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PRESENTED BYDeepak Khandelwal Prakash Gupta

CONTENTS Introduction Definition Characteristics Uses Problems Classification Methods Value index numbers Chain index numbers.

INTRODUCTION

An index number measures the relative change in price, quantity, value, or some other item of interest from one time period to another. A simple index number measures the relative change in one or more than one variable.

WHAT IS AN INDEX NUMBER .

inventory and other quantities of economic interest.DEFINITION ´Index numbers are quantitative measures of growth of prices. production.µ y -Ronold .

Index numbers measure the effect of changes over a period of time. Index numbers measure the change in the level of a phenomenon. .CHARACTERISTICS OF INDEX NUMBERS Index numbers are specialised averages.

o Index numbers are very useful in deflating.USES OF INDEX NUMBERS o To framing suitable policies. o They reveal trends and tendencies. .

Choice of an average. .PROBLEMS RELATED TO INDEX NUMBERS Choice of the base period. Data collection. Selection of commodities. Choice of index.

CLASSIFICATION OF INDEX NUMBERS Price Index Quantity Index Value Index Composite Index .

METHODS OF CONSTRUCTING INDEX NUMBERS Simple Aggregative Simple Average of Price Relative Unweighted Index Numbers Weighted Aggregated Weighted Weighted Average of Price Relatives .

SIMPLE AGGREGATIVE METHOD It consists in expressing the aggregate price of all commodities in the current year as a percentage of the aggregate price in the base year. P01 §p ! §p 1 0 v100 P01= Index number of the current year. . p1 = Total of the current year·s price of all commodities. p0 = Total of the base year·s price of all commodities.

EXAMPLE:FROM THE DATA GIVEN BELOW CONSTRUCT THE INDEX NUMBER FOR THE YEAR 2007 ON THE BASE YEAR 2008 IN RAJASTHAN STATE. COMMODITIES UNITS PRICE (Rs) 2007 PRICE (Rs) 2008 3200 20 71 1000 60 Sugar Milk Oil Wheat Clothing Quintal Quintal Litre Quintal Meter 2200 18 68 900 50 .

SOLUTION:COMMODITIES UNITS PRICE (Rs) 2007 PRICE (Rs) 2008 3200 20 71 1000 60 Sugar Milk Oil Wheat Clothing Quintal Quintal Litre Quintal Meter 2200 18 68 900 50 §p Index Number for 20081 0 ! 3236 §p 1 ! 4351 01 § p v100 ! 4351v100 ! 134.45 ! 3236 §p 0 It means the prize in 2008 were 34.45% higher than the previous year. .

¸ ¨ p1 § © p v100 ¹ ¹ © º ! ª 0 01 N Where N is Numbers Of items. These price relatives are then averaged to get the index number.SIMPLE AVERAGE OF RELATIVES METHOD. When geometric mean is used- log 01 ¨ p1 ¸ § log© p v100 ¹ © ¹ ª 0 º ! N . The average used could be arithmetic mean. geometric mean or even median. The current year price is expressed as a price relative of the base year price.

EXAMPLEFrom the data given below construct the index number for the year 2008 taking 2007 as by using arithmetic mean. Commodities P Q R S T Price (2007) 6 2 4 10 8 Price (2008) 10 2 6 12 12 .

0 150.SOLUTIONIndex number using arithmetic meanCommodities P Q R S T Price (2007) Price (2008) Price Relative p1 v 100 p0 p0 6 12 4 10 8 p1 10 2 6 12 12 166.67 150.63 N 5 .37 §© p ¹ º ª 0 ¨ p1 ¸ § © p v 100 ¹ 603 .0 120.7 16.37 © ¹ ª 0 º! P01 ! ! 120 .0 ¸ ¨ p1 © v100¹ =603.

(A) . Kelly·s method. Laspeyres method. Paasche method.WEIGHTED INDEX NUMBERS These are those index numbers in which rational weights are assigned to various chains in an explicit fashion. Fisher·s ideal method. Dorbish and bowley·s method. Weighted aggregative index numbersThese index numbers are the simple aggregative type with the fundamental difference that weights are assigned to the various items included in the index. Marshall-Edgeworth method.

