If the Laspeyres quantity index is less than 1, then:
A)the consumption bundle in period 1 is preferred to that of period 0.
B)the consumption bundles cannot be compared.
C)both consumption bundles are equally preferred.
D)the consumption bundle in period 0 is preferred to that of period 1.

Question

Quizplus · Accepted Answer

A Laspeyres quantity index less than 1 indicates that the consumption bundle from the base period (period 0) is preferred to that of the comparison period (period 1). This is because the index measures the cost of the comparison period's consumption relative to the cost of the base period's consumption, and if it is less than 1, it means the cost of the comparison period's consumption has decreased. Therefore, the consumption bundle from the base period is relatively cheaper and thus preferred.

If the Laspeyres Quantity Index Is Less Than 1, Then