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

Question

Quizplus · Accepted Answer

A Paasche quantity index less than 1 indicates that the cost of the consumption bundle in period 1 is less than the cost of the consumption bundle in period 0. As such, the consumption bundle in period 0 is preferred to that of period 1. Therefore, choice D is the best answer.

If the Paasche Quantity Index Is Less Than 1, Then