Question

When the price of a good rises, consumers tend to purchase less of it and buy a relatively less expensive good. This behavior creates ____________ bias in the CPI, so the Bureau of Labor Statistics makes adjustments to the fixed basket of goods.

Answer 1

Answer:substitution

Explanation:The substitution bias is a weakness in the Consumer Price Index that overstates inflation because it does not account for the substitution effect, when consumers choose to substitute one good for another after its price becomes cheaper than the good they normally buy.

when the price of a product in the consumer basket increases substantially, consumers tend to substitute lower-priced alternatives.