Learning Unit 2: Index Numbers

Price Index Quantity Index

Price relative (for single items): Quantity relative (for single items):
p1 q1
p0
x 100 q0
x 100

Laspeyres Price Index: Laspeyre’s Quanitity Index:

Σ ( p 1 q 0) Σ ( p 0 q 1)
x 100 x 100
Σ ( p 0 q 0) Σ ( p 0 q 0)

Paasche Price Index: Paasche Quantity Index:

Σ ( p 1 q 1)
x 100
Σ(p0q1) Σ ( p 1 q 1)
x 100
Σ(p1q0)

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 2016 2019

Price (p0) Quantity (q0) Price (p1) Quantity (q1)

Bread 13.77 305 15.21 308

Cheese 15.26 265 15.19 270

Ham 20.53 232 20.09 226

1. Calculate the price relative of bread for 2019.

p1
P01 bread =
p0
x 100
15.21
= x 100
13.77
= 110.46
Change: 110.46 – 100 = 10.46
The relative price of bread increased by 10.46% from 2016 to 2019.
2. Calculate the quantity relative of ham.

q1
Q01 ham = q 0 x 100
226
= 232
x 100
= 97.41
Change: 97.41 – 100 = -2.59%
The relative quantity of ham decreased by 2.59% from 2016 to 2017.

3. Calculate Laspeyres Price Index.

Σ ( p 1 q 0)
LPI = x 100
Σ ( p 0 q 0)
( 15.21 x 305 ) + ( 15.19 x 265 )+(20.09 x 232)
= ( 13.77 x 305 ) + ( 15.26 x 265 ) +(20.53 x 232) x 100
13325.28
= 13006.71 x100
= 102.45

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Change: 102.45 – 100 = 2.45%
The average price of all goods increased by 2.45% from 2016 to 2019,
holding quantities at 2016 values .

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