Assume that consumers consider rice and potatoes to be substitutes,so that when the price of rice rises,consumers purchase less rice and more potatoes.When the CPI is computed following the increase in the price of rice,it takes into account
A)the increase in the price of rice.
B)the decrease in the quantity of rice purchased and the increase in the quantity of potatoes purchased.
C)Both (a)and (b)are correct.
D)None of the above is correct.

Question

Quizplus · Accepted Answer

The Consumer Price Index (CPI) primarily measures the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. It does not directly account for changes in consumption patterns, such as the substitution effect between rice and potatoes.

Assume That Consumers Consider Rice and Potatoes to Be Substitutes,so