Difference between revisions of "Substitution bias"
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Latest revision as of 22:08, 2 June 2020
Substitution bias is an inflation rate calculated using a fixed basket of goods over time tends to overstate the true rise in the cost of living because it doesn't take into account that the person can substitute away from goods whose prices rise by a lot.
Definition
According to Principles of Economics by Timothy Taylor (3rd edition),
- Substitution bias. An inflation rate calculated using a fixed basket of goods over time tends to overstate the true rise in the cost of living because it doesn't take into account that the person can substitute away from goods whose prices rise by a lot.
