5 Index Numbers and

Moving Averages

5.1 INDEX NUMBERS

The value of money is going down, we hear everyday. This means that since prices of things
are going up, we get lesser and lesser quantities of the same item for a rupee. The workers
say the increases in wages are not keeping up with inflation, and so actual wages are going
down — or that standard of living is going down. People in Delhi say that property prices
have skyrocketed, compared to cities like Kolkata and Chennai, or even Hong Kong.
Similarly, crime rate in Delhi is increasing, even outstripping increase in population. In all
these cases, we are making comparisons, either in terms of time, or in terms of geographic
locations. This leads us to define a very useful and widely used statistic—the index number.
An index number is simply a ratio of two quantities, such as prices, values or other economic
variables taken at two different periods of time. Thus, it helps to compare the change with
similar data collected in the base period or fixed period.
Index number is a specialised average designed to measure the change in the level of an activity
or item, either with respect to time or geographic location or some other characteristic. It is described
either as a ratio or a percentage. For example, when we say that consumer price index for
2008 is 175 compared to 2001, it means that consumer prices have risen by 75% over these
seven years.
Study of index numbers reveals long term trends also. By using suitable time frame to
calculate index numbers, we can find seasonal variations, cyclical variation, irregular (or
abnormal) changes and long term trends of any activity - whether it is sale of ice-cream, or
absence from school, or literacy level in a district, or unemployment problem, or sale of
Ambassador cars by Birlas, and so on.
Wholesale Price Index (WPI) and Consumer Price Index (CPI) are widely used terms.
They indicate the inflation rates, and also changes in standard of living. Consumer price
index is based on prices of five sets of items — Food, Housing (Rent), Household goods, Fuel
and light, and Miscellaneous. Each item is based on study of a number of items — e.g. Food
includes Rice, Wheat, Dal, Milk, and so on.
Thus, the characteristics of index numbers are :
— they are expressed as ratio or percentage.
— they are specialised averages.
— they measure the change in the level of a phenomenon.
— they measure the effect of change over a period of time.
— they measure changes not capable of direct measurement i.e. they measure relative
changes in an economic activity by measuring those factors which affect that activity.
INDEX NUMBERS AND MOVING AVERAGES C-1089

5.1.1 Uses of Index Numbers

Index numbers are important tools of business and economic activity. Their main uses are :
1. They are used to feel the pulse of the economy. Thus, the index numbers work as
barometers of economic activity.
2. They help in framing suitable policies and take decisions relating to wages, prices,
consumption etc.
3. They reveal trends and tendencies. They are used as indicators of inflationary or
deflationary tendencies.
4. They are used to measure the purchasing power of money.
5. They help in forecasting future economic activity.
5.1.2 Classification of Index Numbers
According to the activity they measure, the index numbers are classified as
1(i) Price indexes (ii) Quantity indexes
(iii) Value indexes (iv) Special purpose indexes.
Price indexes measure changes in some price characteristic. Wholesale price index and
consumer price index are two examples of Price indexes.
Quantity indexes measure changes in some quantity (volume) characteristic, for
example, index of Industrial production, or index of scooters sold.
Value indexes measure change in some criterion of value, while Special Purpose
indexes are constructed from time to time to measure certain special characteristic.

5.1.3 Problems in the construction of Index Numbers

The following points should be kept in mind while constructing index numbers.
(i) Defining the purpose of the Index clearly. There is no all-purpose index. If you are
constructing a consumer price index, then don’t include wholesale prices, and so on.
(ii) Selecting base year (or base period) carefully. The period against which relative change
is to be measured should be chosen carefully. It should not be too distant in the past.
It should be normal period - free of abnormalities like wars, floods, epidemics etc.
Sometimes, instead of a fixed base, the chain base method may be used, for example,
where the prices of a year are linked to the previous year and not with the fixed
year.
(iii) Selecting the numbers of items to be included. As every item cannot be included, only
the relevant and representative items should be chosen. Also items should be
standardised so that after a time lapse they can be easily identified.
(iv) Selection of price quotations and choice of places. Once the items and their number has
been decided, the locations (markets, shops) should be selected carefully so that a
representative sample of price quotations can be obtained.
(v) Choice of an average. Since index numbers are specialised averages, we have to decide
which average (arithmetic mean, median, mode, geometric mean or harmonic mean)
is to be used while constructing the index. Though geometric mean gives best
results, usually arithmetic mean is used to save calculation work.
(vi) Selection of appropriate weights. Since different items are consumed in different
quantities, suitable weights may be used to reflect the relative importance of
different items.

