In periods 0 and 1, Ralph consumed two goods, x₁and x₂, and his utility functions in the two periods were identical. In period 0 the prices of x₁and x₂were $2 and $1 respectively, and Ralph consumed 10 units of x₁and 80 units of x₂. In period 1 the prices of x₁and x₂were identical, and equal to $1. If Ralph consumed 15 units of x₁and 65 units of x₂in period 1, then the Paasche quantity index is equal to: A)95/100. B)9/8. C)8/9. D)100/95.

Question

Quizplus · Accepted Answer

The formula for the Paasche quantity index is: Paasche quantity index = (Σp1q1) / (Σp0q1) where Σp0q1 and Σp1q1 are the total expenditures in period 0 and period 1 respectively, and p and q are the prices and quantities of the goods. Using the given information, we can calculate the total expenditures in period 0 and period 1 as follows: Total expenditure in period 0 = (10 units of x₁ x $2) + (80 units of x₂ x $1) = $100 Total expenditure in period 1 = (15 units of x₁ x $1) + (65 units of x₂ x $1) = $80 Substituting these values in the formula for the Paasche quantity index, we get: Paasche quantity index = ($1,000) / ($800) = 8/9 Therefore, the best choice is C, 8/9.

In Periods 0 and 1, Ralph Consumed Two Goods, X1

In Periods 0 and 1, Ralph Consumed Two Goods, X₁