Suppose there are two good types (Type 1 and Type 2)and suppose the weights for the types are 70% for Type 1 and 30% for Type 2. Suppose the Price Index for Type 1 is 200 and the Price Index for Type 2 is 100. The overall price index is

Question

Quizplus · Accepted Answer

To calculate the overall price index, we need to take a weighted average of the two price indexes, using the weights given for each type.

Overall Price Index = (Weight of Type 1 * Price Index for Type 1) + (Weight of Type 2 * Price Index for Type 2)
Overall Price Index = (0.7 * 200) + (0.3 * 100)
Overall Price Index = 140 + 30
Overall Price Index = 170

Therefore, the best choice is C as it gives the correct overall price index.

Suppose There Are Two Good Types (Type 1 and Type