Business Statistics And Research Methods - Study Mode

Explanation

Solution: Laspeyre's index and Paasche's index are two important methods used to calculate price indices in economics. Laspeyre's index is based on the geometric mean of these two indices. Laspeyre's Index: It is a price index where the base-year quantities are used as weights. Mathematically, it is represented as: Laspeyre's Index = (Σ Current Year Prices * Base Year Quantities) / (Σ Base Year Prices * Base Year Quantities) Paasche's Index: It is another price index where the current-year quantities are used as weights. Mathematically, it is represented as: Paasche's Index = (Σ Current Year Prices * Current Year Quantities) / (Σ Base Year Prices * Current Year Quantities) The geometric mean of Laspeyre's and Paasche's indices is used to reduce the bias that can be present in each of these indices when used alone. It provides a more balanced measure of price change. So, the correct answer is Option C: Geometric mean of Laspeyre's and Paasche's index.