The commodity substitution bias is that
A) national saving and foreign borrowing are interchangeable.
B) government spending is a good substitute for investment expenditures.
C) consumers decrease the quantity they buy of goods whose relative prices rise and increase the quantity of goods whose relative price falls.
D) consumers substitute high- quality goods for low- quality goods.

Question

Quizplus · Accepted Answer

The commodity substitution bias refers to the tendency of consumers to substitute goods with a lower relative price for goods with a higher relative price. This behavior occurs as consumers try to maximize their utility given their budget constraint. Therefore, choice C is the best option as it best describes this bias. Choices A, B, and D are incorrect as they do not relate to the commodity substitution bias.

The Commodity Substitution Bias Is That