Commodity substitution bias in the CPI refers to the fact that the CPI
A)takes into account the substitution of goods by consumers when relative prices change.
B)takes no account of the substitution of goods by consumers when relative prices change.
C)substitutes relative prices for absolute prices of goods.
D)accounts for improved quality in price rises.
E)substitutes quality changes whenever they occur without taking account of the cost of the quality changes.

Question

Quizplus · Accepted Answer

Commodity substitution bias in the Consumer Price Index (CPI) occurs because the CPI does not account for the fact that consumers may substitute away from goods that have become relatively more expensive towards goods that have become relatively cheaper. This can lead to an overestimation of the cost of living.

Commodity Substitution Bias in the CPI Refers to the Fact