If there is an increase in the price of apples, which causes consumers to purchase fewer kilograms of apples and more kilograms of oranges, the CPI will suffer from
A)consumer preference bias.
B)substitution bias.
C)base year bias.
D)bias due to unmeasured quality change.
E)bias due to the introduction of new goods.

Question

Quizplus · Accepted Answer

This situation is an example of substitution bias, which refers to the CPI's inability to account for when consumers switch to purchasing substitute goods in response to price changes. When the price of apples increases, consumers shift their preferences to oranges, leading to a decrease in apple purchases and an increase in orange purchases, which is not reflected accurately in the CPI.

If There Is an Increase in the Price of Apples