Index Number

Index Number

 An index number is a statistical measure of average change in variable or a group of

variable with respect to time or space.
 the variable may be enrolment of student , cost of education for college, prices of
particular commodity
Simple & Composite Index Number

 Computed for Single variable

 The value of variable for each period divided by value in the base period multiplied by 100.
 Wages paid to worker in an Institution in 1980 and 1983 were Rs 9,950 and 11,580.
(11580/9650)*100=120
 Composite are more important, Computed for two or more variables
 Weighted and Unweighted
 Eg: Wholesale price index number, consumer price index.
Construction of Index Number for Wholesale
Prices

 Selection of Commodities
 Selection of Base period
 Fixed base
 Chain base
 Selection of Average to be used
 AM
 Median
 GM
 Selection of appropriate weights
Price Relative Index │Quantity Relative Index

  p = x 100  q = x 100

Commodity 1957(prices) 1958(prices) Commodity 1957(Quantity) 1958(Quantity)

Wheat 351 335 Wheat 5 8

Rice 35 32 Rice 6 9

Salt 10 11 Salt 8 11

Sugar 1.25 1.40 Sugar 9 12

Cloth 2.25 2.60 Cloth 23 26

Milk 0.75 0.85 Milk 21 35

Weighted Price Index Numbers

 An index number that measures the change in the prices of a group of commodities when
the relative importance of the commodities has been taken in to account is called
Weighted Price Index.
 An index is called weighted aggregative index when it is constructed for an aggregate of
items(prices) that have been weighted in some way(by corresponding quantities produced,
consume or sold) as as to reflect their importance.
Price Index

 Laspeyres’ Type
 Index represents the relative cost in different years of purchasing the base year quantities of various
commodities at the given year price.
 The quantity weight remain unchanged for the subsequent periods and only information on the latest
prices need to be obtained.
 Paasche’s Type
 This is the percentage ratio of the aggregate of given period prices weighted by the quantities
produced/consumed in given period to the aggregate of base period prices weighted by the given period
quantities
 Fishers’
 Geometric mean of Laspeyre’s and Paasche’s type
Weighted Aggregative “Price Index”

 When the fixed quantity weights are determined from the base-year usage, the index is called a
Laspeyres index.
 When the weights are based on period t usage the index is a Paasche index.
 Construct the Price index Laspeyre’s and Paasche’s for 1960 on the basis of 1956
data
Commodity Prices Quantities
1956(po) 1960(p1) 1956(qo) 1960(q1)

A 64 75 270 276
B 40 45 124 118
C 18 21 185 267
D 58 68 185 267

Laspeyers’ = (41140/35310)x100 = 116.5

Paasche’s = (46707/40048)x100 = 116.6
Weighted Aggregative “Quantity Index”


  Laspeyer’s Type

 Paasche’s Type

 Construct the Quantity index Laspeyre’s and Paasche’s type for 1960 on the basis of
the data from 1959.

Commodity Quantity Prices

1959(qo) 1960(q1) 1959(po) 1960(p1)

A 200 350 15 16
B 100 220 18 20
C 30 45 100 120

Laspeyers’ = (13710/7800)x100 = 175.8

Paasche’s = (15400/8800)x100 = 175.0