Consumers begin purchasing houses incorporating steel studs instead of wooden studs after the price of lumber increases. Which of the following problems in the construction of the CPI does this situation best represent?

Question

Quizplus · Accepted Answer

This scenario illustrates substitution bias, where consumers switch from one product to another due to a change in relative prices. The CPI measure might not fully account for this substitution, leading to an overestimation of inflation in the housing sector.

Consumers Begin Purchasing Houses Incorporating Steel Studs Instead of Wooden