Question

Samantha goes to the grocery store to make her monthly purchase of ginger ale. As she enters the soft drink section, she notices that the price of ginger ale has been increased 15 percent, so she decides to buy some peppermint tea instead. Which of the following problems in the construction of the CPI is this situation most relevant to?a) substitution bias.b) introduction of new goods.c) unmeasured quality change.d) income effect.

Answer 1

Answer:

The correct answer is A that is substitution bias

Explanation:

Substitution bias is the bias in the economic index numbers, if that do not incorporate the data on the consumer expenditures then the customer will switch from relatively more expensive products or items to the cheaper ones due to the change in the price.

As, the price of that produce has increased so, the customer shifted or preferred to buy the product which is cheaper in price. Therefore, it is referred to as the Substitution bias.