If a new and better good replaced an older and less expensive good, then the price level measured by the CPI .
A) is higher than the actual price level
B) might be either higher or lower than the actual price
C) is the same as the actual price level because it measures the prices of the actual goods.
D) is lower than the actual price level

Question

Quizplus · Accepted Answer

When a new and better good replaces an older and less expensive good, the CPI continues to measure the prices of the old good, which is now less popular and less produced, resulting in a higher price level than the actual price level. This phenomenon is known as the "substitution bias" in the CPI.

If a New and Better Good Replaced an Older and Less