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

Question

Quizplus · Accepted Answer

The new goods bias in the Consumer Price Index (CPI) occurs when new products, such as hybrid automobiles, enter the market. These products were not previously available and thus were not included in the CPI basket, potentially causing the CPI to overstate the increase in the cost of living by not accounting for the introduction of new and possibly more efficient goods.

An Example of the New Goods Bias in the CPI