Laspeyres Price Index

If the quantities of base time period are taken as weights, the weighted aggregative price index is called Laspeyres price index. This method of calculating price index is also called base year quantity weight method. The appropriateness of laspeyres price index depends upon the quantities purchased during the base year. If the base period quantities are reasonable weights to apply to all time periods then the calculation of this index is appropriate. On the other hand if relative quantities change significantly from those in the base period then the calculation of this index is inappropriate. This index can be calculated by using the formula given below.

 

image

Here,

Pn is the price of commodity in current year and Po is the price of commodity in base

Qo is the quantity of commodity in base

 

Problem A: Calculate price index using laspeyres formula. Take 1980 as base year.

 

image

 

Solution:

 

image

 

Problem B: Calculate price index using laspeyres formula. Take 1995 as base year.

 

image

 

Solution:

 

image

Like this Article? Subscribe to Our Feed!

10 responses to Laspeyres Price Index

thanks for the article.
i have a question:
for example we have the weight of the items in basket of goods and the price of each item, now how should we determine the price index?

Leave a Reply