Which of the following statements best describes the substitution bias in the construction of the CPI?
A. Not taking into account that consumers alter their buying habits as new products come into being and lifestyles change, for example, the rising popularity of cell phones instead of land-line phones.
B. Not accounting for the fact that consumers are effectively getting more product for their money because technological changes have led to improvements in quality and lower production costs over time.
C. The failure to recognize that over time consumers alter the goods they buy, switching from relatively high priced goods toward lower-priced alternatives.
D. The failure to capture the fact that consumers have made substitutions in their shopping habits: shifting from high-priced department stores to lower-priced discount stores.
Ans: C. The failure to recognize that over time consumers alter the goods they buy, switching from relatively high priced goods toward lower-priced alternatives.
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Which of the following is not an example of intermediate goods or services?
a. Steel used in the manufacture of cars b. Pizzas bought at a restaurant c. Legal services hired by a public accounting firm d. Glass used to manufacture sunglasses e. Vegetables used by a restaurant
An economist is told that concentration in the cement industry has increased. He can safely conclude that
a. cement production must have fallen in the industry. b. competition in the cement industry has decreased. c. there are fewer cement producers than before. d. All of the above are correct.