Question

We have the following data on the consumption behaviour of an average small business in Finland.

The data is available for two distinct periods.

		First Period			Second Period
	Rent & utilities	Employee costs	Raw materials	Rent & utilities	Employee costs	Raw materials
Price (thousand euros)	1.5	9.8	4.2	1.4	11.3	4.3
Volume (units)	1	2.5	1.3	1.1	2.3	1.2

The Laspeyres' index of price for the above data is 1.12. What does Laspeyres' index of price describe and what does the index number of 1.12 tell you?

Please answer quickly!

Answer 1

Solution:

The Laspeyres' index of price is an index formula used in price statistics for measuring the price development of the basket of goods and services consumed in the base period. It shows how much a basket that consumers bought in the base period would cost in the current period.

The Laspeyres' index of price for the above data is 1.12.

We assume that the base period price is 1. Then we can say that there is increase in price by 1.12-1=0.12*100=12% compared to base period.