The CPIC
A)does not overcome the source of bias in the CPI.
B)overcomes the sources of bias in the CPI by eliminating measures of the goods and services with the most volatile prices.
C)overcomes the sources of bias in the CPI by incorporating substitutions and using current and previous period quantities.
D)overcomes the sources of bias in the CPI by giving extra weight to the measures of the goods and services with the most volatile prices.
E)overcomes the sources of bias in the CPI by always using discount store prices.

Question

Quizplus · Accepted Answer

The correct answer is C. The CPIC (Chained Consumer Price Index) overcomes the sources of bias in the CPI (Consumer Price Index) by incorporating substitutions and using current and previous period quantities. Substitutions refer to the idea that if the price of one good or service goes up, consumers will substitute it for a cheaper alternative. Using current and previous period quantities means that the CPIC measures changes in the quantity of goods and services actually purchased by households, rather than the quantity of identical goods and services purchased in a base period. This method accounts for changes in the type and quality of goods and services over time.