Data for fuel oil and gasoline purchased at wholesale prices for 2006 and 2010 are shown below. What is your interpretation of Laspeyres' price index?

Question

Data for fuel oil and gasoline purchased at wholesale prices for 2006 and 2010 are shown below.  What is your interpretation of Laspeyres' price index?

Quizplus · Accepted Answer

Laspeyres' price index is calculated by using base year quantities and current year prices. In this case, the base year is 2006 and the current year is 2010. The value of the Laspeyres' price index is calculated by taking the ratio of the total value of the current year prices to the total value of the base year prices, using base year quantities.

Laspeyres' price index = (Σ(current year prices * base year quantities) / Σ(base year prices * base year quantities)) * 100

Plugging in the numbers from the table:

Laspeyres' price index = ((4.74 * 150) + (2.95 * 250)) / ((4.10 * 150) + (2.73 * 250)) * 100
= 1.914 / 1.616 * 100
= 116.943

Therefore, the Laspeyres' price index rose by 16.71%. The answer is C.

Data for Fuel Oil and Gasoline Purchased at Wholesale Prices