Which of the following is NOT a reason for why the pricing of new products can create a bias in the consumer price index?
A) The prices of new products often fall over time as efficiency in production increases.
B) The consumer price index market basket is not adjusted every year, and so it may not include new products.
C) The prices of new products often fall over time as they become more popular and are produced in larger quantities.
D) New products are a small portion of total products and thus have little impact on average prices.

Question

Quizplus · Accepted Answer

The consumer price index (CPI) can be biased due to the pricing of new products mainly because their prices often decrease over time due to increased efficiency and popularity (choices A and C), and because the CPI basket may not be updated frequently to include new products (choice B). However, the impact of new products on the CPI is not minimized by their being a small portion of total products; rather, the way they are integrated and how their prices change can significantly affect the CPI, making choice D incorrect.

Which of the Following Is NOT a Reason for Why