5.1.4 Methods of construction of Index Numbers

If only one item is involved and its two different values are given at two different times (or
places etc.), then index number is simply the ratio of two numbers, expressed as a
percentage. For example, if in 1990, only 2 lac cars were registered, and in the year 2000, ten
10 lac
lac cars were registered, then the (quantity) index is × 100 = 500. Similarly, if in
2 lac
C-1090 UNDERSTANDING ISC MATHEMATICS - XII

Mumbai the commercial space rent is $1 per sq. foot per month, while in New York it is
$2·50 per sq. foot per month, then index of rental of New York compared to Mumbai is
2⋅50
× 100 = 250.
1⋅00
Generally instead of one item, rates of a number of items are given, for current year as
well as for base year. Sometimes different weights, or quantities are also given for those
items. There are a number of ways to calculate index numbers in such cases.
Index number

Unweighted Weighted (or Arithmetic Mean method)

Simple Simple Average Weighted Weighted average of price

Aggregative of price relatives Aggregate relatives

(i) Simple aggregative method

If Σp1 is the sum total of current prices of commodities under consideration, and Σp0 is
the sum total of prices of these commodities in the base year, then the price index number
for the current year is
Σp1
P01 = × 100
Σp0
(ii) Simple average of price relatives method
Price Relative means the ratio of price of a certain item in current year to the price of
p1
that item in base year, expressed as a percentage i.e. Price Relative = × 100.
p0
For example, if a colour TV cost  12000 in 1995 and  18000 in 2008, the price relative
18000
is × 100 = 150.
12000
When a number of items are involved, we first calculate the price relative of each item
and then simply take their average to calculate the index number. Thus, the formula for
computing price index using this method is
⎛p ⎞
Σ ⎜ 1 × 100⎟
⎝ p0 ⎠
P01 = , where N is the number of items.
N
Sometimes, to simplify calculations, the following form is used :
⎛ p ⎞ 100 1 ⎛p ⎞
P01 = ⎜ Σ 1 ⎟ × or Σ ⎜ 1 × 100⎟
⎝ p0 ⎠ N N ⎝ p0 ⎠
(iii) Weighted aggregate method
If along with base prices, and current prices of a number of items, the weights or
quantities of each are given, then index number based on weighted aggregates is given by
Σ p1 w
P01 = × 100
Σ p0 w
(iv) Weighted average of price relatives method
This is the commonly used method to construct consumer or wholesale price index when
base and current prices of a number of items, along with weights or quantities are given.
Weighted average of price relatives is given by
⎛ p1 ⎞
Σ⎜ × 100⎟ × w
⎝ p0 ⎠
P01 = , or
Σw
Σ Iw p
P01 = , where I = 1 × 100, the price relative.
Σw p0
INDEX NUMBERS AND MOVING AVERAGES C-1091

ILLUSTRATIVE EXAMPLES
Example 1. Find by simple aggregate method, the index number from the following data :
Commodity Base Price () Current Price ()
Rice 30 35
Wheat 22 25
Fish 54 64
Potato 20 25
Coal 15 18

Solution. We construct the following table :

Commodity Base Price () Current Price ()
p0 p1
Rice 30 35
Wheat 22 25
Fish 54 64
Potato 20 25
Coal 15 18
Total Σp0 = 141 Σp1 = 167