In this method the weights are determined by quantities in the base.LASPEYRES METHODThis method was devised by Laspeyres in 1871. p01 §pq ! §p q 1 0 0 0 v 100 Paasche¶s Method. This method was devised by a German statistician Paasche in 1874. p01 §pq ! §p q 1 1 0 1 v 100 . The weights of current year are used as base year in constructing the Paasche¶s Index number.

P01 ! § p q v § p q v100 §pq §pq 1 0 1 1 0 0 0 1 . If we find out the arithmetic average of Laspeyre¶s and Paasche¶s index we get the index suggested by Dorbish & Bowley. p01 §pq §pq §pq §pq ! 1 0 0 0 1 1 0 1 2 v 100 Fisher¶s Ideal Index. This method is a combination of Laspeyre¶s and Paasche¶s methods.DORBISH & BOWLEYS METHOD. Fisher¶s deal index number is the geometric mean of the Laspeyre¶s and Paasche¶s index numbers.

either base year or current year. Kelly thinks that a ratio of aggregates with selected weights (not necessarily of base year or current year) gives the base index number. p01 § p q § p q ! § p q § p q 1 0 0 0 1 1 0 1 v100 Kelly¶s Method. p01 § p q v100 ! §p q 1 0 q refers to the quantities of the year which is selected as the base.MARSHALL-EDGEWORTH METHOD. In this index the numerator consists of an aggregate of the current years price multiplied by the weights of both the base year as well as the current year. It may be any year. .

(1) Laspeyers Index (2) Paasche·s Index (3)Fisher Ideal Index. 2002 ITEMS PRICE PRODUCTION 2007 PRICE PRODUCTION BEEF MUTTON CHICKEN 15 18 22 500 590 450 20 23 24 600 640 500 .EXAMPLEGiven below are the price quantity data.with price quoted in Rs. Find. per kg and production in qtls.

SOLUTIONITEMS PRICE PRODUC TION PRICE .

p0 BEEF .

q0 .

p1 20 23 PRODU CTION .

q1 600 640 .

p1q0 .

p0 q0 .

p q .

p0 q1 1 1 15 18 500 590 10000 13570 7500 10620 12000 14720 9000 11520 MUTTON CHICKEN 22 450 24 500 10800 9900 12000 11000 TOTAL 34370 28020 38720 31520 .

84 31520 1 3.SOLUTION1. Fisher Ideal Index 01 ! § p q v § p q v100 ! §pq §pq 1 0 1 1 0 0 0 1 34370 38720 v v 100 ! 122.Laspeyres index: § p1q0 v100 ! 34370 v100 ! 122.69 28020 31520 .66 p01 ! 28020 § p0 q0 2. Paasche¶s Index : p01 §pq ! §p q 0 1 1 38720 v100 ! v100 ! 122.

These price relatives are multiplied by the respective weight of items. the price relatives for the current year are calculated on the basis of the base year price. Weighted arithmetic mean of price relativeP01 Where- § PV ! §V P! P 1 v100 P0 P=Price relative V=Value weights= p0 q 0 .WEIGHTED AVERAGE OF PRICE RELATIVE In weighted Average of relative. These products are added up and divided by the sum of weights.

A simple ratio is equal to the value of the current year divided by the value of base year.VALUE INDEX NUMBERS Value is the product of price and quantity. §pq V! §pq 1 0 1 v100 0 . If the ratio is multiplied by 100 we get the value index number.

for 2006. 2005 will be the same and so on.2006 will be the base. Chain index for current year! Average link relative of current year v Chain index of previous year 100 . for 2007. For example.CHAIN INDEX NUMBERS When this method is used the comparisons are not made with a fixed base. rather the base changes from year to year.

EXAMPLE From the data given below construct an index number by chain base method. Price of a commodity from 2006 to 2008. YEAR 2006 2007 2008 PRICE 50 60 65 .

SOLUTIONYEAR PRICE LINK RELATIVE CHAIN INDEX (BASE 2006) 2006 50 100 100 2007 60 60 v 100 ! 120 50 65 v 100 ! 108 60 120 v 100 ! 120 100 108 v 120 ! 129.60 100 2008 65 .

Gupta. Business statistics. Richard i. . Levin & David S. Statistics for management. 3. 2. S. B. Statistics for Business and economics. 4. Rubin.P.Agarwal.Hooda.REFERENCES 1. R.P. Business Statistics.M.

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