in the context of consumer markets and its macroeconomic implications in India?
Show answer & explanation
Correct answer: B
Explanation
Solution: The correct answer is Shrinkflation denotes a phenomenon where producers reduce the size or quantity of a product while maintaining its price, often to cope with rising input costs, which may distort inflation measurements and consumer welfare assessments.
Explanation:
☛ Shrinkflation is a portmanteau of the words 'shrink' and 'inflation'.
☛ It refers to the practice of reducing the size, quantity, or weight of a product while keeping its retail price unchanged.
☛ Companies adopt this stealth strategy mainly to manage rising production and input costs without discouraging price-sensitive consumers.
☛ Although consumers pay the same nominal price, the effective per-unit price increases, reducing consumer purchasing power.
☛ A major macroeconomic implication is that it can distort conventional Consumer Price Index (CPI) data if statistical agencies fail to adjust properly for quantity changes.
Extra Exam-Relevant Facts:
☛ British economist Pippa Malmgren is widely credited with coining the term 'shrinkflation' in 2015.
☛ Skimpflation: A related phenomenon where companies keep the price the same but reduce the quality or degrade the ingredients and services.
☛ Stagflation: A condition characterized by stagnant economic growth, high unemployment, and high inflation occurring simultaneously.
☛ Deflation: A persistent and sustained decrease in the general price level of goods and services in an economy.
Important One-Liners for Upcoming Exams:
☛ Who is credited with popularizing the term 'shrinkflation'? → Pippa Malmgren
☛ What term describes cutting back on service quality or product ingredients while keeping prices constant? → Skimpflation
☛ Which economic indicator in India primarily measures retail inflation? → Consumer Price Index (CPI)
☛ Which institution publishes the Consumer Price Index (CPI) in India? → National Statistical Office (NSO)
☛ What is a situation called when high inflation is accompanied by slow economic growth and high unemployment? → Stagflation