The "substitution bias" of the CPI can be corrected partially by periodically updating the fixed basket of goods used in calculations.

Question

Quizplus · Accepted Answer

Updating the fixed basket of goods can help to account for changes in consumer preferences and market availability, therefore partially correcting the substitution bias in the CPI. By updating the fixed basket of goods, the CPI can better reflect changes in consumer spending patterns and reduce the substitution bias. However, this correction is only partial as it does not account for changes in quality or the introduction of new goods.

The "Substitution Bias" of the CPI Can Be Corrected Partially