Remember That the Laspeyres Price Index Uses the Old Quantities

question 38

Multiple Choice

Remember that the Laspeyres price index uses the old quantities for the weights. In 1991, good x cost $2 and good y cost $1. The current price of good x is $6 and the current price of good y is $2. In 1971 the consumption bundle was (x, y) = (3, 6) . The current consumption bundle is (x, y) = (6, 4) . The Laspeyres index of current prices relative to 1991 prices is closest to which of the following numbers?

• A) 2.50
• B) 3.67
• C) 2.75
• D) 0.27
• E) 1.27

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