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Index Numbers

Question

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Give the methods of calculating simple index and their formula.

Solution

Equal weightage is assigned to all the items included in the index number. There are two methods of calculating index number (i) simple aggregative method and (ii) Simple average of price relatives.

1. Simple aggregative method : This is the simplest method of calculating index numbers. In this method, total of the current year prices for the various commodities is divided by the total of the base year and the quotient multiplied by 100. Symbolically.

Where P₁ and P₀ indicate the price of the commodity in the current and base periods respectively.

2. Simple Average of price relatives : In this method, first of all, price relatives are calculated. A price relative is the price for the current period expressed as the percentage of the price of the base period. Symbolically,

Some More Questions From Index Numbers Chapter

The wholesale price index.

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Why do we need an index number?

Why is it essential to have different CPIs for different categories of consumers?

What does a consumer price index for industrial workers measure?

What is the difference between a price index and a quantity index?

Is the change in any price reflected in price index number?

Can the CPI for urban non-manual employees represent the changes in the cost of living of the President of India?

Try to list the important items of consumption in your family.

The consumer price index for june, 2005 was 125. The food index was 120 and that of others items 135. What is the percentage of the total weight given to food?

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