On This Day In Finance: June 29 - Apple iPhone

By Peter Cherewyk | June 24, 2009 AAA

On this day in 2007, the Apple iPhone officially went on sale to the public. The phone was sold for $499 and had a hard drive size of four gigabytes for the smaller model, and $599 for the larger eight gigabytes model. Lineups that rounded blocks and campers taking up city sidewalks outside of retail stores were a common sight on launch day. Now, two years later, the upgraded eight gigabyte version of the iPhone costs $99.

This is a perfect example of two flaws in the consumer price index (CPI). The CPI allows us to gauge the cost of living and inflation from one year to the next. New products, such as smart phones, increase consumer welfare, which puts a upward bias on the CPI known as new product bias. Also, the huge increase in quality over two years, as is seen in most new technologies, skews the numbers and is known as the quality change bias. (Learn more in Economic Indicators: Consumer Price Index (CPI).)

Apple's (Nasdaq:AAPL) stock is up about 60% since the announcement of the iPhone back on January 9, 2007. Keep in mind, this is after the largest market crash since the Great Depression. Sales for the newest version of the iPhone (3G) exceeded one million units in the first three days after its launch, so it still looks like Apple is providing what consumers want. Some estimates even have the total iPhones sold to date at well over 20 million.

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