The base period for CPI calculations is generally 2002.In 2014, 55% of Canadians had a smartphone, but in 2002 almost no one had a smartphone.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)new product; the CPI underestimating the true change in the cost of living
E)substitution; the CPI underestimating the true change in the cost of living

Question

Quizplus · Accepted Answer

The potential for bias in the CPI due to a new product such as smartphones, which did not exist in the base year of 2002, is referred to as a new product bias. This bias results in the CPI overestimating the true change in the cost of living, as it does not fully account for the increase in quality of life that new products bring. Therefore, choice B (new product; the CPI overestimating the true change in the cost of living) is the best choice.

The Base Period for CPI Calculations Is Generally 2002