Changes in relative prices lead consumers to change the items they buy. For example, if the price of beef rises and the price of chicken remains unchanged, people buy more chicken and less beef. Suppose they switch from beef to chicken on a scale that provides the same amount of protein and the same enjoyment as before and their expenditure is the same as before. The price of protein has not changed. But because it ignores the substitution of chicken for beef, the CPI says the price of protein has increased.
CFA Institute, comp. Economics: CFA Program Curriculum, Volume 2. Boston: Pearson Custom Publishing, 2008.
I hate this argument. It’s no different from saying:
Because the price of beef went up, I bought less beef, so the price of beef didn’t go up.
Furthermore, “provides … the same enjoyment as before” is impossible to measure and unlikely to ever be achieved. I like beef more than chicken; no amount of chicken will ever provide me the same enjoyment as a good ribeye.
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