Assume that the base period for CPI calculations is 1980. In Australia in 2016, around 30% of people accessed the Internet through a broadband connection that did not exist in the 1980s. This potential for bias in the CPI is referred to as ________ bias and results in ________.
A)outlet; the CPI underestimating the true change in the cost of living
B)new product; the CPI overestimating the true change in the cost of living
C)outlet; the CPI overestimating the true change in the cost of living
D)net product; the CPI underestimating the true change in the cost of living

Question

Quizplus · Accepted Answer

This is an example of new product bias. When new products like broadband internet are introduced after the base period, they are not included in the CPI basket of goods and services. This can lead to the CPI overestimating the true change in the cost of living because it does not account for the utility or value that consumers derive from new products.

Assume That the Base Period for CPI Calculations Is 1980