The commodity substitution bias is that
A)consumers substitute high-quality goods for low-quality goods.
B)government spending is a good substitute for investment expenditures.
C)national saving and foreign borrowing are interchangeable.
D)consumers decrease the quantity they buy of goods whose relative prices rise and increase the quantity of goods whose relative price falls.
E)consumers substitute more expensive goods for less expensive goods when technology advances.

Question

Quizplus · Accepted Answer

The commodity substitution bias refers to the tendency of consumers to change the quantity they buy of goods whose relative prices rise and increase the quantity of goods whose relative price falls. This can result in an overestimation of inflation and an underestimation of purchasing power, as consumers may be buying different goods than before due to changes in relative prices. The other options (A, B, C, and E) are incorrect as they do not accurately describe the concept of commodity substitution bias.

The Commodity Substitution Bias Is That