Substitution bias
A) is one factor that causes the Consumer Price Index to underestimate the inflation rate
B) is caused by the poor quality of many products
C) is one of the primary causes of inflation
D) involves consumer behavior that helps explain why the Consumer Price Index overestimates the inflation rate
E) suggests most economists substitute other price indices for the flawed Consumer Price Index

Question

Quizplus · Accepted Answer

Substitution bias occurs when consumers change their purchasing habits in response to changes in relative prices, which can lead the Consumer Price Index (CPI) to overestimate the cost of living by not fully accounting for these substitutions.

Substitution Bias