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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