Consider the case of Ronald. Let the prices and consumptions in the base year be
ID: 1098904 • Letter: C
Question
Consider the case of Ronald. Let the prices and consumptions in the base year be as in
Situation D; where p1 = 3; p2 = 1; x1 = 5; and x2 = 15. If in the current year, the price of good 1
s1 and the price of good 2 is 2, and Ronald's current c consumptions of good 1 and good 2 are 25
and 25 respectively, what is the Laspeyres price index of current prices relative to base year prices?
(Pick the most nearly correct answer.) (please show work or explain. i already know the answer, just don't know how to get it )
(a) 1.17
(b) 2.50
(c) 0.75
(d) 0.50
(e) 1.75
Explanation / Answer
Laspeyres price index = sum of ( Pcurrent*Q base year)/sum of (p base year*Q base year)
= (1*5+2*15)/((3*5+1*15)
=35/30
=7/6
=1.17
ans: a)1.17