When the price of petrol rises, some consumers begin riding their bikes more frequently or taking public transport instead of driving their cars. The fact that the CPI does not fully account for such changes in consumer behaviour is called:
A)outlet bias.
B)increase in quality bias.
C)substitution bias.
D)discrimination bias.

Question

Quizplus · Accepted Answer

The scenario described is an example of substitution bias. The CPI does not fully capture changes in consumer behavior when prices of certain goods or services increase, such as when consumers switch to more affordable alternatives like riding a bike or taking public transportation instead of driving a car. This can result in an overestimation of the inflation rate measured by the CPI.

When the Price of Petrol Rises, Some Consumers Begin Riding