One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called[Fill in the blank]

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The question states: One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called[Fill in the blank]

Question options:
a. relative bias.
b. unmeasured quality change.
c. price-change neglect.
d. substitution bias.

Now let's evaluate each option one by one in light of the described problem.

Option a: relative bias. This is not a standard term used in CPI measurement. The description in the prompt points to a specific established issue where consumers shift purchases toward cheaper relative prices, not a general “relative bias.” Therefore this option mislabels the phenomenon.

Option b: unmeasured quality change. Unmeasured quality change is a concern in price indexes when the quality of goods changes over time in ways that aren’t fully captured, leading to bias. However, the scenario described emphasizes changes in purchasing due to relative prices, not changes in quality of goods themselves. Thus this option does not match the given description.

Option c: price-change neglect. This term would imply ignoring changes in prices altogether, which is not what the CPI does. The CPI tracks price changes, but the issue described is about substitution across items as relative prices shift. So this option is not appropriate.

Option d: substitution bias. Here, the problem is precisely that consumers substitute toward goods that have become relatively cheaper and away from those that have become relatively more expensive over time, while the CPI uses a fixed basket. This fixed-basket approach fails to capture substitutions, causing substitution bias. This aligns exactly with the described phenomenon.

In sum, the described issue—consumers changing quantities in response to relative price changes, i.e., substituting toward cheaper goods—matches the well-known substitution bias in CPI calculations. The other options do not correctly identify this specific effect: they either refer to different concepts (quality change) or use terms that do not describe the substitution behavior shown in the prompt.

One problem with the consumer price index stems from the fact that, over time, consumers tend to buy larger quantities of goods that have become relatively less expensive and smaller quantities of goods that have become relatively more expensive. This problem is called[Fill in the blank]

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