Which of the following is an example of substitution bias in the consumer price index?
A) Consumers buy more apples and fewer pears when apples rise in price more rapidly than pears.
B) Consumers buy more apples and fewer pears when pears rise in price more rapidly than apples.
C) Consumers rely increasingly on government transfer payments during times of high inflation.
D) The government substitutes consumer support for military support during times of high inflation.

Question

Quizplus · Accepted Answer

Substitution bias occurs when consumers change their purchasing habits due to changes in relative prices, buying more of a good that has become relatively cheaper. In this case, when pears become more expensive compared to apples, consumers buy more apples and fewer pears, which is an example of substitution bias affecting the consumer price index.

Which of the Following Is an Example of Substitution Bias