Hence, required index number by simple aggregate method,

Σ p1 167
P01 = × 100 = × 100 = 118·44
Σ p0 141
Thus, we see that there is an average increase of about 18·44% in the price of
commodities.
Example 2. In above example, calculate price relative of Fish and Coal.
current price of fish
Solution. Price relative of fish = × 100
base price of fish
64
= × 100 = 118·5
54
current price of coal
Price relative of coal = × 100
base price of coal
18
= × 100 = 120.
15
Example 3. For data in example 1, calculate price index using the price relative method.
Solution. We construct the table as below :

Commodity Base Price () Current Price () Price relative

p1
p0 p1 × 100
p0

Rice 30 35 116·67
Wheat 22 25 113·64
Fish 54 64 118·52
Potato 20 25 125
Coal 15 18 120

p1
Total Σ × 100 = 593·83
p0
C-1092 UNDERSTANDING ISC MATHEMATICS - XII

Hence, the required index number is simple average of price relatives,

1 ⎛ p1 ⎞ 593⋅83
P01 = Σ × 100⎟ = = 118·77
N ⎜⎝ p0 ⎠ 5
Note that by using simple aggregate method in example 1, we had calculated the price
index as 118·44.
Example 4. Let us assume that with prices given in example 1, a Bengali family buys quantities
of rice, wheat, fish, potato and coal in the ratio 3 : 1 : 3 : 2 : 2. Find weighted aggregate price index.
Solution. We construct the table as below :
Commodity Base Price () Current Price () Weight p0 w p1 w
p0 p1 w
Rice 30 35 3 90 105
Wheat 22 25 1 22 25
Fish 54 64 3 162 192
Potato 20 25 2 40 50
Coal 15 18 2 30 36
Total 344 408

The required index number using weighted aggregates is

Σ p1 w 408
P01 = × 100 = × 100 = 118·60
Σ p0 w 344

Example 5. With above data (as in example 4), calculate price index using weighted average
of price relatives.
Solution. Construct the table as below :
Commodity Base Price () Current Price () Weight Price relative
p1 Iw
p0 p1 w I= × 100
p0
Rice 30 35 3 116·67 350
Wheat 22 25 1 113·64 113·64
Fish 54 64 3 118·52 355·56
Potato 20 25 2 125 250
Coal 15 18 2 120 240
Total Σw = 11 ΣIw = 1309·2
Hence, the index using weighted average of price relatives,
Σ Iw 1309⋅2
P01 = = = 119·02
Σw 11

Example 6. With data from Example 1, consider the case of a Punjabi family which uses more
wheat than rice or fish. Calculate price index using weighted aggregate as well as using weighted
average of price relatives, assuming that weights are 10, 50, 10, 20, 20.
Σ p1 w
Solution. Using weighted aggregate, the required price index = × 100
Σ p0 w

Commodity Base Price () Current Price () Weight p0 w p1 w

p0 p1 w
Rice 30 35 10 300 350
Wheat 22 25 50 1100 1250
Fish 54 64 10 540 640
Potato 20 25 20 400 500
Coal 15 18 20 300 360
Total 2640 3100
INDEX NUMBERS AND MOVING AVERAGES C-1093

Hence, the price index using weighted aggregates is

Σ p1 w 3100
P01 = × 100 = × 100 = 117·42
Σ p0 w 2640
Now, to calculate the price index using weighted average of price relatives, we construct
the following table :
Commodity Base Price () Current Price () Weight Price relative
p1 Iw
p0 p1 w I= × 100
p0
Rice 30 35 10 116·67 1166·7
Wheat 22 25 50 113·64 5682
Fish 54 64 10 118·52 1185·2
Potato 20 25 20 125 2500
Coal 15 18 20 120 2400
Total 110 12933·9
Hence, the price index using weighted average of price relatives is
Σ Iw 12933⋅9
P01 = = = 117·58
Σw 110
Comparing these results with those of examples 4 and 5, we see that Bengali family has
suffered more than Punjabi family. Note that price rise is less for wheat than for rice and
fish, and Bangali family consumes more fish and rice compared to wheat (see the weights),
while Punjabi family consumes more wheat than rice and fish (see the weights). This
demonstrates how the weights affect the price index.
Example 7. Construct the index number for 1991 taking 1990 as the base year by simple average
of price relatives method :
Commodity A B C D E
Price in 1990 () 100 80 160 220 40
Price in 1991 () 140 120 180 240 40
Solution. Construct the table as below :
Commodity Price in 1990 () Price in 1991 () Price relative
p1
p0 p1 × 100
p0
A 100 140 140
B 80 120 150
C 160 180 112·5
D 220 240 109·1
E 40 40 100
Total = 611·6
Hence, the required price index using simple average of price relatives,
1 ⎛ p1 ⎞ 611⋅6
P01 = Σ × 100⎟ × 100 = = 122·32
N ⎜⎝ p0 ⎠ 5

