When the Bureau of Labor Statistics calculates the consumer price index, it assumes that
A) each consumer maximizes his or her utility.
B) consumers do not substitute cheaper goods for goods when prices have risen.
C) consumers overspend.
D) there is no unemployment.

Question

Quizplus · Accepted Answer

The Bureau of Labor Statistics assumes that consumers do not substitute cheaper goods for goods when prices have risen. This is known as the assumption of fixed weights, where the quantities of goods and services in the market basket do not change, even if their prices do. However, in reality, consumers do substitute cheaper goods for more expensive ones when prices rise, which is not taken into account in the calculation of the CPI.

When the Bureau of Labor Statistics Calculates the Consumer Price