HW chap 6-8

224 thecostofjunesbundleinaugustis 1505200204750

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Unformatted text preview: d­weight index that is based on the consumption bundle actually purchased in the base period. It tells us whether the cost of the base­period consumption bundle has risen or fallen and by how much. Expenditures in June at June's prices are: (1.00)5 + (1.20)20 = \$29.00. 5 ounces of sunscreen and 20 gallons of lemonade is the base bundle, where the Laspeyres index equals 1.000. The cost of June's bundle in July is: (1.10)5 + (1.50)20 = \$35.50. This is a difference (from June to July) of 35.50 – 29.00 = \$6.50, or 6.50 / 29.00 = 22.414 percent, so the Laspeyres index for July is 1.224. The cost of June's bundle in August is: (1.50)5 + (2.00)20 = \$47.50. This is a difference (from July to August) of 47.50 – 35.50 = \$12.00, or 12.00 / 35.50 = 33.803 percent, so the Laspeyres index for August, which is 33.803 percent higher than for July, is 1.638. Expenditures in July at July's p...
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This note was uploaded on 01/22/2014 for the course ECO 3352 taught by Professor Ax during the Fall '13 term at Troy.

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