Suppose a price index is formed to measure changes in the price level between 1989 to 1995.If the price index focuses on the year-to-year costs of the typical market basket purchased in 1989,then the reported price changes
A) seem worse for consumers than they really are.
B) seem better for consumers than they really are.
C) accurately reflect changes in people's levels of satisfaction.
D) may overestimate or underestimate the effects of price changes,depending on whether consumers' indifference curves are relatively flat or steep.

Question

Quizplus · Accepted Answer

This price index, by focusing on the costs of a 1989 market basket over time, may not account for changes in consumer behavior, such as substituting cheaper goods for more expensive ones. This can make the situation seem worse for consumers than it actually is, as it doesn't reflect their ability to adapt to price changes by altering their consumption patterns.

Suppose a Price Index Is Formed to Measure Changes in the Price