Composite Price Index

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• Composite Price Index
• Unweighted Aggregative method
• Unweighted Average of Relatives method
• Weighted Aggregative Method
• Paasche Index
• Laspeyres Index
• Fisher Index
• Weighted Average of Relatives Method

• Simple relative index
• for price
• for quantity

• Consumer
• Price Index (CPI)

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What are index numbers?

• Index numbers
• are time series that focus on the relative
  change in a count or measurement over time.
• express the count or measurement as a percentage
  of the comparable count or measurement in a base
  period.

• An index number is a statistical value that
  measures the change in a variable with respect to
  time
• Two variables often considered in this analysis
  are price and quantity

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Applications of Index Numbers in Business and
Economics

• A price index shows the change in the price of a
  commodity or group of commodities over time.
• A quantity index shows the change in quantity of
  a commodity or group of commodities used or
  purchased over time.
• A value index shows a change in total Rs. value
  (price quantity) of a commodity or group of
  commodities over time.

• Used to compare
• Prices or Quantity
• Can be utilised as
• some measure of the change in things such as the
  cost of goods and services

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Simple index numbers

• Index numbers that are constructed from a single
  item only
• Definitions used for all index numbers
• Current period the period for which you wish to
  find the index number
• Base period the period with which you wish to
  compare prices in the current period

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Price relative

• The price relative of an item is defined as

Where pn price in current period po price in
base period
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Current period and base period

• Current period can be any period at all
• Base period choice often depends on economic
  factors
• it should be a normal period with respect to
  the relevant index
• it should not be chosen too far in the past

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Simple price index

• Price relative index provides a ratio that
  indicates the change in price of an item from one
  period to another.
• Simple price index is a common method of
  expressing this change as a percentage

Where pn price in current period po price in
base period
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Example Simple Relative Price Index
Price Index Price Index Year Price
1980 as base year 1990 as base year 1980 140
100.0 58.3 1985 195
139.3 81.3 1990 240 171.4
100.0 1995 275 196.4
114.6 Computation of index for 1985 (1980 as
base year)
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Simple price index

• The simple price index finds the percentage
  change in the price of an item from one period to
  another.
• If the simple price index is more than 100,
  subtract 100 from the simple price index. The
  result is the percentage increase in price from
  the base period to the current period.
• If the simple price index is less than 100
  subtract the simple price index from 100. The
  result is the percentage by which the item cost
  less in the base period than it does in the
  current period.

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Index numbers

• An index number is the ratio of two numbers
  expressed as a percentage.
• In order to calculate an index number, a base
  period needs to be identified. Values in the
  current period are then compared to the base
  period.
• The index number for the base period is 100. The
  index number for the current period is then
  compared to 100.
• For example, an index number of 120 would
  represent a 20 increase in the item being
  measured from the base period to the period in
  question.