##ity, an amalgamation of computing speed, memory, networking capability, graphics capability, and so on. computer manufacturers are moving toward build - to - order systems, in which any combination of these specifications and peripheral equipment is available to each individual buyer. other examples abound. advancements in computer - assisted design have reduced the costs of producing multiple varieties of small machine tools. and in services, witness the plethora of products now available from financial institutions, which have allowed a more complete disentangling and exchange of economic risks across participants around the world. although hard data are scarce, there can be little doubt that products are tailor - made for the buyer to a larger extent than ever. gone are the days when henry ford could say he would sell a car of any color “ so long as it ’ s black ”. in such an environment, when product characteristics are bundled together in so many different combinations, defining the unit of output means unbundling these characteristics, and pricing each of them separately. the so - called hedonic technique is designed to do precisely that. this technique associates changes in a product ’ s price with changes in product characteristics. it therefore allows a quality comparison when new products with improved characteristics are introduced. this approach has been especially useful in the pricing of computers. but hedonics are by no means a panacea. first of all, this technique obviously will be of no use in valuing the quality of an entirely new product that has fundamentally different characteristics from its predecessors. the benefits of cellular telephones, and the value they provide in terms of making calls from any location, cannot be measured from an examination of the attributes of standard telephones. in addition, the measured characteristics may only be proxies for the overall performance that consumers ultimately value. in the case of computers, the buyer ultimately cares about the quality of services that computer will provide - - word processing capabilities, database services, high - speed calculations, and so on. but, in many cases, the number of message instructions per second and the other easily measured characteristics may not be a wholly adequate proxy for the computer services that the individual buyer values. in these circumstances, the right approach, ultimately, may be to move toward directly pricing the services we obtain from our computers - - that is, word processing services, database management services, and so on - - rather than pricing separately the hardware and software. the issues surrounding the appropriate measurement of computer prices also illustrate some of the difficulties of

service prices, which are generally more difficult to measure, become ever more prominent in aggregate price measures. one does not have to look only to the most advanced technology to recognize the difficulties that are faced. to take just a few examples, automobile tires, refrigerators, winter jackets, and tennis rackets have all changed in ways that make them surprisingly hard to compare to their counterparts of twenty or thirty years ago. the continual introduction of new goods and services onto the markets creates special challenges for price measurement. in some cases, a new good may best be viewed as an improved version of an old good. but, in many cases, new products may deliver services that simply were not available before. when personal computers were first introduced, the benefits they brought households in terms of word processing services, financial calculations, organizational assistance, and the like, were truly unique. and, further in the past, think of the revolutionary changes that automobile ownership, or jet travel, brought to people ’ s lives. in theory, economists understand how to value such innovations ; in practice, it is an enormous challenge to construct such an estimate with any precision. the area of medical care, where technology is changing in ways that make techniques of only a decade ago seem archaic, provides some particularly striking illustrations of the difficulties involved in measuring quality - adjusted prices. cures and preventive treatments have become available for previously untreatable diseases. medical advances have led to new treatments that are more effective and that have increased the speed and comfort of recovery. in an area with such rapid technological change, what is the appropriate unit of output? is it a procedure, a treatment, or a cure? how does one value the benefit to the patient when a condition that once required a complicated operation and a lengthy stay in the hospital now can be easily treated on an outpatient basis? although we may not be able to discern its details, the pace of change and the shift toward output that is difficult to measure are more likely to quicken than to slow down. how, then, will we measure inflation in the future if our measurement techniques become increasingly obsolete? we must keep in mind that, difficult as the problem seems, consistently measured prices do exist in principle. embodied in all products is some unit of output, and hence of price, that is recognizable to those who buy and sell the product if not to the outside observer. a company that pays a sum of money for computer software knows what it is buying, and at least has an