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.

IN PICTURES:
Eight Ways To Survive A Market Downturn

Related Articles
  1. Economics

    Explaining Accounting Conservatism

    Accounting conservatism is a principal that requires accounting rules be applied with high degrees of verification.
  2. Investing

    Redefining the Stop-Loss

    Using Stop-losses for trading doesn’t mean ‘losing money’, but instead think about the money you'll start saving once you learn how they work.
  3. Investing News

    Canada in Recession

    On September 1, 2015, Statistics Canada reported that the economy has contracted by 0.5% in Q2 2015, after falling 0.8% in previous quarter.
  4. Fundamental Analysis

    What Causes Inflation in the United States

    Inflation is the main catalyst behind U.S monetary policy. But what causes this phenomenon of sustained rising prices? Read on to find out.
  5. Trading Strategies

    Stock Trading for Free: Now a Reality

    Believe it or not, you can now trade stocks and ETFs for free. Here's a look at providers offering commission-free trading.
  6. Term

    What are Non-GAAP Earnings?

    Non-GAAP earnings are a company’s earnings that are not reported according to Generally Accepted Accounting Principles.
  7. Investing

    The Unintended Consequences of Self-Driving Cars

    An overview of some unintended consequences of the driverless car revolution.
  8. Investing

    Why Are Startups Going International?

    Expansion into international markets, if it occurs, is the final stage of a startup's evolution. Lately, though, the opposite has been happening; international expansion now occurs fairly early ...
  9. Economics

    Is a Recession Coming?

    In the space of a week, the VIX Index, a measure of market volatility, spiked from 13, suggesting extreme complacency, to over 50, evidencing total panic.
  10. Investing

    Sergey Brin Biography

    Sergey Brin is an American computer scientist and businessman, who, with Larry Page, co-founded Google, which is among the most profitable internet companies in the world.
RELATED TERMS
  1. Operating Cost

    Expenses associated with the maintenance and administration of ...
  2. Trade Credit

    An agreement where a customer can purchase goods on account (without ...
  3. Normal Profit

    An economic condition occurring when the difference between a ...
  4. Cost Accounting

    A type of accounting process that aims to capture a company's ...
  5. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s ...
  6. Supply

    A fundamental economic concept that describes the total amount ...
RELATED FAQS
  1. What are some examples of general and administrative expenses?

    In accounting, general and administrative expenses represent the necessary costs to maintain a company's daily operations ... Read Full Answer >>
  2. How do dividend distributions affect additional paid in capital?

    Whether a dividend distribution has any effect on additional paid-in capital depends solely on what type of dividend is issued: ... Read Full Answer >>
  3. Why can additional paid in capital never have a negative balance?

    The additional paid-in capital figure on a company's balance sheet can never be negative because companies do not pay investors ... Read Full Answer >>
  4. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  5. What is the utility function and how is it calculated?

    In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!