Example 8. The price index for the following data for the year 2011 taking 2001 as the base year
was 127. The simple average of price relatives method was used. Find the value of x :

Items A B C D E F
Price ( per unit) in year 2001 80 70 50 20 18 25
Price ( per unit) in year 2011 100 87·50 61 22 x 32·50
C-1094 UNDERSTANDING ISC MATHEMATICS - XII

Solution. Construct the table as below :

Items Price ( per unit) Price ( per unit) Price relative

p1
in year 2001 in year 2011 × 100
p0
p0 p1

100
A 80 100 × 100 = 125
80
87 ⋅50
B 70 87·50 × 100 = 125
70
61
C 50 61 × 100 = 122
50
22
D 20 22 × 100 = 110
20
x 50 x
E 18 x × 100 =
18 9
32⋅50
F 25 32·50 × 100 = 130
25
50
Total 612 + x
9

Here, N = total number of items = 6.

Using simple average of price relative method,
1 ⎛ p1 ⎞
Σ ⎜ × 100⎟ = ⎛⎜ 612 + x⎞⎟ = 127 (given)
1 50
price index =
N ⎝ p0 ⎠ 6 ⎝ 9 ⎠

50 50
⇒ 612 + x = 6 × 127 ⇒ x = 762 – 612
9 9
50
⇒ x = 150 ⇒ x = 27.
9
Hence, the value of x = 27.
Example 9. Calculate the index number for 2005 with 2000 as the base year by weighted
aggregate method :
Commodity Price (in ) Price (in ) Weights
in the year 2000 in the year 2005
A 140 180 10
B 400 550 7
C 100 250 6
D 125 150 8
E 200 300 4 (I.S.C. 2007)
Solution. Construct the table as below :
Commodity Base Price () Current Price () Weight p0 w p1 w
in 2000, p0 in 2005, p1 w
A 140 180 10 1400 1800
B 400 550 7 2800 3850
C 100 250 6 600 1500
D 125 150 8 1000 1200
E 200 300 4 800 1200
Total 6600 9550
INDEX NUMBERS AND MOVING AVERAGES C-1095

Using weighted aggregate method,

Σ p1 w 9550
index number = × 100 = × 100 = 144·696
Σ p0 w 6600
= 144·7 (approximately).
Example 10. Calculate the index number for the year 2006 with 1996 as the base year by the
weighted average of price relative method from the following data :
Commodity A B C D E
Weight 40 25 5 20 10
Price ( per unit)
year 1996 32·00 80·00 1·00 10·24 4·00
Price ( per unit)
year 2006 40·00 120·00 1·00 15·36 3·00 (I.S.C. 2009)

Solution. We construct the table as below :

Commodity Weight Base year 1996 year 2006 Price relative
p1 Iw
p0 p1 I= × 100
p0

A 40 32·00 40·00 125 5000

B 25 80·00 120·00 150 3750
C 5 1·00 1·00 100 500
D 20 10·24 15·36 150 3000
E 10 4·00 3·00 75 750
Total 100 13000

Using weighted average of price relative method,

ΣIw 13000
index number = = = 130.
Σw 100
Example 11. The price relatives and weights of a set of commodities are given below :
Commodity A B C D
Price Relative 125 120 127 119
Weight x 2x y y+3

