Let us reconsider the case of Ronald in Problem 4.Let the prices and consumptions in the base year be as in situation D, where p₁ = $3, p₂ = $1, x₁ = 5, and x₂ = 15.If in the current year, the price of good 1 is $1 and the price of good 2 is $2, and his current consumptions of good 1 and good 2 are 25 and 20 respectively, what is the Laspeyres price index of current prices relative to base year prices? (Pick the most nearly correct answer.) A)1.17 B)2.17 C)0.75 D)0.50 E)1.75

Question

Quizplus · Accepted Answer

Using Laspeyres price index formula:
$	ext{Laspeyres index}=\frac{\sum{p_1Q_0}}{\sum{p_0Q_0}}$
Where $p_1$ and $p_0$ are the current and base year prices respectively, and $Q_0$ is the base year quantity.
Plugging in the given values:
$	ext{Laspeyres index}=\frac{(1	imes 25) + (2	imes 20)}{(3	imes 5) + (1	imes 15)}=\frac{25+40}{15+15}=1.17$
Therefore, the most nearly correct answer is A) 1.17.

Let Us Reconsider the Case of Ronald in Problem 4