Assume that the market basket of goods and services purchased in 2004 by the average family in Canada costs $14,000 in 2004 prices,whereas the same basket costs $21,000 in 2014 prices.However,the basket of goods and services actually purchased by the average family in 2014 costs $20,000 in 2014 prices,whereas this same basket would have cost $15,000 in 2004 prices.Given this data,a Paasche index of 2014 prices relative to 2004 prices would be:
A) 1.05.
B) approximately 1.07.
C) approximately 1.33.
D) 1.50.

Question

Quizplus · Accepted Answer

The Paasche index is calculated as the ratio of the cost of a fixed basket of goods and services in the current period to the cost of the same basket in the base period, using current period prices. In this case, the cost of the basket in 2014 prices is $20,000, and the cost of the same basket in 2004 prices is $15,000. Therefore, the Paasche index is $20,000/$15,000 = 1.33.

Assume That the Market Basket of Goods and Services Purchased