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

question 2

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.

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Definitions:

Future Value

The value of an asset or amount of money at a specific date in the future, adjusted for factors like interest or inflation.

Market Rate

The interest rate available to most borrowers in the financial market, applied to loans or savings products.

Expected Profit

The forecasted or anticipated earnings from an investment or business activity, considering potential risks and returns.

Current Cost

The price that would be paid for goods or services if purchased in the current market, as opposed to historical cost.