Index No.

s (Practice Questions)

A) The Aggregative Method

The formula for a simple aggregative price index is

Here, price is said to have risen by 38.5 per cent.

B) Method of Averaging relatives
The formula for a simple aggregative price index is

Thus, the prices of the commodities have risen by 49 per cent.

Prepared By: Natasha Tageja

Method of Weighted Aggregative:

The Simple aggregative price index method has practically a lot of limitations to its use as the
units of measurement of prices of various commodities are not the same. It is unweighted
because the relative importance of the items has not been properly reflected. The items are
treated as having equal importance or weight. But what happens in reality? In reality, the items
purchased differ in order of importance. Food items occupy a large proportion of our
expenditure. In that case an equal rise in the price of an item with large weight and that of an
item with low weight will have different implications for the overall change in the price index.
Thus, we resort to weighted methods.

A weighted aggregative price index using base period quantities as weights, is also known as
Laspeyre’s price index:

A weighted aggregative price index using current period quantities as weights is known as
Paasche’s price index.

Assignment:

Q1 Calculate price index number for 2015 by (a) Laspeyre’s (b) Paasche’s method
Commodity 2005 2015
Price Qty Price Qty
A 5 60 15 70
B 4 20 8 35
C 3 15 6 20

Ans. Laspeyre’s IN = 228.2 Paasche’s IN = 225.4

Prepared By: Natasha Tageja

Q2 Compute (i) Laspeyre’s (ii) Paasche’s (iii) Fisher’s Index numbers (iv) Kelly’s Index
Number for the 2010 from the following data. (Please refer to the recorded
lecture shared for formulas)
Commodity Price Quantity
2000 2010 2000 2010
A 12 14 18 16
B 15 16 20 15
C 14 15 24 20
D 12 12 29 23

Ans. Laspeyre’s IN = 106.6 Paasche’s IN = 106.8 Fisher’s IN= 106.7

Q3 Using the following data, construct Fisher’s Ideal index and show how it satisfies Factor
Reversal Test and Time Reversal Test
Commodity Price Quantity
Base Current Base Current
Year Year Year Year
A 6 10 50 56
B 2 2 100 120
C 4 6 60 60
D 10 12 50 24
E 8 12 40 36

Ans. Fisher’s IN = 138.5 TRT= 1 FRT = 1880/1560

Q4 Calculate Fisher’s index number to the following data. Also show that it satisfies Time
Reversal Test.
Commodity 2016 2018
Price Qty Price Qty
Food 40 12 65 14
Fuel 72 14 78 20
Clothing 36 10 36 15
Wheat 20 6 42 4
Other 46 8 52 6

Ans. Fisher’s IN = 103 TRT = 1

Prepared By: Natasha Tageja