A certain company uses the components in the chart below in its production proce

Question

A certain company uses the components in the chart below in its production process. Prices and quantities for the components over three years are given also.

Component

2002 price

2002 number

2004 price

2004 number

Widget

5.25

347

5.60

355

Gadget

9.49

201

9.78

237

Thingamabob

6.89

285

7.03

316

Gidgemadigger

4.25

254

4.42

278

      a. Find a simple aggregate price index for these components between 2002 and 2004.

      b. Calculate a Laspeyre price index for these components between the two years.

      c. Find the Paasche price index for these components relative to the two given years.

Component

2002 price

2002 number

2004 price

2004 number

Widget

5.25

347

5.60

355

Gadget

9.49

201

9.78

237

Thingamabob

6.89

285

7.03

316

Gidgemadigger

4.25

254

4.42

278

Explanation / Answer

a)simple aggregate price index=I2002,2004=1.03671

b)Laspeyre price index for these components between 2002 and 2004 is PL=1.03881

c)Paasche price index for these components relative to the two given years PP=1.03807

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