The consumer price index is calculated using a fixed basket of goods. Will this always give an accurate representation of the changing cost of living to consumers? Why or why not?
The CPI tends to overstate inflation because it uses a fixed basket of goods. The fixed basket does not allow the CPI to take into account the fact that consumers will substitute cheaper goods for goods whose price is rising. When faced with rising prices, consumers are likely to alter the basket of goods that they consume.
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The market for smartwatches is becoming very competitive. The increase in competition in this market is an example of how the market responds to
A) changes in population. B) increases in income. C) changes in consumer tastes. D) decreases in the price of smartphones (a substitute for the product).
Which of the following is an example of an efficiency-equity trade-off faced by economic agents?
A) According to an article by in the American Journal of Public Health by Edward Kaplan and Michael Merson of Yale University School of Medicine, the federal government's current method of allocating HIV-prevention resources is not cost-effective. Instead of allocating resources to states in proportion to reported AIDS cases, resources should flow first to those activities that prevent more infections per dollar and then to less and less effective combinations of programs and populations until funds are exhausted, even if it means that some populations would be left without any prevention services. B) Concerned about the falling birth rate, the French government has pledged more money for families with three children, in an effort to encourage working women to have more babies. C) Some U.S. colleges are actively recruiting foreign students for their technology-based programs. D) All New York City art museums are considering adopting a free-admission policy for local residents one weekend per month.