Question
Distinguish between Laspeyre's and Paasche's index.
✓
Answer
Laspeyre's Index: Uses the base period quantities as weights. The following formula is used to construct Laspeyre's index:$\text{P}_{01}=\frac{\Sigma\text{p}_1\text{q}_0}{\Sigma\text{p}_0\text{q}_0}\times100.$
Paasche's Index: Uses the current period quantities $(q_1)$ as weights. The following formula is used to construct Paasche's index:
$\text{P}_{01}=\frac{\Sigma\text{p}_1\text{q}_1}{\Sigma\text{p}_0\text{q}_1}\times100.$
Paasche's Index: Uses the current period quantities $(q_1)$ as weights. The following formula is used to construct Paasche's index:
$\text{P}_{01}=\frac{\Sigma\text{p}_1\text{q}_1}{\Sigma\text{p}_0\text{q}_1}\times100.$
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