What are the four main ways in which the CPI is an upward-biased ...

[abc]

What are the four main ways in which the CPI is an upward-biased measure of the price level?
 
  What will be an ideal response?

Question 2

Provide the definition for a regressive tax and give an example.
 
  What will be an ideal response?

[randomguy133]

Answer to Question 1

The CPI is biased upward because of the new goods bias; the quality change bias; commodity substitution bias; and outlet substitution bias. The new goods bias reflects the point that new goods, such as DVDs are generally more expensive than the old goods they replace, VHS tapes. The quality change bias points out that part of the reason goods and services rise in price is because their quality is improved. Commodity substitution bias occurs because consumers substitute away from goods and services that have risen in the price more than other goods and services. Outlet substitution bias occurs because consumers will use discount stores more frequently when goods and services rise in price.

Answer to Question 2

A regressive tax is one in which the burden, as expressed as a percentage of income, falls as income increases. Excise taxes are typically regressive because higher-income individuals save a larger fraction of their income

[abc]

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