Distinguish between Laspeyres' and Paasche's price index.

Laspeyres' index weights prices by the quantities of the base year, so it measures what the base-year basket would cost now. Paasche's index weights them by the quantities of the current year, so it measures what the current basket would have cost in the base year. Laspeyres' index tends to overstate and Paasche's to understate the rise in prices.

No citable source has been recorded for this record. Treat it as practice material, not as fact.

Explanation

Fisher's ideal index is the geometric mean of the two.