The substitution bias in the consumer price index refers to the Group of answer choices substitution by consumers toward new goods and away from old goods. substitution by consumers toward a smaller number of high-quality goods and away from a larger number of low-quality goods. substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive. substitution of new prices for old prices in the CPI basket of goods and services from one year to the next. None of the options is correct.

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24-03-2020
Business

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The substitution bias in the consumer price index refers to the Group of answer choices substitution by consumers toward new goods and away from old goods. substitution by consumers toward a smaller number of high-quality goods and away from a larger number of low-quality goods. substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive. substitution of new prices for old prices in the CPI basket of goods and services from one year to the next. None of the options is correct.

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Answer:

The answer is C. substitution by consumers toward goods that have become relatively less expensive and away from goods that have become relatively more expensive

Explanation:

The law of demand states the higher the price of a particular good, the lower the quantity demanded for that good and the lower the price of that good, the higher the quantity demanded for the good. This can also be the effect of substition.

Substitution effect or substitution bias tells us that customers prefer cheaper goods.

For example, Coke and Pepsi are substitute goods. If the price of Coke increases, other things remaining equal, customers will stop buying coke and shift to buying pepsi.