The reason the growth in the standard of living has been…
““The reason the growth in the standard of living has been understated is that the Consumer Price Index (CPI) recorded price changes for each type of merchant separately and did not compare prices between types of merchants. Thus if the price of a box of Kellogg’s corn flakes remained fixed at twenty cents in March and April in a traditional store and was seventeen cents in a nearby A&P store newly opened in April, the price would be treated as fixed. This error in the CPI is called “outlet substitution bias” and has continued in the past three decades as Walmart has opened stores that charge less for groceries than traditional supermarkets do.””
About This Quote
This interpretation was drafted with AI assistance. It is one reading of the quote, not the author's own explanation.
The CPI understates living‑standard growth because it ignores price differences between store types, leading to outlet substitution bias as cheaper retailers expand.
In simple terms: CPI misses price gaps between stores, understating real growth.
Key Takeaway
Adjust price indices to compare across merchant types.
Themes
economics
inflation
measurement
policy
retail
Mood
analytical
critical
informative
Type
statistical
economic
policy
When to use this quote
- government statistics
- policy analysis
- retail market research
- academic teaching
Key Concepts
price index methodology
substitution bias
standard of living
Questions to Reflect On
- How might policy change if the bias were corrected?
A Different Perspective
Does the bias overstate inflation for consumers?