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The following historical data describe monthly purchase by an average farm family:
Commodity 2002 2012
Price Qty Price Qty
Milk (L) $1.30 30 $1.40 30
Butter (kg) $2.00 3 $2.75 2
Eggs (dozen) $1.60 8 $2.00 4
Sugar (kg) $1.70 14 $2.40 10
a) Compute the Laspeyres price index, using 2002 as the base year.
My Answer for a) P= ΣPnQ0/ΣP0Q0(100) 99.65/81.60(100) = 122.13
b) Assume that your index, calculated in (a), applied in general for all foods. Suppose a certain family spent $1500 in 2002 and $2500 in 2012. In which of the two years would the family have had more to eat for their money? Show your rational.
(No idea how to answer b)