The substitution bias in the consumer price index occurs because a.the consumer price index assumes that consumers buy a fixed basket of goods when in fact consumers can substitute cheaper items for more expensive ones b.the consumer price index counts only price increases and ignores any price decrease c.the consumer price index includes the prices of only domestically produced goods when in fact consumers buy imported goods d.the consumer price index includes the prices of every good and service when in fact consumers do not typically buy every good and service

Consumer price index does not include imported goods.Therefore substitution bias occurs.

Answered: The substitution bias in the consumer…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The substitution bias in the consumer price index occurs because

	a.	the consumer price index assumes that consumers buy a fixed basket of goods when in fact consumers can substitute cheaper items for more expensive ones
	b.	the consumer price index counts only price increases and ignores any price decrease
	c.	the consumer price index includes the prices of only domestically produced goods when in fact consumers buy imported goods
	d.	the consumer price index includes the prices of every good and service when in fact consumers do not typically buy every good and service

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