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MA Chapter 20 Questions Index Numbers

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  2. @Mr. good morning, and thanks so much for the excellent job you are doing. I observe that the formula you used for determining the price index for 2011 in question 2 does not tally with either the Laspeyere or Passche index formulas. Using Laspeyere for example the formula should have been (PnQo/PoQo, and the answer would have been 152) but you used (PnQo/PoQn). Kindly explain why this is so, please.

    • The answer is correct and has used the standard Laspeyre formula.

      The cost of 10,000 kg in 2008 was $25,0000
      The cost of 10,000 kg in 2011 would have been 10,000/12,000 x $38,000 = $31,667

      The price index is 31,667/25,000 = 127

      • Dear John,

        As per your lectures, the Answers using Laspeyre & Passche would be different from each other.

        However, for Question 2 we arrived at the same answer of 127 when we use both methods.

        Answer using Laspeyre;
        31,667 梅 25,000 = 127

        Answer using Passche;
        38,000 梅 (12,000*2.5) x 100 = 127

        Please be kind enough to explain this confusion.

      • The lectures do not say that. The two methods give different answers when there is a ‘basket’ of several items. They do not give different answers when there is just one item as in this question. That is why the question does not specify a method.

    • I assume you are asking about question 4.

      As I explain in my free lectures on this, the seasonal variations must add up to 0.
      5.8 – 8.4 + 10.2 = + 7.6
      Therefore for the total of all 4 to be zero, the missing one must be – 7.6.

      Have you watched my free lectures on forecasting?

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