Consumer Price Index and the Substitution Bias


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What happens if the rate of inflation as reported by the Consumer Price Index is 3%?

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1. Which of the following statements is FALSE regarding the Substitution Bias?

2. Why does the Substitution Bias occur?

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About This Quiz & Worksheet

This quiz/worksheet combo will assess your understanding of the Substitution Bias and the Substitution Effect, an important principle in relation to consumer behavior. Topics you will need to be familiar with to pass the quiz include the CPI and inflation.

Quiz & Worksheet Goals

See what you know about the following:

  • Facts about the Substitution Bias
  • Why the Substitution Bias occurs
  • Interpreting inflation rates
  • Definition of the Substitution Bias
  • What the Substitution Bias does to the CPI

Skills Practiced

  • Problem solving - use acquired knowledge to interpret inflation rate practice problems
  • Interpreting information - verify that you can read information regarding effects on the CPI and interpret it correctly
  • Reading comprehension ensure that you draw the most important information from the related lesson on the Substitution Bias

Additional Learning

Review the accompanying lesson titled Consumer Price Index and the Substitution Bias for further detail. This lesson covers the following objectives:

  • Define inflation
  • Learn how inflation and the CPI relate
  • Review the law of demand