B. Data analysis and statistical techniques — ACCA Practice Question 10

How to approach this question

Remember that Laspeyres = 'Late' (base year weights). Because the basket doesn't change, it ignores people switching to cheaper alternatives.

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B.It uses base-year quantities as weights, which can overstate inflation if consumers substitute cheaper goods.✓ Correct

The Laspeyres price index uses base-year quantities as weights. A major disadvantage is that it does not account for changes in consumption patterns (the substitution effect), thereby tending to overstate inflation.

Common mistakes

Confusing Laspeyres (base year weights) with Paasche (current year weights).

A biotech laboratory uses index numbers to track the cost of specialized chemical reagents over time. They decide to use a Laspeyres price index rather than a Paasche price index.

Which of the following is a characteristic of the Laspeyres price index?

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Full Answer

Common mistakes

Practice the full ACCA MA — Management Accounting Practice Exam 5

More questions from this exam

A biotech laboratory uses index numbers to track the cost of specialized chemical reagents over time. They decide to use a Laspeyres price index rather than a Paasche price index. Which of the following is a characteristic of the Laspeyres price index?

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA MA — Management Accounting Practice Exam 5

More questions from this exam

A biotech laboratory uses index numbers to track the cost of specialized chemical reagents over time. They decide to use a Laspeyres price index rather than a Paasche price index.

Which of the following is a characteristic of the Laspeyres price index?