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

Question

Quizplus · Accepted Answer

The Consumer Price Index (CPI) might overstate the actual price level when a new and better good replaces an older and less expensive one because it does not fully account for the increase in quality. This can lead to the CPI indicating a higher price level than what consumers might experience in terms of improved product value.

If a New and Better Good Replaced an Older and Less