@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.
J
John MoffatTutor·
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
T
Thenuka·
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 ÷ 25,000 = 127
Answer using Passche;
38,000 ÷ (12,000*2.5) x 100 = 127
Please be kind enough to explain this confusion.
J
John MoffatTutor·
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.
D
Daniel·
Thank you Sir John, splendid job as usual. this really helped.
J
John MoffatTutor·
Great :-)
F
fay·
could you explain how did you get -7.6? please.
J
John MoffatTutor·
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.
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
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 ÷ 25,000 = 127
Answer using Passche;
38,000 ÷ (12,000*2.5) x 100 = 127
Please be kind enough to explain this confusion.
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?