📊

Laspeyres Price Index Overview

Oct 3, 2025,

Overview

This lecture explains how to calculate and interpret the Laspeyres Price Index using quantities from the base year, including a step-by-step worked example with comments.

Laspeyres Price Index Method

  • Laspeyres Price Index uses quantities from the base year as weights when comparing price changes.
  • Advantage: Saves cost and effort as base year quantities are reused for all comparisons.
  • Disadvantage: Does not account for changes in consumption patterns over time.

Example Calculation (Stationery Prices)

  • Example question involves calculating the Laspeyres Price Index for four types of stationery from base year 2000 to 2001.
  • Identify base year (2000) and current year (2001) prices for four items.
  • Gather base year quantities for each item; use these as weights.
  • Substitute prices and quantities into the Laspeyres index formula:
    • Numerator: sum of (current year price × base year quantity) across all items.
    • Denominator: sum of (base year price × base year quantity) across all items.
    • Multiply the result by 100.
  • Calculated values:
    • Numerator: 837.5
    • Denominator: 615
    • Laspeyres Index: (837.5 / 615) × 100 = 136.1789
  • Interpret result: A value over 100 shows an increase; here, prices rose by 36.1789% from 2000 to 2001.

Key Terms & Definitions

  • Laspeyres Price Index — Index using base year quantities to measure price changes over time.
  • Base Year — The initial year used as a reference point for comparison in index calculations.
  • Current Year — The year being compared to the base year.
  • Weights — The quantities used in the index calculation, often from the base year.
  • Numerator (in index formula) — Total of current year prices multiplied by base year quantities.
  • Denominator (in index formula) — Total of base year prices multiplied by base year quantities.

Action Items / Next Steps

  • Practice substituting values carefully into the Laspeyres formula, remembering to multiply by 100 at the end.
  • Prepare to comment on index results as part of your answer.
  • Review similar examples from assigned textbook sections.

Full transcript