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.

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Definitions:

Factor Of Production

An economic term describing the inputs used in the production of goods or services in the attempt to make an economic profit. These include land, labor, capital, and entrepreneurship.

Equity

The concept of fairness and justice in treatment, sharing, and opportunity, or ownership interest in an asset or business.

Employment Laws

Regulations and legal standards governing the relationship between employers and employees, covering aspects like hiring, working conditions, and workplace discrimination.

Worker Rights

The entitlements and protections provided to workers, such as fair wages, safe working conditions, and the right to organize and bargain collectively.