Suppose the price of banana rises over time and consumers respond by buying fewer bananas. This situation contributes to which bias in the consumer price index?
A) substitution bias
B) transportation bias
C) quality bias
D) indexing bias

Question

Quizplus · Accepted Answer

The scenario described is an example of substitution bias, as consumers are substituting away from bananas due to their higher price. This bias refers to the fact that the CPI assumes consumers always purchase the same basket of goods and services, and does not account for changes in consumer behavior in response to changes in prices.

Suppose the Price of Banana Rises Over Time and Consumers