index

Q.
product M uses four different types of materials. The materials used and their prices, in 2006 and 2007 , are as follows.

2006:
material A :200 kg 0.98 $per kg
material B: 500 kg 0.95 $per kg
material C: 300 kg 1.20 $per kg
material D: 400 kg 1.10 $ per kg

2007:
material A :300 kg 1.40 $per kg
material B: 400 kg 1.10 $per kg
material C: 500 kg 0.92 $per kg
material D: 100 kg 1.14 $ per kg

calculate the Lyspere quantity index for 2007 (with 2006 as the base year ) to two decimal places.

The answer is:

Lyspere method = 100* (1384/1471) =94.09.

So,why we don’t use base year quantities to calculate prices for year 2007?