Laspeyres index

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Updated: Aug 20, 2021

An index number which measures the change in same aspect of a group of items over time, using weights based on values in same base-year. For example, a Laspeyres price index measures the percentage change in prices of a group of commodities between now and some base-year by dividing the total cost of the quantities of the commodities bought by consumers in the base-year, valued at today’s prices, by the total cost of those same quantities valued at the base-year prices. Similarly, a Laspeyres quantity index finds the percentage cbange in quantities of commodities bought by dividing the total cost of current quantities purchased, valued at the prices prevailing in the base-year, by the total east of the quantities purcbased in the base-year, again valued at base-year prices. Unlike the Paasche index, the Laspeyres index bas the advantage that, since the weights are constant from year to year, a whole run of index numbers can be compared with each other. It also requires less information, since the weights have only to be calculated at intervals rather than every year.

Reference: The Penguin Business Dictionary, 3rd edt.



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James Knight
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James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.