If the sum of weights is 40 and the index for the set is 122, find the numerical values of
x and y.
Solution. The above data can be written in a table as :
Commodity Weight Price relative
Iw
w I
A x 125 125x
B 2x 120 240x
C y 127 127y
D y+3 119 119y + 357
Total Σw = 3x + 2y + 3 ΣIw = 365x + 246y + 357
As it is given that sum of weights is 40, we get
3x + 2y + 3 = 40
⇒ 3x + 2y = 37 …(i)
C-1096 UNDERSTANDING ISC MATHEMATICS - XII

As index number is given to be 122, we get

Σ Iw 365 x + 246 y + 357
= 122 ⇒ = 122
Σw 40
⇒ 365x + 246y = 122 × 40 – 357 = 4523 …(ii)
To solve (i) and (ii), multiply (i) by 123,
369x + 246y = 4551 …(iii)
Subtracting (ii) from (iii), we get
4x = 28 ⇒ x = 7
Putting this value of x in (i), we get y = 8.
Example 12. The wholesale price index (or price relative) of rice in 2002 compared to 2000 is
130. If the cost of rice was  12 per kg in 2000, calculate the cost in 2002.
Solution. Let the cost of rice be  p per kg in 2002.
Then, by given,
p
130 = × 100
12
130 × 12
⇒ p = = 15·60
100
Hence, the price of rice in 2002 is  15·60 per kg.
Example 13. During a certain period, the cost of living index number goes from
110 to 200 and the salary of a worker is also raised from  325 to  500. Does the worker really
gains or loses, and by how much amount in real terms ?
Actual wage
Solution. Real wage = × 100
Cost of living index
325
So real wage of  325 = × 100 =  295· 45
110
500
and real wage of  500 =  × 100 =  250
200
So the worker actually loses i.e.  (295·45 – 250)
=  45· 45 in real terms.

EXERCISE 5.1
1. Fill in the blanks :
(i) Index numbers are ___________ types of ratio.
(ii) Index numbers are barometers of ___________ .
(iii) Quantity indexes measure changes in ___________ characteristic, compared to
___________ period.
(iv) Weighted indexes are ___________ to unweighted indexes.
(v) Base period is the period of ___________ activities.
(vi) If the price index is 132, it means that price has increased by ___________
compared to base period.
(vii) If the price index is 88, it means that price has decreased by ___________
compared to base period.
2. (i) Price relative of coal is 125 in 2001 compared to 2000. If the coal cost  8 per kg
in 2000, find its cost in 2001.
(ii) Price relative of TV set is 90 in 2001 compared to 2000. If a TV set cost  9000 in
2000, find its cost in 2001.
INDEX NUMBERS AND MOVING AVERAGES C-1097

(iii) Price relative of sugar is 110 in 2002 compared to 2001. If sugar costs  16·50 per
kg in 2002, what did it cost in 2001 ?
(iv) Price relative of maize is 80 in 2002 compared to 2001. If maize costs  12 per kg
in 2002, what did it cost in 2001 ?
3. A small industrial concern used three raw materials A, B and C in its manufacturing
process. The prices of the materials was as shown below :
Commodities Price in  Price in 
in the year 1995 in the year 2005
A 4 5
B 60 57
C 36 42
Using 1995 as the base year, calculate a simple aggregate price index for 2005.
(I.S.C. 2008)
4. Construct the consumer price index for 1990 taking 1989 as the base year, and using
simple average of price relative method for the following data :
Commodities Price in 1989 Price in 1990
Butter 20 21
Cheese 16 12
Milk 3 3
Eggs 2·80 2·80 (I.S.C 2003)
5. From the following data, compute price index by using simple average of price
relatives :
Commodities Price in 1989 Price in 1990
and unit () ()
Butter (kg) 20·00 21·00
Cheese (kg) 15·00 14·00
Milk (kg) 3·00 3·00
Bread (1) 2·80 2·80
Eggs (Doz.) 6·00 8·00
Ghee (1 tin) 250·00 260·00 (I.S.C. 2004)

6. Consider the following data :

Price (in )
Items Units
In 1994 (p0) In 1998 (p1)

