A Paasche index with updated weights ________.
A) is likely to produce a lower estimate than a Laspeyres index when prices are increasing
B) uses the current period quantities as weights as opposed to the base period quantities used in the Paasche index, which does not use updated weights
C) is likely to produce a lower estimate than a Laspeyres index when prices are decreasing
D) accounts for inflation but fails to account for changing consumption patterns over time

Question

Quizplus · Accepted Answer

A Paasche index uses current period quantities as weights, which tends to produce a lower estimate than a Laspeyres index when prices are increasing because it reflects the substitution effect where consumers buy less of goods that have become relatively more expensive.

A Paasche Index with Updated Weights ________