In 2008, OPEC succeeds in raising world oil prices by 300 percent. This price increase causes inventors to look at alternative sources of fuel for internal-combustion engines. A hydrogen-powered engine is developed which is cheaper to operate than gasoline engines. Which problem in the construction of the CPI does this situation represent?

a. substitution bias and introduction of new goods

b. introduction of new goods and unmeasured quality change

c. unmeasured quality change and new goods.

d. income bias and substitution bias

Question

Business

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30 January, 18:43

In 2008, OPEC succeeds in raising world oil prices by 300 percent. This price increase causes inventors to look at alternative sources of fuel for internal-combustion engines. A hydrogen-powered engine is developed which is cheaper to operate than gasoline engines. Which problem in the construction of the CPI does this situation represent?

a. substitution bias and introduction of new goods

b. introduction of new goods and unmeasured quality change

c. unmeasured quality change and new goods.

d. income bias and substitution bias

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Answers (1)

Know the Answer?

Molly Brooks · Answer 1

Option "A" is the correct answer to the following statement.

Explanation:

In Industries, when the price of one manufacturing factor increase, then Inventors try to create new better and cheap substitution for that factor.

In Substitution bias, a customer needs a cheaper and better substitution for the substitute goods.

In the same manner, when new goods come into the market as substitution goods then the market of these new goods rapidly rises.