An index of clothing prices for 2006 based on 1985 is to be constructed. The prices for 1985 and 2006 and the quantity consumed in 1985 are shown below. Assuming that the number sold remained constant, i.e., the same number were sold in 2006 as in 1985, what is the weighted index of price for 2006 using 1985 as the base?
A) 206.7
B) 214.5
C) 48.4
D) 46.6

Question

An index of clothing prices for 2006 based on 1985 is to be constructed. The prices for 1985 and 2006 and the quantity consumed in 1985 are shown below.  Assuming that the number sold remained constant, i.e., the same number were sold in 2006 as in 1985, what is the weighted index of price for 2006 using 1985 as the base?
A) 206.7 
B) 214.5 
C) 48.4 
D) 46.6

Quizplus · Accepted Answer

To calculate the weighted index of price for 2006 using 1985 as the base, we need to use the following formula:

Weighted price index = (total cost in current year / total cost in base year) x 100

The total cost in base year (1985) is simply the price multiplied by the quantity consumed:

Total cost base year = price 1985 x quantity 1985 = $3.50 x 600 = $2,100

Similarly, the total cost in the current year (2006) is:

Total cost current year = price 2006 x quantity 1985 = $7.50 x 600 = $4,500

Using these values, we can calculate the weighted price index as:

Weighted price index = (total cost in current year / total cost in base year) x 100
Weighted price index = ($4,500 / $2,100) x 100
Weighted price index = 214.3

Therefore, the best answer is B: 214.5, which is closest to our calculated value.

An Index of Clothing Prices for 2006 Based on 1985