By Not Taking into Account the Possibility of Consumer Substitution

question 148

Multiple Choice

By not taking into account the possibility of consumer substitution, how is the CPI biased?

• A) It understates the cost of living because people buy more of the newer goods.
• B) It overstates the cost of living because people buy more of the cheaper goods.
• C) It understates the cost of living because people have higher incomes and perceive some goods as inferior.
• D) It overstates the cost of living because people have higher incomes and perceive formerly luxury goods as necessities.

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Definitions:

Self-Imposed Budget

A budget created with the input and agreement of lower-level employees, aiming to increase accountability and performance.

Top Management

The highest level of management within an organization, responsible for setting strategic goals and ensuring their realization.

Adverse Behavioural Responses

Negative reactions or changes in behavior resulting from policies, actions, or conditions, often unintended consequences.

Production Budget

A financial plan that outlines the cost of producing the products a company plans to sell, including direct materials, labor, and overhead.