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Cotton Price Index and Calculation Methods

The document provides information about price indices and calculations for price indices. It includes examples of simple aggregative and average price relative methods to calculate price indices. It also provides information on Laspeyre's, Paasche's and Fisher's formulae to calculate price indices along with an example. Finally, it discusses the construction of a cost of living index number using group index numbers and weights.

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45 views4 pages

Cotton Price Index and Calculation Methods

The document provides information about price indices and calculations for price indices. It includes examples of simple aggregative and average price relative methods to calculate price indices. It also provides information on Laspeyre's, Paasche's and Fisher's formulae to calculate price indices along with an example. Finally, it discusses the construction of a cost of living index number using group index numbers and weights.

Uploaded by

aasamir1119as
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Price index

INDEX NUMBER OF COTTON PRICES FOR BOMBAY


(BASE: 1988 = 100)
Current year price
× 100
Year Price in Rupees Base year price
Index No.
1988 65 100.00
1989 72 110.77
1990 75 115.38
1991 76 116.92
1992 80 123.08
1993 85 130.77
1994 82 126.15
1995 88 135.38
1996 88 135.38
1997 90 138.46
1998 95 146.15

Problem 2. The following are the price of six different commodities for 1998 and 1999. Compute
a price index by (a) simple aggregative method and (b) average of price relative method by using
both arithmetic mean as well as geometric mean.
Commodity Price in 1998 Price in 1999
(Rs.) (Rs.)
A 40 50
B 60 60
C 20 30
D 60 70
E 80 90
F 100 110
Solution. (a) Simple Aggregative Method
∑𝑃
P01 = ∑ 𝑃1 × 100
0
∑ 𝑃1 = 410, ∑ 𝑃0 = 350
410
P01 = 350 × 100 = 117.14.
(b) Average of Price Relative Method (Using Arithmetic Mean)
1998 1999 𝑃1
× 100
P0 P1 𝑃0

A 40 50 50
× 100 = 125.0
40

B 60 60 60
× 100 = 100.0
60

C 20 30 30
× 100 = 150.0
20

D 50 70 70
× 100 = 140.0
50

E 80 90 90
× 100 = 112.5
80

F 100 110 110


× 100 = 110.0
100
𝑃1
∑ × 100 = 737.5
𝑃0
𝑃
∑ 1 × 100 737.5
𝑃0
P01 = = = 122.92.
𝑁 6

Problem 6. Compute index numbers from the following data using: Laspeyre's, Paasche's and
Fisher's Ideal Formulae.
Commodity Base Year Current Year
Quantity Price Quantity Price
A 12 10 12 12
B 15 7 20 5
C 24 5 20 9
D 5 16 5 14
SOLUTION.
CONSTRUCTION OF LASPEYRE'S, PAASCHE'S AND FISHER'S INDICES
Commodity q0 p0 q1 p1 p 1q 0 p 0q 0 p 1q 1 p 0q 1
A 12 10 12 12 144 120 144 120
B 15 7 20 5 75 105 100 140
C 24 5 20 9 216 120 180 100
D 5 16 5 14 70 80 70 80
∑ 𝑝1 𝑞0 ∑ 𝑝0 𝑞0 ∑ 𝑝1 𝑞1 ∑ 𝑝0 𝑞1
= 505 = 425 = 494 = 440
∑ 𝑝1 𝑞0 505
Laspeyre's Index: P01 = × 100 = × 100 = 118.82
∑ 𝑝0 𝑞0 425
∑ 𝑝1 𝑞1 494
Paasche's Index: P01 = × 100 = × 100 = 112.27
∑ 𝑝0 𝑞1 440
∑ 𝑝1 𝑞0 ∑ 𝑝1 𝑞1
Fisher's Ideal Index: P01 = √
∑ 𝑝0 𝑞0
× ∑ 𝑝0 𝑞1
× 100

√𝐿 × 𝑃 = √118.82 × 112.27 = 115.499.

PROBLEMS (Cost of Living Index)


Problem 10. The following are the group index numbers and the group weights of an average
working class family’s budget. Construct the cost of living index number.
Group Index Number Weights
Food 352 48
Fuel and Lighting 220 10
Clothing 230 8
Rent 160 12
Miscellaneous 190 15
(B. Com., Madurai-Kamaraj Univ., Andhra Univ., 1999)
Solution.
CONSTRUCTION OF COST OF LIVING INDEX NUMBER
Group Index Number Weights IW
Food 352 48 16,896
Fuel and Lighting 220 10 2,200
Clothing 230 8 1,840
Rent 160 12 1,920
Miscellaneous 190 15 2,850
∑ 𝑊 = 93 ∑ 𝐼𝑊 = 25,706
∑ 𝐼𝑊 25,706
Cost of Living Index = = = 276.41
∑𝑊 93

CONSTRUCTION OF PRICE INDEX FOR JAN. 1998


TAKING 1988 AS BASE
𝑃1
Weight 1988 1998 × 100
Market 𝑃0 PW
W P0 P1 P
I 60 20.00 28.60 143 8580
II 40 22.50 32.40 144 5760
III 55 27.50 36.30 132 7260
IV 45 25.00 32.00 128 5760
V 50 25.50 35.70 140 7000
VI 50 24.00 36.00 150 7500
∑ 𝑊 = 300 ∑ 𝑃𝑊 = 41860
∑ 𝑃𝑊 41860
Price Index = = = 139.53
∑𝑊 300

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