Choose the Incorrect Statement

question 93

Multiple Choice

Choose the incorrect statement.

• A)When the quality of a good improves over time and as a result the price rises, the CPI counts the entire price rise as inflation and so overstates inflation.
• B)The outlet substitution bias injects an upward bias into the CPI.
• C)When relative prices change and people substitute to the lower priced good, the CPI ignores the substitution and the CPI overstates inflation.
• D)The CPI basket is updated monthly to allow for the introduction of new goods.
• E)All of the above statements are incorrect.

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Definitions:

Shutdown Point

The level of output and price at which a firm's total revenue just covers its variable costs; below this point, the firm would cease production.

Maximizing Losses

Contrary to economic rationality, refers to theoretical actions or strategies that would lead to the greatest possible financial losses.

Diminishing Returns

A principle stating that as more investment is made in a particular resource, the marginal gain in output will eventually decrease.

Fixed Factor

Inputs in production that cannot be easily increased or decreased in the short term, such as buildings and land.