Question

The substitution bias in the consumer price index refers to the idea that consumers​ ______ the quantity of products they buy in response to​ price, and the CPI does not reflect this and​ ________ the cost of the market basket.

Answer 1

Answer:

change; over-estimates

Explanation:

Substitution bias refers to a tendency in which economic index numbers don't include information about the changes in consumer spending when they switch expensive products for cheaper ones or buy less units as prices change. This changes are not reflected in the market basket from which the CPI is built which can cause inflation rates to be over-estimated.