Wheat 1 kg 5·60 7·20

Rice 1 kg 17·20 24·80
Pulses 1 kg 36·00 44·00
Milk 1 l 24·00 30·00
Clothing 1 m 199·00 130·00

Using 1994 as the base year, calculate the index for 1998 correct up to one decimal using
(a) simple aggregate method
(b) simple average of relatives method.
7. Taking 2003 as the base year, with an index number 100, calculate an index number
for 2007, based on
(i) simple aggregate (ii) price relatives
C-1098 UNDERSTANDING ISC MATHEMATICS - XII

derived from the table given below :

Commodity A B C D

Price per unit in 2003 20 10 25 40

Price per unit in 2007 24 20 30 40
8. Calculate a cost of living index from the following table of prices and weights.
Weight Price Index

Food 35 108·5
Rent 9 102·6
Clothes 10 97·0
Fuel 7 100·9
Miscellaneous 39 103·7
9. Construct Index number for following data :
Commodity Butter Bread Tea Bacon
Relative Index 181 116 110 152
Weight 4 12 3 7
10. Find the consumer index number for the year 2010 using year 2000 as the base year
by using method of weighted aggregates :

Commodity A B C D E
2000 Price per unit () 16 40 0·50 5·12 2
2010 Price per unit () 20 60 0·50 6·25 1·50
Weights 40 25 5 20 10 (I.S.C. 2012)
11. Based on year 1988 as base, the index numbers for 1988, 1989, 1990, 1991 and 1992 are
100, 110, 120, 200 and 400. Now taking 1992 as base year, calculate index numbers for
years 1988, 1989, 1990, 1991 and 1992.
12. The price quotations of four different commodities for 2001 and 2009 are as given
below. Calculate the index number for 2009 with 2001 as the base year by using
weighted average of price relative method.
Price (in )
Commodity Weight
2009 2001

A 10 9·00 4·00
B 49 4·40 5·00
C 36 9·00 6·00
D 4 3·60 2·00 (I.S.C. 2011)
13. Calculate the index number for the year 1979 with 1970 as base from the following
data using weighted average of price relatives :
Price (in )
Commodity weights
1970 1979

A 22 2·50 6·20
B 48 3·30 4·40
C 17 6·25 12·75
D 13 0·65 0·90 (I.S.C. 2005)
C-1100 UNDERSTANDING ISC MATHEMATICS - XII

19. Find the consumer price index for 1994 on the base of 1988, from the following data,
using the method of weighted relatives :
Item Food Rent Clothing Fuel Miscellaneous
Price in 1988 (in ) 200 100 150 50 100
Price in 1994 (in ) 280 200 120 100 200
Weight 30 20 20 10 20 (I.S.C. 1997)

20. The following table shows the prices per unit in 1980 and 1984 with weights of
commodities A, B, C, D :
Commodity Weights Price per unit in 1980 Price per unit in 1984
A 20 25 30
B 25 20 30
C 15 50 70
D 40 5 10
Taking 1980 as base year with index number 100, calculate the index number of 1984
based on weighted average of price relatives. (I.S.C. 2000)
21. Taking 1975 as the base year, with an index number 100, calculate an index number
for 1979, based on weighted average of price relatives from the table given below :
Commodity A B C D
Weight 30 15 25 30
Price per unit in 1975 20 10 5 40
Price per unit in 1979 24 20 30 40 (I.S.C. 2002)

