In Constructing the CPI,the ABS Has to Deal with Commodity

question 62

Multiple Choice

In constructing the CPI,the ABS has to deal with commodity substitution bias,which is defined as

• A)consumers' substitution of cheaper goods for goods whose prices increase.
• B)the bias from new goods being introduced that are more expensive than older goods.
• C)the bias that arises because the ABS changes the CPI market basket each month.
• D)consumers' substitution of discount stores for full service stores to avoid the higher prices in the full service stores.
• E)the bias from quality changes in existing products that cause prices to increase.

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Definitions:

Endowment

The total resources available to an individual or entity, including income, assets, and wealth.

Consumption

The process by which goods and services are used up by consumers, reflecting a part of the economy concerned with spending on final goods and services.

Price Change

A variation in the cost of a good or service over time, which can increase (price rise) or decrease (price fall), affecting demand and supply dynamics.

Utility Function

A mathematical representation describing how a consumer ranks different bundles of goods according to the level of satisfaction (utility) they provide.