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) is the same as the actual price level because it measures the prices of the actual goods.
C) might be either higher or lower than the actual price
D) is lower than the actual price level

Question

Quizplus · Accepted Answer

The CPI is a measure of the price level of a fixed basket of goods and services. If a new and better good replaces an older and less expensive good, the CPI may not fully account for the improvement in the quality of the good, and may therefore overstate the increase in the price level. Therefore, the price level measured by the CPI would be higher than the actual price level.

If a New and Better Good Replaced an Older and Less