Composite quantity index for coffee imports

Reference no: EM13990245

House of Coffees is a coffee wholesaler that imports and distributes ground coffee to over 300 retailers countrywide. The company has kept records of the unit price paid per kilogram and the number of kilograms imported of its four major coffee types (Java, Colombia, Sumatra and Mocha). Only data for 2007 and 2010 is shown in the following table:

Coffee type	2007		2010
Coffee type	Unit price (R/kg)	Quantity(1 000 kg)	Unit price (R/kg)	Quantity(1 000 kg)
Java	85	52	98	46
Colombia	64	75	74	90
Sumatra	115	18	133	20
Mocha	38	144	42	168

(a) Calculate the price relative for 2010 for each coffee type. Interpret.

(b) Calculate, to one decimal place, the Laspeyres composite price index for coffee imports for 2010, using 2007 as the base year. Interpret its meaning.

(c) If the economy's PPI (producer price index), which measures raw material cost changes to producers/wholesalers, has increased by 15% from 2007 to 2010, has the cost of coffee imports become cheaper or more expensive in real cost terms?

(d) Calculate, to one decimal place, the Laspeyres composite quantity index for coffee imports for 2010, using 2007 as the base year. Interpret its meaning.

Reference no: EM13990245

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