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Dear Mr Moffat
I came across to below question for which I don’t understand and agree with the answer provided in the book
Could you kindly revise my working and point out the mistake if there is any?Product M uses four different type of materials. The materials used and their prices in 2006 and 2007 are as follows:
2006
Material A kg 200 $0.98
Material B Kg 500 $ 0.95
Material C Kg 300 $1.20
Material D Kg 400 $1.102007
Material A kg 300 $1.40
Material B Kg 400 $1.10
Material C Kg 500 $0.92
Material D Kg 100 $1.14Calculate the Laspeyre quantity index for 2007 (with 2006 as the base year) to two decimal places.
My working
As Laspeyre takes the base qty , where Paasque current qty.
2006
Material A kg 200 $0.98
Material B Kg 500 $ 0.95
Material C Kg 300 $1.20
Material D Kg 400 $1.10Total 1471
2007
Material A kg 200 $1.40
Material B Kg 500 $1.10
Material C Kg 300 $0.92
Material D Kg 400 $1.14Total 1562
1562/1471*100 106.19
Book answer
2006
Material A kg 200 $0.98
Material B Kg 500 $ 0.95
Material C Kg 300 $1.20
Material D Kg 400 $1.102007
Material A kg 300 $0.98
Material B Kg 400 $0.95
Material C Kg 500 $1.20
Material D Kg 100 $1.101384/1471*100 94.09
Since when do we need to use the price for the base year and not base qty to calculate the price index.
I think this is a mistake. Please correct me if I am wrong.
Thanks a lot for your help
Gabbi
Dear Mr Moffat,
Please correct me if I am wrong.
As Laspeyre takes the base qty whereas Paasque current qty where calculating the price Index
but
As Laspeyre takes the base price whereas Paasque current price where calculating the qty Index
As the question has asked for the qty index, then the answer provided by the book is correct.
If above statement is correct, can both type of questions be asked in the exam?
Thank you
Gabbi
Yes – both types can be asked.
However, asking for a price index is much the more likely in the exam.
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