The "new product bias" in the consumer price index refers to the idea that
A)consumers switch to new goods when the prices of old goods increase, and the CPI overestimates the cost to consumers.
B)consumers switch to old goods when the prices of new goods increase, and the CPI underestimates the cost to consumers.
C)consumers prefer new goods, even if they are worse in quality than old goods, and this causes the CPI to underestimate the cost to consumers.
D)new products' prices often decrease after their initial introduction, and the CPI is adjusted infrequently and overestimates the cost to consumers.
E)new products are often over represented in the basket as consumers move quickly to adopt new technology and then buy fewer units as time passes.

Question

Quizplus · Accepted Answer

The "new product bias" in the consumer price index refers to the tendency of new products to have higher prices when they are first introduced and then decrease over time. However, the CPI is adjusted infrequently, which leads to an overestimation of their cost to consumers. Therefore, choice D is the correct answer.

The "New Product Bias" in the Consumer Price Index Refers