Laspeyres index is the most common type of index; which uses a constant basket of goods and services. The three factors that cause the index to biased upwards are:
Paasche index uses the current weights of basket to derive the base year basket price while determining the rate of change. It is used to address the issue arising from substitution.
Fischer index is a geometric mean of Laspeyres and Paasche index.
Compute the Paasche index for the following simple basket of goods:
| Item | Base period quantity | Base period price | Current period quantity | Current price |
| Apparel | 100 | 25.00 | 105 | 30.00 |
| Burgers | 50 | 3.50 | 40 | 4.50 |
| Gasoline | 80 | 2.00 | 95 | 3.50 |
| Books | 65 | 4.00 | 50 | 3.00 |
Solution:
Base period:
Apparel=105*25=2,625
Burgers=40*3.5=140
Gasoline=95*2=190
Books=50*4=200
Cost of basket=3,155
Current period:
Apparel=105*30=3,150
Burgers=40*4.5=180
Gasoline=95*3.5=332.5
Books=50*3=150
Cost of basket=3,812.5
Paasche index={{3,812.5}\over {3,155}}*100=121
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