CA Foundation · Quantitative Aptitude · Index Numbers
In constructing a cost of living index number by the aggregate expenditure (Laspeyres) method, the weights used for the commodities are:
The aggregate expenditure method of the cost of living index uses base year quantities as weights. The index equals Σp1q0 divided by Σp0q0, multiplied by 100. This measures what the base year basket would cost at current prices, so base year quantities are correct.
- ABase year quantities consumedCorrect
- BCurrent year quantities consumed
- CAverage of the base year and current year prices
- DCurrent year prices
Explanation
The aggregate expenditure method uses base year quantities as weights, so the index is Σp1q0/Σp0q0 × 100. Current year quantities would give the Paasche form, which is not used in this method.
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