Suppose manufacturers introduce a new model car to replace a car currently included in the CPI basket. The price of the new car is 10 percent higher than the discontinued model, but the new car has additional safety features and amenities. In this situation the CPI will tend to ________ inflation as a result of ________ bias.
A. accurately measure; substitution
B. understate; quality adjustment
C. overstate; quality adjustment
D. overstate; substitution
Answer: C
You might also like to view...
A currency is overvalued if its exchange rate vis-à-vis a foreign currency is:
A) at the equilibrium exchange rate. B) not pegged. C) below the equilibrium exchange rate. D) above the equilibrium exchange rate.
The total cost (TC) of producing computer software diskettes (Q) is given as: TC = 200 + 5Q. What is the marginal cost?
A) 200 B) 5Q C) 5 D) 5 + (200/Q) E) none of the above
Which of the following is not true for a monopoly?
A.) The demand curve for the monopoly and the market are the same. B.) It has no direct competitors. C.) It can use its market power to charge higher prices than a competitive firm. D.) It is a price taker.
The own-price elasticity of demand for oranges at the farm level is -0.3. Suppose that an unexpected freeze occurs resulting in a 6% drop in orange production. Orange prices will
A) Rise by 6%. B) Rise by 20%. C) Fall by 20%. D) Can't tell; insufficient information