The price of a brand-name laptop is $1,000 in 2018 and $1,100 in 2019. How could this price rise inject a bias into the CPI? A. If students buy more generic laptops when brand-name laptops experience a rise in price but the BLS ignores this commodity substitution, then the CPI understates inflation. B. If students buy their laptops online instead of in brick-and-mortar stores but the BLS ignores this outlet substitution, then the CPI understates inflation.

The price of a brand-name laptop is $1,000 in 2018 and $1,100 in 2019. How could this price rise inject a bias into the CPI? A. If students buy more generic laptops when brand-name laptops experience a rise in price but the BLS ignores this commodity substitution, then the CPI understates inflation. B. If students buy their laptops online instead of in brick-and-mortar stores but the BLS ignores this outlet substitution, then the CPI understates inflation.

Economics For Today

10th Edition

ISBN:9781337613040

Author:Tucker

Publisher:Tucker

Chapter17: Inflation

Section: Chapter Questions

Problem 5SQ

See similar textbooks

Similar questions

The weight of the item such as food or housing will determine the effect of price changes on CPI TRUE FALSE
The "pizza connection" refers to the observation that in a major city, the cost of a slice of pizza is always about the same as the subway fare. Using the CPI values from the table shown below and the CPI table, determine what a slice of pizza should have cost in 2009 if it cost $1.00 in 1984 and prices had risen with the CPI. What does this tell you about how actual pizza prices changed compared to the CPI? 1984 1993 1997 2002 Year Pizza Cost 2008 2011 2015 2.50 2.75 2.80 1.00 1.25 1.50 2.00 1.00 1.15 2.00 2.60 2.85 3.05 Subway fare CPI 1.40 144.5 160.5 179.9 215.3 224.9 103.9 237.0 Click to view the CPI Table. A slice of pizza should have cost $ in 2009 if it cost $1.00 in 1984 and prices had risen with the CPI. (Round to the nearest cent as needed.) Data table C Year 1976 56.9 1977 60.6 1978 65.2 1979 72.6 1980 82.4 1981 90.9 1982 96.5 1983 99.6 1984 103.9 1985 107.6 Average Annual Consumer Price Index (1982-1984=100) CPI CPI Year CPI 1996 156.9 Year 1986 109.6 1987 113.6 1988 118.3…
Over a long period of time, the price of a candybar rose from $0.20 to $1.20. Over the same period,the CPI rose from 150 to 300. Adjusted for overallinflation, how much did the price of the candy barchange?
Based on surveys conducted by the BLS, the CPI basket assigns a weight of approximately 15% to transportation spending. Suppose you walk to your workplace every day and you do not use any other means of transportation. With everything else the same, if the price of transportation services increases by 10%, by how much would the CPI increase? Is the CPI measuring the true change in your cost of living?
The table shows the quantities of the goods Suzie bought and the prices she paid during two consecutive weeks. Suzie's CPI market basket contains the goods she bought in Week 1. Calculate the cost of Suzie's CPI market basket in Week 1 and in Week 2. What percentage of the CPI market basket is gasoline? Calculate the value of Suzie's CPI in Week 2 and her inflation rate in week 2. The cost of her CPI market basket in Week 2 is $ 95.75. >>> Answer to 2 decimal places. Gasoline is 36.3 percent of the CPI market basket. >>> Answer to 1 decimal place. Week 1 Item The cost of Suzie's CPI market basket in Week 1 is $ 103.25. >>> Answer to 2 decimal places. The value of Suzie's CPI in Week 2 is >>> Answer to 1 decimal place. Coffee Books Gasoline Week 2 Item Coffee Books Gasoline Concert Quantity 13 cups 1 15 gallons Quantity 13 cups 2 5 gallons 1 ticket Price $2.75 a cup $30.00 each $2.50 a gallon Price $2.75 a cup $15.00 each $3.00 a gallon $95 each
What type of bias might be introduced if the CPI only represents the change in the price of a gallon of gas? A. new goods bias B. quality change bias C. commodity substitution bias D. outlet substitution bias
If the cost of apparel increases by 50 percent, then, other things the same, the CPI is likely to increase by about a)3.0 percent. b) 11.8 percent. c)1.5 percent. d) 0.5 percent.
What is the effect of the sources of bias on the CPI calculation? A. Changes in relative prices lead consumers to change the items they buy, and the CPI reflects this substitution. B. The new goods bias injects a downward bias into the CPI. C. When faced with higher prices, people use discount stores more frequently and convenience stores less frequently, but the CPI doesn't include this outlet substitution. D. When the quality of a good improves over time, the CPI doesn't include the portion of the price rise attributable to the higher quality in its calculation.
The "pizza connection" refers to the observation that in a major city, the cost of a slice of pizza is always about the same as the subway fare. Using the CPI values from the table shown below and the CPI table, determine what a slice of pizza should have cost in 2009 if it cost $1.00 in 1984 and prices had risen with the CPI. What does this tell you about how actual pizza prices changed compared to the CPI? Year 1984 1993 1997 2002 2008 2011 2015 1.00 1.25 1.50 2.00 2.50 2.75 2.80 1.00 1.15 1.40 2.00 2.60 2.85 3.05 103.9 Click to view the CPI Table. Pizza Cost Subway fare CPI 144.5 160.5 179.9 215.3 224.9 237.0 ← A slice of pizza should have cost $ in 2009 if it cost $1.00 in 1984 and prices had risen with the CPI. (Round to the nearest cent as needed.)
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
In the country of Solow, people buy only three things: food, rent, and luxury goods. Last year, the price of luxury goods went down, and the price of rent increased five percent. Overall CPI inflation increased 10%. What happened to the price of food? a) The price of food increased by exactly 10% b) The price of food increased by more than 10% c) The price of food increased by between 5% and 10% d) The price of food must have gone down e) None of these choices are correct
Question 17 One problem with the CPI is the "substitution bias," which refers to consumers buying more of a good that has become cheaper and less of a good that has become more expensive. Assume that consumers consider Pepsi and Coke to be substitutes, so that when the price of Coke increases, consumers purchase less Coke and more Pepsi. When the CPI is calculated following the increase in the price of Coke, the substitution bias causes the CPI to O understate inflation since both the increase in the price of Coke and the increase in the amount of Pepsi purchased enter the CPI calculation O understate inflation since only the decrease in the price of Pepsi enters the CPI calculation O overstate inflation since both the increase in the price of Coke and the decrease in amount of Coke purchased enter the CPI calculation overstate inflation since only the increase in the price of Coke enters the CPI calculation