Assume that the market basket of goods and services purchased in 2014 by the average family in Canada costs $14,000 in 2014 prices, whereas the same basket costs $21,000 in 2019 prices. However, the basket of goods and services actually purchased by the average family in 2019 costs $20,000 in 2019 prices, whereas this same basket would have cost $15,000 in 2014 prices. Given these data, a Paasche index for 2019 using 2014 prices would be:

Question

Quizplus · Accepted Answer

The Paasche index is calculated as the cost of the current basket at current prices divided by the cost of the current basket at base year prices. Here, it is $20,000 (2019 prices) / $15,000 (2014 prices) = 1.333, which is approximately 1.07 when rounded.

Assume That the Market Basket of Goods and Services Purchased