Index Numbers

WORKSHEET TEN

This worksheet relates to the handout given to you in lecture

ten, and the material covered in that lecture.

This week is quite different to the work you

have covered in the last five weeks. Make
sure you continue to revise multiple
regression and time series analysis in the
lead up to your exam.

MULTIPLE CHOICE QUESTIONS

1. Two price index series have been derived as follows;

June 00 Sept 00 Dec 00 Mar 01 June 01

Series 1 100 106 113
Series 2 100 104 109

The index for the June quarter 2001 relative to the June quarter in 2001 as
the base period is:

(a) 129.7
(b) 123.2
(c) 96.5
(d) 125.6

2. Given the following information on two goods, A and B, calculate the

Paasche price index for the change in the price level from 2001 to 2002.

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 Good A Good B
Price Quantity Price Quantity
2001 1.50 25 1.75 30
2002 2.50 20 3.50 22

(a) 131.25
(b) 186.11
(c) 129.50
(d) 185.40

3. The price relative for computers was 82.3 in 2002 calculated with a base
period of 2000. This implies:

(a) that the price of computers was 82.3% higher in 2002 than in
2000;
(b) that the price of computers was $82.3 higher than 2000;
(c) that the price of computers was 17.7% lower in 2002 than
2000;
(d) that the real price of computers has fallen $17.70 between 2000
and 2002 because of quality change.

4. Which of the following problems should be given the lowest priority

when constructing a Paasche price index:

(a) Deciding of the group of items to be included in the index

(b) Obtaining price data in every period
(c) Obtaining quantity data in every period
(d) Selecting a representative base year
Final, Nov 2005

5. For the following price index information, work out the percentage
change in prices between February and April.

Jan Feb Mar April

100 115 125
100 120

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 (a) 5%
(b) 35%
(c) 30.4%
(d) 50%

CALCULATION QUESTIONS

1. The following prices of two (legal) addictive substances have been

recorded in Brisbane for the March and June quarters of 2004:

Price (dollars)
March Quarter June Quarter
Coffee (250mL cup) 3.20 3.50
Chocolate (250g block) 2.80 3.00

Derive price indices for this consumption bundle according to the:

(a) Ratio of unweighted averages definition

(b) Arithmetic mean of price relatives definition

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2. The following are prices and consumption quantities for three
commodities in 1995 and 2002 Final, Nov 2005

Commodity 1995 2002

Price Quantity Price Quantity
A 2 20 3 20
B 10 3 40 2
C 3 15 4 20

(a) Calculate and interpret the Fisher price index for 2002, using 1995 as the
base year.

(b) A Fisher price index shows that prices for these commodities have
increased by 15% between 2002 and 2005. What is the value of the
index for 2005 using 1995 as the base year?

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notes

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