This preview shows page 1. Sign up to view the full content.
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
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...
View Full Document
This note was uploaded on 01/22/2014 for the course ECO 3352 taught by Professor Ax during the Fall '13 term at Troy.
- Fall '13