Most economists believe there are four reasons the CPI overstates the true inflation rate. List and briefly explain these four reasons
What will be an ideal response?
1. The CPI suffers from substitution bias. When prices of certain products increase, consumers often substitute other, less expensive products for the products whose prices have gone up. The CPI does not take into account these changes in purchasing patterns.
2. The CPI suffers from a bias due to the introduction of new goods. Since the market basket is updated only every two years, new goods, whose prices often significantly decrease shortly after being introduced, may not be included in the market basket.
3. The CPI does not completely reflect changes in the quality of goods and services. For many products, quality increases over time, and the CPI does not fully adjust prices for changes in quality.
4. The CPI is subject to an outlet bias. Price data for the CPI is collected primarily from traditional retail outlets, so large discount stores are underrepresented in the sample of prices gathered for the CPI.
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Use the following saving schedule to answer the next question. 
As income falls from level 3 to level 2, the amount of
A. dissaving increases. B. saving increases. C. dissaving decreases. D. saving decreases.
When a regulatory agency uses rate of return regulation, the
A) agency is able to eliminate the deadweight loss. B) firm's managers have an incentive to inflate the firm's costs. C) regulated firm's profit must be maximized for the market to be efficient. D) regulated firm must receive a government subsidy. E) the agency is using a form of marginal cost pricing.
Bureaucratic capture occurs when:
A. lobbyist groups become so powerful that they essentially have a stranglehold on policymakers. B. professionals from one particular industry hold the majority of positions in one particular government office. C. industries become halted in their ability to continue operating due to over-regulation of the market. D. government positions are filled by people with close ties to the group they are supposed to regulate
If a firm with total revenue of $900,000 shuts down, we may conclude that its variable costs are _______.
Fill in the blank(s) with the appropriate word(s).