Laspeyres fixed-quantity price index. A Laspeyres price index is a weighted aggregate price index where the weights are determined by the quantities of the base period.ß The Laspeyres price index is frequently criticized because, it is argued, it tends to overstate or have an upward bias.ß When prices increase, there is a tendency to reduce the consumption of the higher-priced items.ß Thus, by using base-year weights, too much weight is given to those items that have increased the most. Similarly, when prices decline, consumers tend to shift their purchases to those items that have declined the most. By using base-period weights, sufficient weight will not be given to those items that have decreased most in price, again overstating the index (Schultze & Mackie, 2002).
The CPI measures the price change of a fixed market basket of goods and services of constant qua
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