A Quality-Change Bias in the Construction of the CPI Arises

question 143

Multiple Choice

A quality-change bias in the construction of the CPI arises because:

• A) new goods and services are routinely introduced and many of them are not incorporated into the market basket that makes up the CPI.
• B) big box stores that carry electronic goods routinely run sales to reduce their inventories before stocking new models.
• C) newer versions of a product might be more expensive but could also be better than the older version.
• D) consumers also shop at superstores or outlet stores.

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Definitions:

Investment Turnover

A ratio that measures the efficiency of a company in generating sales from its investments in assets.

Assets

The resources owned by a business.

Residual Income

The amount of income that an individual or company has after all personal debts and expenses, including a mortgage, have been paid.

Operating Income

Earnings before interest and taxes (EBIT), reflecting a company's profit from its core business operations.