Question

Explain laspeyres and paasche method with merits and demerits

Answer 1

According to the procedure defined above fix the basket of goods. ... Advantages and disadvantages of CPI: ... Disadvantages: Laspeyres price index tends to overstate inflation.

Answer 2

LASPEYRES INDEX :  If the amount of base day and age are taken as weights, the weighted aggregative value record is called Laspeyres price index. This strategy for ascertaining value list is likewise called base year amount weight technique. ;

Merits – The quantities are required for just the base year, the cost of constructing is low , the comparison for indexes can be done easily. ;

Demerits - Will in general exaggerate cost increments,  Does not assess changes in price .

PAASCHE INDEX: Paasche index is created by German financial specialist Hermann Paasche for estimating the current cost or amount levels in respect to those of a chosen base period. It contrasts from the Laspeyres list in that it utilizes current-period weighting. ;

Merits- The quantities are required for just the base year. ;

Demerits – It is not a pure index, does not access changes in price.