Assume that the market basket of goods and services purchased in 2004 by the average family in the United States costs $14,000 in 2004 prices, whereas the same basket costs $21,000 in 2009 prices. However, the basket of goods and services actually purchased by the average family in 2009 costs $20,000 in 2009 prices, whereas this same basket would have cost $15,000 in 2004 prices. Given this data, a Laspeyres price index of 2009 prices using 2004 as the base year would be:
A)1.05.
B)approximately 1.07.
C)approximately 1.33.
D)1.50.

Question

Quizplus · Accepted Answer

The Laspeyres price index is calculated by taking the cost of the base year basket at current year prices divided by the cost of the base year basket at base year prices. Here, it is $21,000 (2009 prices) / $14,000 (2004 prices) = 1.50.

Assume That the Market Basket of Goods and Services Purchased