5.2 MOVING AVERAGES

Consider the following data : monthly sale of ice cream in last one year ; annual rainfall in
last 20 years ; weekly price index for last 52 weeks. This type of data, where observations are
taken at specified times is called time series. Usually, equal intervals are used. Many times,
long term or short term analysis of time series is required. Long term trend, called secular
trend, is usually calculated by finding regression line,
y – y = by x (x – x ).
There are three other kinds of variations which are important:
1. Seasonal variation. For example, sale of soft drinks and ice creams is higher in
summer than in winter ; crockery sales are higher in festival season (diwali,
christmas etc.) than at other times, and so on.
2. Cyclical variation. You must have heard about rise and fall of Roman empire. In
fashion magazines, you read about rise and fall of hemlines. Share markets rise, fall,
rise, fall like a yoyo. Only thing is we are not sure about the duration of the cycle
(otherwise we would be millionaires!), but such cyclical trends are found in many
time series.
3. Irregular variations. With sudden ban on mustard oil, Soya oil shows a marked,
irregular upward sales. With announcement of elections, there is unusual rise in
income of printing presses. With floods, there is irregular fall in crop yield. Such
spikes in data can be attributed to some unusual phenomenon.
Above analysis shows that for analysis of data or for prediction, regression lines may not
always be useful.
INDEX NUMBERS AND MOVING AVERAGES C-1101

Regression line
Irregular
(secular trend)
variation
Sale of ice cream

CyclicalCyclical
Dotted curve represents trend trend

Seasonal
Seasonal
Variation
variation

Time

Basically analysis/prediction requires “smoothening of curve”.

5.2.1 Purpose of moving averages

Moving averages are used in cyclical variations to eliminate fluctuations due to cyclical
changes in time series. The cyclical variations are smoothened by averaging the values for
the variate for a specified number of successive years (months or weeks etc.). The number
of years (months or weeks etc.) over which the values are averaged depends upon the length
of the cycles found in the time series. The time-interval over which the averages are taken
is called the period of the cycle.

5.2.2 Method for finding moving averages

The average value for a number of years (months or weeks etc.) is taken and placed against
the middle of the period. If the period taken is equal to the length of one cycle (or two cycles,
or more cycles), then this results in elimination of cycles.
If x1, x2, x3, …, xn is the given annual time series, then
(i) 3-yearly moving averages are
x1 + x 2 + x 3 x 2 + x 3 + x 4 x 3 + x 4 + x 5
, , , … which are placed
3 3 3
against years 2, 3, 4, … respectively.
(ii) 5-yearly moving averages are
x1 + x 2 + x 3 + x 4 + x 5 x 2 + x 3 + x 4 + x 5 + x 6
, , … which are placed
5 5
against years 3, 4, … respectively.
(iii) 4-yearly moving averages are
x1 + x 2 + x 3 + x 4 x 2 + x 3 + x 4 + x 5
, , … which are placed
4 4
against years 2·5, 3·5, … respectively. Further, to synchronise time frame for moving
averages and original data, we have to average every two moving averages; average
2⋅ 5 + 3⋅ 5
of first and second moving average in this case would be placed against =
2
3rd year; average of second and third moving average would be placed against
3⋅ 5 + 4 ⋅ 5
= 4th year, and so on.
2
This is called 4-yearly centred moving average.
Note. If the period is even, then the centred moving average is to be found out.
Following examples will make the above concept very clear.
C-1102 UNDERSTANDING ISC MATHEMATICS - XII

ILLUSTRATIVE EXAMPLES
Example 1. (i) Obtain the three year moving averages for the following series of observations.

Year 1995 1996 1997 1998 1999 2000 2001 2002

Annual Sales
3·6 4·3 4·3 3· 4 4· 4 5· 4 3· 4 2· 4
(In 0000 )
(ii) Obtain the five year moving average.
(iii) Construct also the 4-year centred moving average.
3.6 + 4.3 + 4.3 12.2
Solution. (i) First 3-year moving average is = = 4·067, and is placed
3 3
4.3 + 4.3 + 3. 4 12.0
against 2nd year i.e. 1996; second 3-year moving average is = = 4·0, and is
3 3
placed against 3rd year i.e. 1997, and so on. Thus, we have :
Calculation of 3-year moving averages :
Year Annual sale 3-year moving total 3-year moving average

