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Question:
The quality bias that arises when a Laspeyres index is used to calculate inflation can most likely be mitigated by:
A
Using hedonic pricing.
explanation
• Hedonic pricing refers to the practice of adjusting prices for quality improvements.
• The substitution bias can be mitigated by using chained price index formulas like the Fischer index.
• Introducing new products into the basket more regularly deals with the new product bias.
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