Abstract:
This paper discusses some important issues in constructing price indexes. The issues relate to
the choice of an index number formula. Which is a “good” index number formula for aggregating prices?
A variety of alternative index number formulae are explored based on the economic approach and the
axiomatic (test) approach. In practice, use of the Laspeyres price index is common. For example, this is
the formula used for the official US consumer price index (prior to 1999). Some of the problems that arise
in adopting the Laspeyres price index are noted.
