11) An example of the quality change bias, and not a new goods bias, in the calculation of the CPI is a price increase in
A) Coke versus Pepsi.
B) DVDs purchased on Craigslist, an online classified website.
C) a 2011 GPS unit versus a 2008 GPS unit.
D) etexts versus used books .
E) pants purchased by a first-time shopper at Aeropostale.
12) The quality change bias is most likely to put ________ into the CPI and so ________ the inflation rate.
A) a downward bias; understate
B) an upward bias; understate
C) an upward bias; overstate
D) a downward bias; overstate
E) a random bias; randomly overstate or understate
13) When discussing the CPI, the term "commodity substitution bias" refers to changes in
A) prices that lead business to change the items they buy.
B) quantities that lead households to change the items they buy.
C) prices that lead households to change the items they buy.
D) income that lead households to change the items they buy.
E) stores so that consumers switch from one store to another.
14) The commodity substitution bias is most likely to put ________ into the CPI and so ________ the inflation rate.
A) a downward bias; understate
B) an upward bias; understate
C) an upward bias; overstate
D) a downward bias; overstate
E) a random bias; randomly overstate or understate
15) The CPI overstates inflation because the average consumer buys
A) the same basket of goods every week.
B) more of those goods whose relative price has risen.
C) less of those goods whose relative price has risen.
D) lower quality goods if they have a choice.
E) a generally random assortment of goods and services each week because what is purchased depends on what the consumer needs.
16) In constructing the CPI, the BLS has to deal with commodity substitution bias, which is defined as
A) consumers' substitution of discount stores for full service stores to avoid the higher prices in the full service stores.
B) consumers' substitution of cheaper goods for goods whose prices increase.
C) the bias from quality changes in existing products that cause prices to increase.
D) the bias from new goods being introduced that are more expensive than older goods.
E) the bias that arises because the BLS changes the CPI market basket each month.
17) The fact the consumers substitute one good for another when prices change is
A) taken into account by the fixed market basket used in calculating the CPI.
B) not taken into account by the fixed market basket used in calculating the CPI.
C) not important to economists.
D) a reason why the CPI is used to calculate inflation rates.
E) a reason why the CPI understates the actual change in the cost of living.
18) When the price of broccoli increase relative to cauliflower, people who buy fresh vegetables respond by buying more cauliflower and fewer broccoli. As a result, the CPI has a
A) new goods bias.
B) quality change bias.
C) commodity substitution bias.
D) outlet substitution bias.
E) new price bias.
19) Suppose the Bureau of Labor Statistics uses Ballpark Franks as the hot dogs used when calculating the consumer price index. During 2012, Oscar Mayer aggressively reduces prices. Consumers respond by purchasing more Oscar Mayer and less Ballpark Franks. The 2012 CPI is likely to
A) overstate the average prices paid by consumers.
B) overstate the average prices paid by businesses.
C) understate the average prices paid by consumers.
D) understate the average prices paid by businesses.
E) neither understate nor overstate the average prices because some consumers will still buy Ballpark Franks.
20) An example of the commodity substitution bias in the calculation of the CPI is a price increase in
A) turkey when the price of chicken doesn't rise.
B) a GPS unit versus a AAA map book.
C) a 2012 Toyota Camry versus a 2005 Honda Civic.
D) etexts versus used books bought through Craigslist.
E) new homes because people's incomes have increased.
