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Substitution Bias - Explained

What is Substitution Bias?

Written by Jason Gordon

Updated at March 28th, 2023

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What is Substitution Bias?

A fixed and unchanging basket of goods assumes that consumers are locked into buying exactly the same goods, regardless of price changes—not a very likely assumption. Thus, substitution bias—the rise in the price of a fixed basket of goods over time—tends to overstate the rise in a consumer’s true cost of living, because it does not take into account that the person can substitute away from goods whose relative prices have risen.

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