Chapter 11- Index Number

Additional Mathematics Module Form 4 SMK Agama Arau, Perlis

CHAPTER 11- INDEX NUMBER

11.1 INDEX NUMBER 1. An index number is a statistical measure to show the changes of any variable such as prices, production and many others with respect to time. 2. The formula of to calculate index number is

I=

Q1 100 Q0

where Q0 = Quantity at base time

Q1 = Quantity at specific time

11.1.1 Price Index 1. Price index is an example of index number which is widely used. 2. It tells us how the price changes over a fixed period of time. 3. Price index of a certain item, I =

Q1 100 where: Q0

(a) Q0 = Price of the item at the base time or year (b) Q1 = Price of the item at specific time Example 1: In a year, a copy of newspaper was sold at RM1.20. However, in a year, 2008, a consumer has to pay RM1.50 for the same copy of newspaper. Calculate the price index of the newspaper for the year 2008 if the year 2007 is taken as the base year. Solution:

Q0 (Price of the item at the base year that is 2007) = RM1.20 Q1 (Price of the item at specific time that is year 2008) = RM1.50
I 08 , 07 =
=

Q08 100 Q07

RM 1 .50 100 RM 1 .20 = 125

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Chapter 11- Index Number

Additional Mathematics Module Form 4 SMK Agama Arau, Perlis

Example 2: The price index of a product in the year 1998 is 120 based on the year 1994 and 130 based on the year 1991. If the price of the product in 1994 is RM 650, calculate the price in the year 1991. Solution: From the information above, given that I 98 , 94 = 120 , I 98 , 91 = 130 and Q 94 = RM 650

I 98 , 94 =

Q98 100 Q94

Substitute I 98 , 94 = 120 and Q 94 = RM 650 into the formula above,

120 = Q 98

Q 98 100 650 = RM 750 Q 98 100 Q 91

I 98 , 91 =

Substitute I 98 , 91 = 130 and Q 98 = RM 750 into the formula above,

130 =

RM 750 100 Q 91

Q 91 = RM 600
The price of the product in the year 1991 is RM600.

I 91, 94 = =

Q91 100 Q94

RM 600 100 RM 650 = 92 . 30769231 Q94 100 Q91

I 94 , 91 = =

RM 650 100 RM 600 = 108 .3333333

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Chapter 11- Index Number

Additional Mathematics Module Form 4 SMK Agama Arau, Perlis

I 94 , 91 =

I 94 , 94 I 91 , 94

100

100 100 92 .30769231 = 108 .3333333

I 98 , 94 I 94 , 91 100

I 98 , 91 = =

120 108 .3333333 100 = 130

I 98 , 91 =

I 98 , 94 I 91, 94

100

120 100 92 .30769231 = 130

The other formula to find price index is

I 94 , 91 =

I 94 , 94 I 91, 94

100

Besides I 94 ,91 can be calculated by

I 94 , 91 =
While

Q94 100 Q91

I 98 ,91 = I 98 , 91

I 98 ,94 I 94 ,91

100 I 98 , 94 = 100 I 91, 94

Besides I 98 , 91 can be calculated by

I 98 , 91 =

Q 98 100 Q 91

These three formulae can be used to calculate price index in certain situations.

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Chapter 11- Index Number

Additional Mathematics Module Form 4 SMK Agama Arau, Perlis

EXERCISE 11.1 1. A factory produces 10000 cans of drink in the year 2000 and 12000 cans in the year 2001. Calculate the index number for the production of cans of drink in the year 2001 based on the year 2000. 2. The total salary of Ammar Fauzan in the year 1999 is RM 14400 and in the year 2000 is RM20000. Calculate the index number for his salary in the year 2000 based on the year 1999. 3. The index numbers for an item in the years 2001 and 2002, based on the year 1997, are 108 and 120 respectively. Calculate: (a) the index number in the year 1997 based on the year 2002. (b) the index number in the year 2002 based on the year 2001. 11.2 COMPOSTE INDEX NUMBER 1. The formula for composite index is

Info Weightage, w represents the relative importance of different items

I=

Iw w

where I is price index and w is weightage.

2. For example to find the composite index number is the monthly of a family. (a) In determining the composite index number of the monthly expenditure, we need to consider the price indices and weightages f all the items. (b) Items that we spend more will definitely play more significant role and hence, is assigned with a larger weightage. Example: Things Shirt Trousers Bag Shoes Price Index 120 105 140 Weightage m 8 4

150 6 Table 1 The table shows the price indices and the weightage of four things in 1997 based on the year 1992. Given that the composite index of 1992 is 127. Calculate: (a) The value of m (b) The price of a pair of shoes in 1997 if its price in 1992 is RM60. Solution: (a) We know that the formula for composite index is

I=

Iw w
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Chapter 11- Index Number

Additional Mathematics Module Form 4 SMK Agama Arau, Perlis

Use the information given.

120 ( m ) + 105 (8) + 140 ( 4) + 150 ( 6) m+8+4+6 120 m + 840 + 560 + 900 I= m + 18

I=

Given that I 97 , 92 = 127 ,

120 m + 840 + 560 + 900 = 127 m + 18 120 m + 2300 = 127 m + 2286 7m = 14

m=2
(b)From the information in the table, given that I 97 , 92 ( Shoes ) = 150 , I 98 , 91 = 130 and Q 92 = RM 60 ,

I 97 , 92 ( Shoes ) =

Q 97 100 Q 92

Substitute I 97 , 92 ( Shoes ) = 150 , I 98 , 91 = 130 and Q 92 = RM 60 into the formula above,

150 = Q 97

Q97 100 RM 60 = RM 90

The price of shoes in the year 1992 is RM90. EXERCISE 11.2 1. Table 2 shows the index numbers for three items P, Q and R in the years 2005 and 2006 based on the year 2002. The composite index in the years 2005 and 2006 based on the year 2002 are 115.3 and 123.4 respectively. Item P Q R Find the value of x and of y. 2. Table 3 shows the index numbers for 3 items for 3 items in the year 2005 based on the year 2000. Item Index Number Weightage P 115 8 Table 3 Given that the composite index is 117.8, calculate the value of x. Q 98 x R 124 12- x Year 2005 115 120 104 Table 2 Year 2006 124 x 126 Weightage 3 5 y

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Chapter 11- Index Number

Additional Mathematics Module Form 4 SMK Agama Arau, Perlis

CHAPTER REVIEW EXERCISE 1. Table 4 shows the prices and weightages of four types of items A,B ,C and D. Price(RM) Price(RM) Item Price Index Weightage Year 2003 Year 2005 A 7.00 8.40 w 100 B C D 13.50 y 11.00 x 13.00 12.10 Table 4 130 115 110 80 70 z

(a) Calculate the value of w, x and y. (b) The composite index of these items for the year 2005 based on the year 2003 is 120. Calculate the value of z. (c) The total cost of all these items is expected to increase by 20% from the year 2005 to the year 2007. Find the expected composite index for the year 2007 based on the year 2003. 2. Table 5 shows the index numbers for 5 items in a town in the year 2005 based on the year 2003 and their weightages. Item Food Drink Clothing Rental Electricity Index Number 128 115 119 124 110 Table 5 Weightage 23 5 5 4 3

(a) Calculate the composite index in year 2005 based on the year 2003. (b) If the rental in the year 2005 is RM400, what is the rental in the year 2003? (c) If the total expenditure of a family in the year 2003 is RM320, find the total expenditure in the year 2005.

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