Substitution bias
A) Is one factor that causes the CPI to underestimate the inflation rate?
B) Is caused by the poor quality of many imported products.
C) Is one of the primary causes of inflation?
D) Involves consumer behaviour that helps explain why the CPI overestimates the inflation rate.

Question

Quizplus · Accepted Answer

Substitution bias occurs when consumers change their purchasing habits due to changes in relative prices, but the CPI does not fully account for this behavior, leading to an overestimation of the inflation rate.

Substitution Bias