Question

Consumers begin purchasing houses incorporating steel studs instead of wooden studs after the price of lumber increases. Which problem in the construction of the CPI does this situation best represent?

Select one:

a.

substitution bias

b.

introduction of new goods

c.

unmeasured quality change

d.

income bias

Answer 1

If We talk in simple terms then consumer price index measures the sum of market basket of goods and services that is consumed by the consumers

it has some limitations like substituition bias ,problems with the introduction of new goods and it does not measure the quality change as well

in the given question since price of limber increases so people are purchasing more steel studs so this represents the substitution bias because people are substituting the steel instead of wooden studs

the correct answer here is option a