Substitution Bias - Explained
What is Substitution Bias?
Written by Jason Gordon
Updated at March 28th, 2023
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
-
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
- Courses
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.
Related Topics
- Inflation
- Core Inflation
- Cost Push Inflation
- Demand Pull Inflation
- Wage Push Inflation
- Inflation Spiral (Wage-Price Spiral)
- Agflation
- Basket of Goods and Services
- Indexing and Index Number
- Base Year
- Consumer Price Index
- Substitution Bias
- Quality / New Goods Bias
- Core Inflation Index
- Producer Price Index
- International Price Index
- Employment Cost Index
- Buying Power Index
- Breakfast Index
- Employment Cost Index
- Producer Price Index
- Capital Goods Price Index
- Farm (Agricultural) Price Index
- Harmonized Index of Consumer Prices
- Repeated Sales Method (Real Estate)
- GDP Deflator
- Deflation
- Pigou Effect
- Hyperinflation (Economics)
- Biflation
- Inflation and Redistribution of Purchasing Power
- Inflation Blurs Price Signals
- Inflation Affects Long-Term Planning
- What are the Benefits of Inflation?
- Indexing and Index Number
- Cost of Living Allowance
- Adjustable Rate Mortgage