If cheeseburgers become more expensive and consumers switch their purchases away from cheeseburgers but the consumer price index (CPI)still assumes they buy the same amount,then
A) the CPI will reflect upward bias.
B) the CPI will reflect downward bias.
C) consumers will experience money illusion.
D) consumers will experience a price confusion problem.
E) deflation will occur because consumers no longer buy cheeseburgers.

Question

Quizplus · Accepted Answer

If the CPI assumes that consumers are still buying the same amount of cheeseburgers despite the increase in price and the switch to other products, it will overestimate the inflation rate and reflect an upward bias. This is because the CPI is based on a fixed basket of goods and services, and if the prices or quantities of those items change, the index may no longer accurately reflect the cost of living.

If Cheeseburgers Become More Expensive and Consumers Switch Their Purchases