As Inflation Drives Up Prices, People Attempt to Find Substitutes

question 176

Multiple Choice

As inflation drives up prices, people attempt to find substitutes and adjust what they buy. The resulting substitution bias problem causes the CPI to

• A) overstate the impact of higher prices on consumers.
• B) consistently underestimate the true inflation rate.
• C) omit the benefits of product quality improvements.
• D) have larger fluctuations than other price indexes.

---

Definitions:

Induction

The process of reasoning from specific cases to general principles or theories.

Premises

Statements or propositions put forward as a basis for reasoning or argument, leading to conclusions.

Conclusions

Conclusions are the final judgments, decisions, or statements made after considering all the facts, evidence, or details in an argument, story, or study.