CPI substitution bias from changing consumer behavior

Steps:

• Recall CPI tracks price changes in a fixed basket of goods weighted by average spending.
• Identify accuracy issues: CPI assumes fixed consumption patterns, ignoring behavioral shifts.
• Evaluate each option: Larger samples or better data enhance reliability; frequent updates align weights with reality; spending changes introduce unaccounted substitutions.
• Select the change causing bias: Shifting habits without basket adjustments overstates inflation.

Why C is correct:

• Household spending changes cause substitution bias, where consumers switch to cheaper alternatives, but CPI's fixed basket doesn't reflect this, overstating true cost-of-living increases per economic measurement principles.

Why the others are wrong:

• A: Larger sample improves survey representativeness, enhancing CPI precision.
• B: Easier accurate submissions yield better price data, boosting reliability.
• D: More frequent weight reviews better match current spending, reducing outdated biases.

Final answer: C