The Consumer Price Index (CPI)

question 45

Multiple Choice

The Consumer Price Index (CPI) :

• A)Tends to understate the impact of price changes
• B)Tends to overstate the impact of price changes due to substitution bias
• C)Is more accurate than the GDP deflator
• D)Assumes that consumers substitute away from cheaper goods

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Definitions:

World Price

The global equilibrium price of a good or service determined by worldwide supply and demand.

Consumer Surplus

Consumer surplus refers to the difference between what consumers are willing to pay for a good or service and what they actually pay.

Producer Surplus

The difference between what producers are willing to accept for a product versus what they actually receive, usually seen as a measure of producer welfare.

Export Sector

The part of a country's economy that is involved in producing goods and services for sale in foreign markets.