The Laspeyres index of prices in period 2 relative to period 1 tells us the ratio of the cost of buying the period 1 bundle at period 2 prices to the cost of buying the period 1 bundle at period 1 prices.

Question

Quizplus · Accepted Answer

The Laspeyres price index measures the change in the cost of purchasing a fixed basket of goods and services, representative of a specific base period's consumption patterns, at current period prices compared to the base period prices. Thus, it indeed compares the cost of the period 1 bundle at period 2 prices to the cost of the same bundle at period 1 prices.

The Laspeyres Index of Prices in Period 2 Relative to Period