When the price of gasoline rises, some consumers begin riding their bikes more frequently or riding the bus 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.
E)new product bias.

Question

Quizplus · Accepted Answer

The situation described in the question refers to substitution bias, which occurs when consumers switch to lower-priced alternatives as the price of a good increases, but this shift is not fully accounted for in the CPI. As a result, the CPI may overstate the true inflation rate if it does not reflect changes in consumer preferences and behaviors. Outlet bias refers to the fact that CPI measures prices from specific retail outlets that may not represent the overall market; increase in quality bias occurs when the CPI does not fully account for improvements in product quality over time; discrimination bias and new product bias are not relevant to the situation described in the question.

When the Price of Gasoline Rises, Some Consumers Begin Riding