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Commodity substitution bias _______ when the CPI is calculated in 2021 using the 2020 market basket because _______.     A. exists; over time preferences change and people prefer to eat pizza rather than pasta     B. does not exist; pizza and pasta

Commodity substitution bias _______ when the CPI is calculated in 2021 using the 2020 market basket because _______.     A. exists; over time preferences change and people prefer to eat pizza rather than pasta     B. does not exist; pizza and pasta

Exploring Economics
Exploring Economics
8th Edition
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:Robert L. Sexton
Chapter18: Introduction To Macroeconomics: Unemployment, Inflation, And Economic Fluctuations
Section: Chapter Questions
Problem 17P
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Commodity substitution bias _______ when the CPI is calculated in 2021 using the 2020 market basket because _______.
 
 
A.
exists; over time preferences change and people prefer to eat
pizza
rather than
pasta
 
 
B.
does not exist;
pizza
and
pasta
are not substitutes
 
C.
exists; people switch from the relatively more expensive
pasta
to the relatively less expensive
pizza
 
D.
does not exist; the CPI market basket is updated frequently to eliminate substitution bias
 
Question 5 The BLS wants to check the CPI commodity substitution bias so they conduct a Consumer Expenditure Survey in 2020 and 2021. The table shows the survey results. 2020 Item Quantity Price Pizza 5 $4 Pasta 15 $3 2021 Quantity Price 10 $4 5 $6 The BLS sets the reference base year as 2020 and uses the market basket from 2020. Is there a commodity substitution bias in the CPI that uses the 2020 market basket?
Transcribed Image Text:Question 5 The BLS wants to check the CPI commodity substitution bias so they conduct a Consumer Expenditure Survey in 2020 and 2021. The table shows the survey results. 2020 Item Quantity Price Pizza 5 $4 Pasta 15 $3 2021 Quantity Price 10 $4 5 $6 The BLS sets the reference base year as 2020 and uses the market basket from 2020. Is there a commodity substitution bias in the CPI that uses the 2020 market basket?
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