Interpretation of Laspeyres' Price Index
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Data for selected vegetables purchased at wholesale prices for 1995 and 2007 are shown below.
1995 1997
Price Quantity Price Quantity
Cabbage 0.06 2000 0.05 1500
Carrots 0.1 200 0.12 200
Peas 0.2 400 0.18 500
Broccolli 0.3 100 0.5 200
What is your interpretation of Laspeyres' price index?
Choose the right answer:
a. Prices rose 98.4%
b. Prices declined 1.6%
c. Prices rose 7.0%
d. Prices rose 8.0%
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Solution Summary
The solution provides a step by step method for the calculation of Laspeyres' price index. Formula for the calculation and interpretations of the results are also included.
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Answer
b. Prices declined 1.6%
Please see the attachment for all the work done to get the answer.
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