An Example of the Commodity Substitution Bias in the Calculation

question 12

Multiple Choice

An example of the commodity substitution bias in the calculation of the CPI is a price increase in

• A)a 2012 Toyota Camry versus a 2005 Honda Civic.
• B)a GPS unit versus a AAA map book.
• C)new homes because people's incomes have increased.
• D)etexts versus used books bought through Craigslist.
• E)turkey when the price of chicken doesn't rise.

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Definitions:

Minimum Average Total Cost

The lowest point on the average total cost curve, representing the least cost per unit at which a firm can produce any given level of output.

Perfectly Competitive Firm

A firm operating in a market where there are many sellers and buyers, the product is homogeneous, and there are no barriers to entry or exit.

Industry Losses

The total amount by which the expenses and costs of businesses in a certain industry exceed their total revenues.

Economic Profits

The financial outcome derived from removing all explicit and implicit costs from the aggregate revenue.