The Table Below Is the Laspeyres Price Index for a Basket

question 5

Essay

The table below is the Laspeyres price index for a basket of goods related to the Computer IT industry. $\begin{array}{|c|c|c|c|c|c|c|c|c|c|c|c|c|c|}\hline \text { Year } & 1988 & 1989 & 1990 & 1991 & 1992 & 1993 & 1994 & 1995 & 1996 & 1997 & 1998 & 1999 & 2000 \\\hline \begin{array}{l}\text { Base } \\1988\end{array} & 100 & 101.5 & 104.2 & 103.9 & 106.2 & 107.8 & 107.9 & 108 & 108.5 & 109 & 110 & 111.5 & 112 \\\hline \begin{array}{l}\text { Base } \\1988\end{array} &\\\hline\\\\\hline \text { Year } & 2001 & 2002 & 2003 & 2004 & 2005 & 2006 & 2007 & 2008 & 2009 & 2010 & 2011 & 2012 & 2013 \\\hline \begin{array}{l}\text { Base } \\1988\end{array} & 112.4 & 113.1 & 114 & 115.4 & 117 & 119.2 & 121.6 & 123.8 & 124.9 & 125.6 & 129.3 & 132.8 & 138.9 \\\hline \begin{array}{l}\text { Base } \\2005\end{array} &\\\hline\end{array}$ (a) Calculate and interpret the percentage price change from 2005 to 2013, using the 1988 base
index.
(b) Change the base of this index series to 2005. Explain why a base change may be useful.
(c) Using the series with base 2005 that you created in part (b) recalculate the percentage price change from 2005 to 2013. Interpret.
(d) Compare your answers from parts (a) and (c), in particular explain which value is a change in percentage points and which value is the percentage change.

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Definitions:

Written Agreement

A legally binding document outlining terms, conditions, rights, and duties agreed upon by two or more parties.

Collective Ownership

A situation where assets or property are owned jointly by a group or community, typically managed and controlled democratically.

Public Ownership

Organization owned and operated by a unit or agency of government.

Employee Ownership

Business ownership in which workers own shares of stock in the company that employs them.