2. For each of the following events, how would an economist using a 10-year-old market basket create a bias in measuring the change in the cost of living today?
A typical family owns more cars than it would have a decade ago. Over that time, the average price of a car has increased more than the average prices of other goods.
A market basket determined 10 years ago will contain fewer cars than at present. Given that the average price of a car has grown faster than the average prices of other goods, this basket will underestimate the true increase in the cost of living because it contains relatively too few cars.
Virtually no households had broadband internet access a decade ago. Now many households have it, and the price has regularly fallen each year.
A market basket determined 10 years ago will not contain broadband internet access. So it cannot track the fall in prices of internet access over the past few years. As a result, it will overestimate the true increase in the cost of living.