The "New Product Bias" in the Consumer Price Index Refers

question 280

Multiple Choice

The "new product bias" in the consumer price index refers to the idea that

• A)consumers switch to new goods when the prices of old goods increase, and the CPI overestimates the cost to consumers.
• B)consumers switch to old goods when the prices of new goods increase, and the CPI underestimates the cost to consumers.
• C)consumers prefer new goods, even if they are worse in quality than old goods, and this causes the CPI to underestimate the cost to consumers.
• D)new products' prices often decrease after their initial introduction, and the CPI is adjusted infrequently and overestimates the cost to consumers.
• E)new products are often over represented in the basket as consumers move quickly to adopt new technology and then buy fewer units as time passes.

---

Definitions:

Growth Rate

The rate at which a company's earnings or revenue increases over a certain period, often used as a measure of a company's financial health and potential for future expansion.

Intrinsic Value

The real or fundamental value of a stock, determined through analysis of the company's financials and potential.

Constant-Growth DDM

A version of the dividend discount model that assumes dividends grow at a constant rate indefinitely.

Dividend

Funds disbursed by a corporation to its owners, often from the company's profits, as a profit sharing.