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:

Lawn-mowing

The process of cutting the grass in a yard or field to a uniform length, typically using a manual, electric, or gas-powered lawn mower.

Short-run Supply Curve

A graphical representation showing the relationship between the price of a good and the quantity supplied over a short period.

Perfectly Competitive

An alternative term for perfect competition, emphasizing a market scenario with many buyers and sellers and no barriers to entry.

Marginal Cost Curve

A graphical representation that shows how the cost of producing one more unit of a good or service varies as production increases.