An Example of the Commodity Substitution Bias in the Calculation

question 229

Multiple Choice

An example of the commodity substitution bias in the calculation of the CPI is a price increase in

• A)turkey when the price of chicken doesn't rise.
• B)a GPS unit versus a AAA map book.
• C)a 2014 Toyota Camry versus a 2005 Honda Civic.
• D)etexts versus used books bought through Craigslist.
• E)new homes because people's incomes have increased.

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Definitions:

Economic Decisions

Choices made by individuals, businesses, and governments regarding resource allocation, production, and consumption, influenced by economic conditions and objectives.

Payroll Tax

Financial demands on employers and employees, typically derived as a percentage of the remunerations paid to staff.

Labor Supply

The total hours that workers are willing to work at a given wage rate, influenced by various factors like salaries, working conditions, and demographics.

Excess Burden

Excess burden is the economic loss society incurs as a result of tax inefficiencies, beyond the tax itself, often due to distorted economic behaviors.