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 next. Assuming that the number sold remained constant , 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 next.  Assuming that the number sold remained constant , 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, we need to use the following formula:

Weighted index = (total cost of market basket in current year / total cost of market basket in base year) x 100

First, we need to calculate the total cost of the market basket for both years:

Total cost (1985) = (10 x 30) + (20 x 20) + (10 x 15) = 900

Total cost (2006) = (20 x 60) + (50 x 40) + (30 x 30) = 4200

Next, we can use the formula to calculate the weighted index:

Weighted index = (4200 / 900) x 100 = 466.67

Therefore, the answer is B) 214.5.

An Index of Clothing Prices for 2006 Based on 1985