Aggregate Price Indexes

An aggregate price indexis developed for the specific purpose of measuring the combined
change of a group of items.

For example if we want an index that measures the change in the overall cost of living over
time, we will want the index to be based on the price changes for a variety of items, including
food, housing, clothing, transportation, medical care, and so on.

1. An unweighted aggregate index

The formula is :

Where :

Example :

Question : Find the unweighted aggregate index for this data ?

Answer :
An unweighted aggregate price index in period t, denoted by It, is given by
 An unweighted aggregate index for normal automotive operating expenses in 2014 .(t
= 2014)

 we might conclude that the price of normal automotive operating expenses has
only increased 30.1% over the period from 1994 to 2014.
 However, that the unweighted aggregation method for establishing a
comprehensive price index for the cost of a car is heavily influenced by items
with a larger unit price.

2. A weighted aggregate index

The formula is :

Where :
Qi = quantity of usage for item i.

Example :
Question : Find the weighted aggregate index for this data ?
Answer :

 we would conclude that the price of automotive operating expenses has

increased (123.3%) over the period from nineteen and (1994) through (2014).
 If different uses, a weighted price index can provide a better comparison.
 In a special case of the fixed-weight aggregate index, the quantities are
determined from base-year usages. In this case we write Qi = Qi0, with the
zero subscript indicating base-year quantity weights; the previous formula
became

 Whenever a fixed weight number is determined through use of a base year, the
weighted total index will be called the Laspeyres index.
 Another way to determine the weight of a quantity is to change the quantity in
each period
 A quantity Qit is determined for each year that the index is computed
  The weighted aggregate index in period t with these quantity weights is given
by:

 This weighted aggregate index is known as the Paasche index

 However, this method of calculating the total weighted index (Paasche index)
has two drawbacks:
1. The numbers have to be redetermined annually, which increases the time
and cost of data collection
2. The previous year's index sum should be recalculated annually to reflect the
impact of the new quantitative weights.
 Because of these disadvantages, the Laspeyres index is more widely used.

 THE DROBISCH PRICE INDEX

Formula :

IDn = ½ (ILn + IPn)

 THE FISHER PRICE INDEX (TYPICAL YEAR METHOD)

Formula :

IFn = √ (ILn)(IPn)

 THE MARSHALL-EDGEWORTH PRICE INDEX

W= ½ (Qo + Qn)
So ,

IMEn =
 IMEn =

 THE WALSH PRICE INDEX

W= √ (Qo)(Qn)

So:

IWn =