Substitution Bias


Substitution bias is a possible problem with a price index. Consumers can substitute goods in response to price changes. For example when the price of apples rises but the price of oranges does not, consumers are likely to switch their consumption a little bit away from apples and toward oranges, and thereby avoid experiencing the entire price increase. A substitution bias exists if a price index does not take this change in purchasing choices into account, e.g. if the collection ("basket") of goods whose prices are compared over time is fixed.


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Econterms. "Substitution Bias." ThoughtCo, Jan. 29, 2020, Econterms. (2020, January 29). Substitution Bias. Retrieved from Econterms. "Substitution Bias." ThoughtCo. (accessed July 24, 2021).