Price changes from year to year are not proportional,and consumers respond to these changes by altering their spending patterns.The problem this creates for inflation calculations is called
A)deflation.
B)inflation.
C)unmeasured quality change.
D)substitution bias.

Question

Quizplus · Accepted Answer

The problem described in the question is known as substitution bias. This occurs because inflation calculations assume that consumers will continue to buy the same mix of goods and services over time, despite changes in prices. However, in reality, consumers will often substitute lower-priced goods for higher-priced ones, which can skew the inflation calculation.

Price Changes from Year to Year Are Not Proportional,and Consumers