Final answer:
Yes, the absolute price of a good can rise while the relative price falls when the price of other goods rises even more rapidly, causing consumers to switch to relatively cheaper goods.
Step-by-step explanation:
It is indeed possible for the absolute price of a good to rise while the good's relative price is falling. This situation can occur when the price of a good increases in absolute terms but the price of other goods increases at an even faster rate, making the initial good relatively cheaper compared to the alternatives. For example, if the price of peaches increases by $100 per pound, but the prices of other fruits increase by more—say $200 per pound—the absolute price of peaches has risen, yet their relative price (compared to other fruits) has decreased. This means consumers might switch their consumption to peaches from the more expensive fruits. The substitution bias reflects a situation where consumers opt for goods that become relatively less expensive over time, thus the basket of goods representing their cost of living changes, potentially understating the true cost of living increases.