A price relative was computed for houses. The base period is 2005. The price relative in 2010 was 130. The interpretation of the price relative is that
A)there has been a 130% increase in the price of houses from 2005 to 2010.
B)there has been a 30% increase in the price of houses from 2005 to 2010.
C)the price of houses in 2010 was $130 higher than the price in 2005.
D)It is impossible to interpret the index.

Question

Quizplus · Accepted Answer

The price relative is a ratio that expresses the price of a good in a given period relative to its price in a base period, multiplied by 100. Therefore, a price relative of 130 means that the price of houses in 2010 was 130% of the price in 2005, or a 30% increase from the base period. Choice A is incorrect because it implies a 130% increase from the base period, which is not the case. Choice C is incorrect because the price relative is not a dollar amount. Choice D is incorrect because the index is a useful tool to measure changes in prices over time.

A Price Relative Was Computed for Houses