Problems with a fixed-weight price index include all of the following except one.Which is the exception?
A)the index utilizes prices from the base year only
B)the index does not account for relative price changes over time
C)price distortions only decrease when there is a long time period covered
D)base year does not include new products which came into existence later
E)the price index does not take into consideration quality changes

Question

Quizplus · Accepted Answer

Price distortions do not necessarily decrease with a longer time period covered because changes in relative prices can still occur within that time period. For example, if the price of one good increases faster than the price of another good, the fixed-weight price index will not reflect this change in relative prices.

Problems with a Fixed-Weight Price Index Include All of the Following