The substitution bias come 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

Economics Mar 19, 2021

The substitution bias come 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.

Expert Solution

Answer

So, the correct option is 1st "Change, Over-estimates".

Explanation

When price increases, people tend to substitute the product with relatively cheaper product. This factor is not accounted in CPI. The subsitution bias in the CPI refers to the idea that consumers change the quantity of the products that they buy in response to the price, and the CPI doesn't reflect this and overestimates the cost of the

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