Data for selected vegetables purchased at wholesale prices for 1995 and 2007 are shown in the following table. What is the Paasche price index?
A)98.4
B)107.0
C)108.0
D)117.5

Question

Data for selected vegetables purchased at wholesale prices for 1995 and 2007 are shown in the following table.  What is the Paasche price index?
A)98.4 
B)107.0 
C)108.0 
D)117.5

Quizplus · Accepted Answer

To calculate the Paasche price index, we use the formula: 
Paasche Price Index = (Current year prices * Current year quantities) / (Base year prices * Current year quantities)

For this question, we will use 1995 as the base year. 
For the selected vegetables, the total value of purchases in 1995 was: 
($0.45 x 145) + ($0.57 x 24) + ($0.95 x 30) + ($0.90 x 54) = $85.50

For the selected vegetables, the total value of purchases in 2007 was: 
($1.49 x 245) + ($1.29 x 72) + ($1.49 x 42) + ($1.29 x 98) = $661.49

Therefore, the Paasche price index is: 
(661.49 / 85.50) x 100 = 107.0
So, the best choice is B.

Data for Selected Vegetables Purchased at Wholesale Prices for 1995