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

Question

Quizplus · Accepted Answer

The commodity substitution bias refers to the tendency of consumers to substitute away from goods that have become relatively more expensive in favor of goods that have become relatively cheaper. This behavior is not accurately captured in some measures of inflation, leading to an overestimation of the cost of living.

The Commodity Substitution Bias Is That