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Question
Given that ∑p0q0 = 220, ∑p0q1 = 380, ∑p1q1 = 350 and Marshall-Edgeworth’s Price Index Number is 150, find Laspeyre’s Price Index Number.
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Solution
Given:
∑p0q0 = 220,
∑p0q1 = 380,
∑p1q1 = 350 and
P01 (M − E) = 150
To find:
P01(L) = ?
We have
`P_01(M - E) = (sum p_1q_0 + sum p_1q_1)/(sum p_0q_0 + sum p_0q_1) xx 100`
∴ `150 = (sum p_1q_0 + 350)/(220 + 380) xx 100`
∴ `150 = (sum p_1q_0 + 350)/600 xx 100`
∴ `(150 xx 600)/100 = sum p_1q_0 + 350`
∴ 150 × 6 = ∑p1q0 + 350
∴ 900 = ∑p1q0 + 350
∴ ∑p1q0 = 900 − 350
∴ ∑p1q0 = 550
`P_01(L) = (sum p_1q_0)/(sum p_0q_0) xx 100`
= `550/220 xx 100`
= 2.5 × 100
= 250
Hence, Laspeyre’s Price Index Number is 250.
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