An example of the new goods bias in the CPI is the
A) decreasing popularity of SUVs as the price of gasoline has risen.
B) switch from traditional car dealerships to low- cost Internet car buying services.
C) introduction of higher quality brakes as standard equipment on new cars.
D) introduction of hybrid automobiles, vehicles that were not made until recently.

Question

Quizplus · Accepted Answer

The introduction of hybrid automobiles is an example of new goods bias because they were not made until recently and did not exist in the consumer market in the base year used to calculate the CPI. This can lead to an overestimation of price changes for goods that have been around for a longer period of time. Choices A, B, and C are not examples of new goods bias but rather reflect changes in consumer behavior, technology, and product quality over time.

An Example of the New Goods Bias in the CPI