1995 3·6 – 1/3 –

1996 4·3 12·2 ⎯ ⎯⎯⎯⎯⎯

⎯→ 4·067

1997 4·3 12·0 ⎯ ⎯⎯⎯⎯⎯

⎯→ 4·00

1998 3·4 12·1 ⎯ ⎯⎯⎯⎯⎯

⎯→ 4·03

1999 4·4 13·2 ⎯ ⎯⎯⎯⎯⎯

⎯→ 4· 40

2000 5·4 13·2 ⎯ ⎯⎯⎯⎯⎯

⎯→ 4· 40

2001 3·4 11·2 ⎯ ⎯⎯⎯⎯⎯

⎯→ 3·73
2002 2·4 – –
3.6 + 4.3 + 4.3 + 3. 4 + 4. 4 20. 0
(ii) First 5-yearly moving average is = = 4·00, and is placed against
5 5
4.3 + 4.3 + 3. 4 + 4. 4 + 5. 4 21. 8
3rd year i.e. 1997. Second 5-yearly moving average is = = 4·36,
5 5
and is placed against 4th year i.e. 1998, and so on. Thus, we have :
Calculation of 5-year moving averages :
Year Annual sale 5-year moving total 5-year moving average
1995 3·6 – –
1996 4·3 – 1/5 –
1997 4·3 20·0 ⎯ ⎯⎯⎯⎯⎯ ⎯→ 4·00
1998 3·4 21·8 4·36
1999 4·4 20·9 4·18
2000 5·4 19·0 3·80
2001 3·4 – –
2002 2·4 – –
(iii) In the 4-year moving averages, the first step of averaging of 4 values each results in
placing these in between years — so we take averages of each two successive moving
averages to synchronise them with given time frame. Thus, we have the following table :
C-1112 UNDERSTANDING ISC MATHEMATICS - XII

5. The following data relate to the pay of workers employed at a factory.

Type of Rate of pay Average number of hours Number of
worker (/hour) worked per week workers
June November employed
Skilled 6·50 37 38·5 26
Semi-skilled 5·10 38·5 39·5 14
Unskilled 3·50 40·5 40 42
Calculate a weighted aggregate index of average weekly pay for November (June = 100),
using the number of workers employed as a weighting factor.
6. Calculate the 5 yearly moving averages of the number of students in a college from
the following data and plot them on a graph paper :
Year 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990
No. of students 332 317 357 392 402 405 510 427 405 438
(I.S.C. 2012)
7. The number of traffic offences committed in a certain city over a period of 3 years is
given in the following table :
Jan.-March April-June July-Sept. Oct.-Dec.
2000 74 56 48 69
2001 83 52 49 81
2002 94 60 48 79
Draw a graph illustrating these figures. Calculate suitable moving averages and plot
them on the same graph. Comment on the result.

ANSWERS

EXERCISE 5.1
1. (i) specialised (ii) economic activity
(iii) quantity (or volume), base (or fixed) (iv) preferred
(v) normal (vi) 32% (vii) 12%.
2. (i)  10 per kg (ii)  8100 (iii)  15 per kg (iv)  15 per kg.
3. 104. 4. 95. 5. 105·9. 6. (i) 129·1 (ii) 130·0.
7. (i) 114 (ii) 135. 8. 104·4. 9. 135.
10. 138·39.
11. 25·0, 27·5, 30·0, 50·0, 100. 12. 128·10. 13. 171·24. 14. 164·05.
15. 137·27. 16. 171·23. 17. x = 80, y = 70.
18. x = 40, y = 53. 19. 158. 20. 162·5. 21. 246.

EXERCISE 5.2
1. 3·667, 5·333, 6·667, 8·333, 10·333. 2. 47, 55, 52·33, 60·33, 64·33.
3. 4·67, 5·33, 6, 7, 8, 8·33, 9.
4. 2·33, 5·67, 8·33, 16·67, 27·67, 27·67, 29·67, 20·67, 20, 10·33, 5·33, 2
5. The 3-day moving averages are 2·3, 5·6, 12·3, 19·6, 31·0, 34·3, 26·3, 20·0, 11·3, 5·3, 2·0. This
shows a steady increase (arrival of fresh cases every day) and then decrease (control over
epidemic).
6. 470, 484·6, 503·2, 515·2, 517·8, 523·6.
7. 368, 381·6, 390·4, 402·2, 419·8, 439·8.