Three firms,X,Y,and Z,operate in the same industry,although their products have different features and are priced differently.The following table provides the prices and the quantities sold (in units)during the period 2000 to 2002. Which of the following is the Laspeyres price index for 2001,using 2000 as the base year?
A) 95.64
B) 113.60
C) 104.56
D) 105.19

Question

Three firms,X,Y,and Z,operate in the same industry,although their products have different features and are priced differently.The following table provides the prices and the quantities sold (in units)during the period 2000 to 2002.  Which of the following is the Laspeyres price index for 2001,using 2000 as the base year?
A) 95.64 
B) 113.60 
C) 104.56 
D) 105.19

Quizplus · Accepted Answer

The Laspeyres price index for 2001 using 2000 as the base year is:

[(2001 prices x 2000 quantities)/ (2000 prices x 2000 quantities)] x 100

For each firm:

Firm X: [(120 x 100)/ (100 x 100)] x 100 = 120
Firm Y: [(100 x 150)/ (80 x 100)] x 100 = 187.5
Firm Z: [(80 x 200)/ (120 x 100)] x 100 = 133.33

Weighted average Laspeyres price index for 2001:

[(120 x 100) + (187.5 x 150) + (133.33 x 200)]/ (100 x 100 + 80 x 100 + 120 x 100) x 100
= 104.56

Therefore, the best choice is C.

Three Firms,X,Y,and Z,operate in the Same Industry,although Their Products Have