Let us reconsider the case of Ronald in Problem 4.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 is $1 and the price of good 2 is $3, and his current consumptions of good 1 and good 2 are 25 and 20 respectively, what is the Laspeyres price index of current prices relative to base year prices? (Pick the most nearly correct answer.) A)1 B)1.67 C)0.75 D)2.83 E)2.50

Question

Quizplus · Accepted Answer

The Laspeyres price index is calculated as the sum of the base year quantities multiplied by the current year prices, divided by the sum of the base year quantities multiplied by the base year prices. Using the given data:$$ \text{Laspeyres Price Index} = \frac{(1 \times 5 + 3 \times 15)}{(3 \times 5 + 1 \times 15)} = \frac{5 + 45}{15 + 15} = \frac{50}{30} = 1.67. $$

Let Us Reconsider the Case of Ronald in Problem 4