Asked by Abigail Orozco on Jul 11, 2024
Verified
If all prices increase by 20%,
A) the Paasche price index increases by more than 20% and the Laspeyres price index increases by less than 20%.
B) the Laspeyres price index increases by more than 20% and the Paasche price index increases by less than 20%.
C) both the Paasche price index and the Laspeyres price index increase by more than 20%.
D) both the Paasche price index and the Laspeyres price index increase by exactly 20%.
E) both the Paasche price index and the Laspeyres price index increase by less than 20%.
Laspeyres Price Index
A price index used to measure the change in the cost of purchasing a fixed basket of goods and services of the type consumed during a base period.
Prices Increase
A situation where the cost of goods and services rises over a period, reducing purchasing power.
- Develop proficiency in the calculation and elucidation of Laspeyres and Paasche price indices.
Verified Answer
BA
baker almutlaqJul 13, 2024
Final Answer :
D
Explanation :
The Paasche and Laspeyres price indices measure the price changes between two periods using different base periods for quantities. However, if all prices increase uniformly by 20%, both indices will accurately reflect this 20% increase, as the change in price is uniform across all goods, making the choice of base period for quantities irrelevant in this specific scenario.
Learning Objectives
- Develop proficiency in the calculation and elucidation of Laspeyres and Paasche price indices.