In each of the following cases, explain clearly how the CPI might misrepresent changes in consumer prices (Commodity substitution bias, Introduction of new goods, or Unmeasured quality changes). In each case, speculate as to whether CPI overstates or understates consumer expenses. (c) Compared to 1970, households in 2015 took more vacations. (d) Food quality has deteriorated over time, even as consumers purchase the same amount.
In each of the following cases, explain clearly how the CPI might misrepresent changes in consumer prices (Commodity substitution bias, Introduction of new goods, or Unmeasured quality changes). In each case, speculate as to whether CPI overstates or understates consumer expenses. (c) Compared to 1970, households in 2015 took more vacations. (d) Food quality has deteriorated over time, even as consumers purchase the same amount.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
4. In each of the following cases, explain clearly how the
(c) Compared to 1970, households in 2015 took more vacations.
(d) Food quality has deteriorated over time, even as consumers purchase the same amount.
Expert Solution
Step 1
Option c) explaination
we would have consider the holiday or vacation taken by people wouldn't the a part of basket because it isn't under essential part of our life and usually we will used commodity.
Hence it's not has to be any impact on CPI.
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