Final answer:
The greatest bias is found in the CPI because it does not accurately adjust for the introduction of new goods and improvements in the quality of existing items, which can result in an overstatement of the rise in the cost of living.
Step-by-step explanation:
The price index with the greatest bias is the CPI because it does not accurately reflect the change in cost of living due to its failure to account for new goods and quality improvements. The Consumer Price Index (CPI) measures the prices of goods and services purchased by the typical urban consumer, which corresponds to items people typically buy with their paycheck. However, it has been criticized for not including new goods in its measure, which can provide better value for money compared to existing goods. Moreover, the CPI may miss out on recording price declines when new goods are not included from the start and their prices drop over time. This quality/new goods bias suggests that the CPI has a tendency to overstate the rise in the cost of living by not taking into account how enhancements to existing goods or the introduction of new ones improve the standard of living.
While the Personal Consumption Expenditures (PCE) index is another measure of inflation that adjusts for changes in consumer behavior and the introduction of new goods more frequently than the CPI, it could also have biases in other areas. Nonetheless, according to the given information, the biases in the CPI are more profound due to its measurement methodology lacking adaptability to changes in the market and consumer behavior. In contrast, the GDP deflator adjusts for what is actually purchased in a given year, avoiding the biases that the CPI and PPI face.