Question: In Virtual Reality, time travel became possible only in 3002. Economists in the Statistics Bureau decided to conduct a Consumer Expenditure Survey in both 3001

In Virtual Reality, time travel became possible only in 3002. Economists in the Statistics Bureau decided to conduct a Consumer Expenditure Survey in both 3001 and 3002 to check the substitution bias of the CPI. The table shows the results of the survey. It shows the items that consumers buy and their prices. The Statistics Bureau fixes the reference base year as 3001 and asks you to:

a. Calculate the CPI in 3002 using the 3001 CPI basket.
b. Calculate the CPI in 3002 using the 3002 CPI basket. I
c. Explain whether there is any substitution bias in the CPI that uses the 3001 basket.

3001 3002 ltem Quantity PricetyPrice Games 10 $30 5 $35 $4,000 Time Travel 0 10

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a Using the 3001 CPI basket the cost of the basket in 3001 is 300 and the cost of the bask... View full answer

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