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laspeyres index
Sum(p2q1)/Sum(p1q1): A weighted aggregative index showing the ratio of expenditures in the current period (p2q1, where p2 is the current period price and q1 is the base period quantity) to the expenditure in the base period (p1q1, where p1 is the base period price and q1 is the base period quantity) to purchase the identical market basket of items. It answers the question "How much more or less does it cost now to purchase the same items as in the base period?" The main shortcoming of the Laspeyres index is that it does not track actual expenditures because consumers adjust their buying in response to changes in relative price, which changes the composition of the market basket. This invalid assumption that consumer demand is totally price inelastic causes the index to overstate the actual effect on consumers when there is a change in prices.
- Part of Speech: noun
- Synonym(s):
- Blossary:
- Industry/Domain: Labor
- Category: Labor statistics
- Company: U.S. DOL
- Product:
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