By how much does the CPI overstate true increases in the cost of living, according to the Boskin Commission? What are the main reasons for this bias in the CPI? What are the economic implications of the bias?
What will be an ideal response?
The Boskin Commission reported that the CPI overstates inflation by 1 to 2 percentage points per year. The bias arises because of difficulty in measuring quality change (especially for services) and because the CPI doesn't account for the substitution that people make between goods when relative prices change. The bias implies that our measures of real income growth are understated and that Social Security benefits are being adjusted more than they should be to account for inflation.
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Nongovernmental organizations
a. provide aid from private sources b. help administer some government aid c. are often able to address sensitive issues that government agencies cannot d. are important sources of disaster relief funds e. all of the above
Pizza joints often offer substantially lower prices for pizza picked up at the shop compared to delivered pizza prices. This may be an attempt at
A) perfect price discrimination. B) group price discrimination. C) quantity discrimination. D) second-degree price discrimination.