Remember That the Laspeyres Price Index Uses the Old Quantities

question 56

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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Definitions:

Total Amounts

The full quantities or sums reached by counting, calculating, or combining all parts.

Variable Costs Per Unit

Costs that vary directly with the level of production or volume of goods produced, altering according to the amount produced.

Production Increases

Refers to a rise in the quantity of goods and services produced by a company or economy over a certain period.

Break-even Point

The level of production or sales at which total revenues equal total costs, resulting in no net loss or gain.