When statisticians fail to allow for the possibility that consumers switch from products with rising prices to those whose prices are stable or falling, the CPI will tend to ________ the rate of inflation.
A)understate
B)precisely measure
C)be unrelated to
D)overstate

Question

Quizplus · Accepted Answer

When prices rise sharply for a product, consumers shift away from it. Since the CPI uses a fixed basket of goods and services, this switching between substitute products is often missed, resulting in "substitution bias" and overstatement of the CPI.

When Statisticians Fail to Allow for the Possibility That Consumers