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NUMBERS
PRESENTED BY
MOHD.ARISH
ADITYA PRATAP
SINGH
INTRODUCTION
o QUANTITY
o VALUE
METHODS OF INDEX
NUMBERS
Simple Aggregative
Method
• This method is used to construct a price index, the
total of current year prices for the various
commodities are divided by the total of base year
prices and the quotient is multiplied by 100.
P 01 =
∑ P1
×100
∑P 0
∑ Pcommodities.
0
∑ P = 1075
0
∑P 1 = 1102
P 01 =
∑ P1
×100 =
1102
×100 = 102 .51
∑P 0 1075
This means that as compared to 2007, in 2008 there is
net increase in price of commodities included in the
Simple Average of Price Relative
Method
The current year price is expressed as a price relative of
the base year price. These price relatives are then
averaged to get the index number. The average used
could be arithmetic mean, geometric mean.
Index numbers when arithmetic mean is used
P1
∑ P 0
×100
P 01 = N
N =6 P1
∑ P 0 ×100
=628.05
P1
∑P 0 ×100 628 .05
P 01 = = =104 .67
N 6
(b) Price index number based on geometric mean of price relatives
Commodit Price (Rs) Price (Rs) P1
×100 log P
y and unit 2007 2008 P0
∑ log P 12.1166
P 01 = AL = AL = AL2.0194 = 104.57
N 6 =12.1166
Weighted Index Numbers
• Weighted index numbers has been
stated earlier are those numbers in
which rational weights are assigned
to various chain in trends. The
weights assigned indicate the
relative importance of various items.
Weighted Aggregative Index
Numbers
• These index are the simple aggregative type with
the fundamental difference that weight are
assigned to various items include in various
method of assigning weights.
some of the important methods are :
• Laspeyres method
• Paasche’s method
• Dorbish and Bowley’s method
• Fisher ideal method
• Marshall Edgeworth method
• Kelly’s method
Laspeyers method
• This method was devised by Laspeyers in 1871. In
this method the weights are determine by
quantities in the base. It is based on fixed weights
of the base year.
P 01 = ∑p q
1 0
×100
∑p q
o 0
Paasche’s method
• The main draw back is Paasche’s method is that
every time an index number is constructed weights
have to be determined
P 01 =
∑ pq1
×100
1
∑pq 0 1
Dorbish and Bowley’s
method
• This index take into account both the base year as well as
the current year weights
L+ P
P 01 =
2
L=Laspeyers Index, P=Paasche’s
Index
∑pq + ∑pq
1 0 1 1
P 01 =
∑pq ∑pq
0 0 0 1
× 100
2
Fisher’s ideal index
Fisher ideal index number is the geometric mean of
the Laspeyres and Paasche's index number.
∑p q × ∑p q
P 01 =
1 0 1 1
×100
∑p q ∑p q
o 0 0 1
or
P 01 = L × P
this is known as “ideal” because of following reason :
1.It is based on geometric mean
2.It takes both current & base year prices and quantities
Marshall-Edgeworth
method
In this method also both the current as well as
base year price and quantities are considered.
P = ∑ pq +∑ pq
1 0
× 100
1 1
∑ p q +∑ p q
01
0 0 0 1
∑ p q ×100
1
P 01 =
∑pq 0
• Illustration :
The following data relate to the prices & quantities of
4 commodities in the years 2007 & 2008. construct
the following index number of price for the year
2008 by using 2007 as the base year.
(1) Laspeyres Index (2) Paasche’s Index (3) Dorbish
& Bowley’s Index (4) Fisher Ideal Index (5)
Marshall-Edgeworth Index .
Commodity 2007 2008
Price Quantit Price Quantit
y y
A 2 8 4 6
B 5 10 6 5
C 4 14 5 10
D 2 19 2 13
Solution: Calculation of various indices
A 2 8 4 6 32 16 24 12
B 5 10 6 5 60 50 30 25
C 4 14 5 10 70 56 50 40
D 2 19 2 13 38 38 26 26
∑p q ∑p q ∑p q ∑p q
1 0 0 0 1 1 0 1
P 01 =
∑pq 1 0
×100 =
200
×100 =125
∑p q 0 0 160
• Paasche’s Method:
P 01 =
∑pq 1 1
×100 =
130
×100 =126 .21
∑p q 0 1 103
• Bowley’s Method:
∑p q
1 0
+ ∑ pq 1
200 130
1
+
P 01 =
∑ pq
0 0 0
∑p q
1
×100 = 160 103 ×100
2 2
1.25 +1.2621 2.5121
= ×100 = ×100 =125 .605
2 2
• Fisher’s Ideal Method:
P 01 =
∑p q 1 0
×
∑pq
1 1
×100
∑p q 0 0
∑p q
0 1
200 130
= × ×100
160 103
= 1.578 ×100
=1.256 ×100
=125 .6
• Marshall-Edgeworth Method:
∑ (q + q ) p
0 1 1
P 01 = ×100
∑( q + q ) p
0 1 0
=
∑ p q +∑p q
1 0
×100
1 1
∑p q +∑p q
0 0 0 1
200 +130
= ×100
160 +103
330
= ×100
263
= 125 .475
Weighted Average of Price
Relative Index Numbers
• In weighted Average of relative, the price
relatives for the current year are calculated on
the basis of the base year price. These price
relatives are multiplied by the respective weight
of items. These products are added up and
divided by the sum of weights
∑ PVarithmetic mean of price relative
• Weighted
P 01 =
∑V
P=Price relative
V=value weight p1
P= ×100
p0
• Weighted geometric mean of price
relative ∑V . log P
P 01 = A.L.
∑V
∑ V = 990 ∑ pv =
112001.7
P 01 =
∑ pv 112001.7
= = 113.13
∑V 990
This means that there has been a 13.13%increase in
price over the base level
)Index number using geometric mean of price relative
Comm p1
odity (Rs) (Rs) p0q0 p0
×100
(Rs)
p0 q0 p1 V p LogP V .LogP
Sugar 18.00 20.00 20.0 360 111.1 2.046 736.56
0
Flour 12.00 40.00 14.0 480 116.6 2.067 992.16
0
Milk 15 10lt. 16 150 106.7 2.028 304.20
∑V .LogP
∑ V = 990 =2032.92
∑V .Log P 2032 .92
P 01 = A.L. = A.L.
∑ V
990
= A.L.2.0535 = 113.11
Quantity or Value Index
Numbers
• The quantity index number measure average
change in quantities and enable us to compare in
physical quantity of goods produced or sold
If a quantity index number is prepared by using
the Laspeyres method it would be
Q 01 =
∑q p
1 0
×100
∑q p
0 0
• When Paasche’s formula is used
Q 01 =
∑ qp 1
× 100
1
∑q p 0 1
Q 01 =
∑ q p × ∑ q p × 100
1 0 1 1
∑q p ∑q p
0 1 0 1
Value Index Numbers
• Value is the product of price and quantity. A
simple ratio is equal to the value of the current
year divided by the value of base year. If the ratio
is multiplied by 100 we get the value index
number.
V=
∑ pq
× 100
1 1
∑pq 0 0
Reference books
• B.M.AGGARWAL
• S.P.GUPTA
O U
Y
N K
H A