The consumer price index is subject to substitution bias because
A)some pairs of goods are complements rather than substitutes.
B)some goods are inferior rather than normal.
C)the law of demand applies to most,if not all,goods.
D)the index does not take into account the likelihood that consumers substitute newly-introduced goods for more-established goods.

Question

Quizplus · Accepted Answer

Substitution bias occurs because the consumer price index (CPI) assumes a fixed basket of goods, ignoring the fact that consumers will substitute cheaper alternatives when prices change, as predicted by the law of demand.

The Consumer Price Index Is Subject to Substitution Bias Because