Let Us Reconsider the Case of Ronald in Problem 4

question 11

Multiple Choice

Let us reconsider the case of Ronald in Problem 4. Let the prices and consumptions in the base year be as in situation D, where p₁ = $3, p₂ = $1, x₁ = 5, and x₂ = 15. If in the current year, the price of good 1 is $1 and the price of good 2 is $1, and his current consumptions of good 1 and good 2 are 25 and 20 respectively, what is the Laspeyres price index of current prices relative to base year prices? (Pick the most nearly correct answer.)

• A) 0.67
• B) 1.50
• C) 0.25
• D) 0.50
• E) 1

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Definitions:

Consistent Purchase

The behavior of consumers repeatedly buying the same brand or product over time.

Learned Predisposition

An acquired tendency or inclination towards certain behaviors, choices, or attitudes as a result of past experiences or influences.

Attitude

A mental inclination shown through the assessment of a specific entity with a level of preference or aversion.

Perceived Importance

The subjective significance or value that an individual assigns to an object, concept, or action, based on personal belief, culture, or social influence.