Let Us Reconsider the Case of Ronald in Problem 4

question 19

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 10 respectively, what is the Laspeyres price index of current prices relative to base year prices? (Pick the most nearly correct answer.)

• A) 0.50
• B) 0.25
• C) 1.17
• D) 0.67
• E) 1

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Definitions:

Total Revenue

The total amount of money generated by a business from its primary activities of selling goods or services before any expenses are deducted.

Price

The amount of money required to purchase a good or service, often determined by supply and demand dynamics in the market.

Income Elasticity

A measure of how much the demand for a good or service changes in response to changes in consumers' income.

Coefficient

A numerical or constant quantity placed before and multiplying the variable in an algebraic expression, often indicating proportionality.