Question

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called A. price-change neglect. B. substitution bias. C. relative bias. D. unmeasured quality change.

Answer 1

Answer: Option B , substitution bias

Explanation: The consumer choice theory in subject matter of economics states that if there exist a good which has its alternative in the market, then the increase in price of that particular good results in shift in demand to its alternative good and decrease in its own demand. Therefore overtime consumer spends their income more on relatively cheap goods and less on expensive goods.