When the Price of Broccoli Increases Relative to Cauliflower, People

question 64

Multiple Choice

When the price of broccoli increases relative to cauliflower, people who buy fresh vegetables respond by buying more cauliflower and less broccoli. As a result, the CPI has

• A) a new price bias.
• B) a new goods bias.
• C) an outlet substitution bias.
• D) a quality change bias.
• E) a commodity substitution bias.

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Definitions:

Relevant Range

The range of activity within which the assumptions about fixed and variable cost behaviors hold true.

Variable Cost

Costs that vary directly with the level of production or service provision, such as materials, labor, and utilities consumed in the production process.

Total Variable Cost

The sum of all costs that vary directly with the level of production or output, including materials and labor.

Period Costs

Period costs are expenses that are not directly tied to the production process and are expensed in the period they are incurred, such as selling, general, and administrative expenses.