Which of the Following Is True of a Price Index

question 38

Multiple Choice

Which of the following is true of a price index that uses a fixed market basket?

• A) It accurately predicts the impact of rising prices when purchases are made at superstores.
• B) It overstates the importance of items that fall in price.
• C) It takes into account changes in quality while computing price changes.
• D) It excludes new goods and services.

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Definitions:

Demand Elasticity

A measure of how much the quantity demanded of a good responds to a change in the price of that good, with high elasticity indicating a significant response.

Inelastic Demand

Refers to a situation where the demand for a product does not significantly change with a change in its price.

Elastic Supply

A condition where the quantity supplied of a good changes significantly due to a slight change in its price.

Subsidy

A financial aid or support extended by the government to an economic sector, business, or individual, often aimed at promoting economic and social policies.