One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called
A)price-change neglect.
B)unmeasured quality change.
C)substitution bias.
D)relative bias.

Question

Quizplus · Accepted Answer

This problem is known as substitution bias. It occurs because the consumer price index (CPI) is based on a fixed basket of goods and services, and it does not account for changes in consumer behavior when they substitute cheaper goods for more expensive ones, thus potentially overstating the cost of living increases.

One Problem with the Consumer Price Index Stems from the Fact