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 40 units of x₁and 40 units of x₂in period 1, then the Laspeyres quantity index is: A)9/8. B)6/5. C)8/9. D)5/6.

Question

Quizplus · Accepted Answer

The Laspeyres quantity index is calculated using the formula: $ \frac{\sum (q_1 \cdot p_0)}{\sum (q_0 \cdot p_0)} $, where $q_1$ and $q_0$ are the quantities in periods 1 and 0 respectively, and $p_0$ are the prices in period 0. For Ralph's consumption, the calculation is: $ \frac{(40 \cdot 2 + 40 \cdot 1)}{(10 \cdot 2 + 80 \cdot 1)} = \frac{120}{100} = \frac{6}{5} $.

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

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