Index Numbers and index Number is a statistical measure designed to how changes in a variable or group of related sariables with respect to time. Wholesale Price Index (WP) The wholesale price index measures the relative changes in the prices of commodities traded in the wholesale markets. Characteristics of Index Numbers Some following characteristics of index numbers eas follows (i) Index numbers measures relative or percentage change in the variables over time. (i) It can also measure changes which are not direcly measurable (ii) Difficulty of selecting the method of averaging There are a number of methods which can be used for this purpose these method give different results from one another. Uses of Index Numbers. Some of the main uses of index numbers are as (ii) They measure the changes happening in the standards of living over a given period of time. (i) They measure the purchasing power of money. Time Based Data Quick Revision (ii) Index numbers are helpful to the state in formulating and adopting appropriate economic polices. Types of index Numbers Index numbers are of various types. Naming of index number depends upon the economic activities. * Price Index Measures change in price over a specified period of time. It is basically the ratio of the price of a certain number of commodities at the present year as against base year. e.g. Consumer price index, Whole sale price index Quantity Index These indices pertain to measuring changes in volumes of commodities like goods produced or goods consumed e.g Index of Industrial production, Index of scooter sold ete. Value Index It compares changes in the monetary value of imports exports production or consumption of commodities. Method of Construction of Index Numbers ‘The various method of constructing index numbers can be arrange in two heading 1. Unweighted indices 2. Weighted indices.170 1. Unweighted (simple) Index Numbers Tn unvweighted index number, all the values taken for study are of equal importance, (i) Simple Aggregate Method In this method, the , ear prices for various so odie under consideration is divided by the corresponding base year price total and multiplying it by 100 ie, Simple aggregate price index, zp, (Pa) = ph 100 where, Py, Py Current price index number he total of commodity price in the base year The total of commodity price in the current year (i) Price Relative Method It is the ratio of a certain commodity’s price in a given period to its price in an earlier period (fixed) called base period/year represented in percentage Current price Base price i.e. Price relative = x 100 or Price relative = 4. x 100 a In this method, the price relative for all commodities is calculated and then their average is taken to calculate the index number = (# x 10} .e. P= oS mar: [for AM as average mean] where, Po, is the price index, N is number of items, Pyis the price of the base year and P, is the price of corresponding commodity in the present year. 2. Weighted Index Numbers When all commodities are not of equal ve assign weight to each commodity ts importance the index number computed by using wej index nami Weights are called as weighted CBSE New Pattern ~ Applied Mathematics XI (Te rm I) Some of these methods are given as (i) Weighted Aggregate men ii Method In this of a number of ite the weights/quant then we called it weigh index numbers rPw P, = =e OF Pay * 100 where, P, = Current year price w = Weight of each items Py = Base year price (ii) Weighted Average of Price Relative In this method the price relative for the current year are calculated on the bass of the base year Price and these price relatives are mulipled by the respective weights of items. These products are added u p and divided by th of weights Sie 2 (aw Pye Od) ” Ew orp = Bl Zw where J = x 100, price relative A Cost of living index is a theoretical price index that measures relative cost of living over time on regions. It is an index that measures difference in the price of goods and services. (ii) Laspeyre’s Method This method uses base year quantities (gq) as weight is of different items. 2 Pigo x 100 2 Polo (iv) Paache’s Method This method uses current year’s quantities (g,) as weight. ZA x 100 L Poti Formula is given by Py, = Formula is given by Fy, =se +5 Method The geometric mean of fisher ’s method and Paasche’s index ee is known as Fisher's ideal method. 8 Formula is given by 5 Py L Polo Py 100 Poo | | | |estof Adequacy of Index Numbers «veal formula has been learnt for constructing JJeindex numbers. The problems that arises is to ‘ject an appropriate formula in a given situation. four different test can be applied to find out the sioquacy of index number {) Unit Test {ij Time several test ‘actor reversal test liv) Circular test unit Test Thistest states that the formula for constructing an index number should be independent of the units Multiple Choice Questions 1, Index number are intended to measure the (a) purchasing power of money (b) forecasting future economic activity | (c) degree of economic change over the time | (d) Allof the above 2. Index number represents. (a) specialised averages in percentage (b) symmetry representation (c) coefficient of variation (a) Deviation 3. If Epo =113.and Ep, = 142, then Py, is (e) 122.41 (b) 125.66 (c) 128.23 (a) 132.57 lew Pattern ~ Applied Mathematics XII (Term 1) 171 in which prices and quantities are expressed. All method, except simple aggregative method, satisfy this test, . Time Reversal Test This test guides whether the method works both ways in time forward and backward. According to Fisher, Time reversal test in the first which gives the same ratio between one point of comparison and the other, no matter which of the two is taken as base. This means, when the index numbers of two years are constructed by reversing the base year, they should be reciprocals of each other so that their product is unity. If Py, is a price index in the current year ‘I’ with base of preceding year 0” and A, is a price index for the base year ‘0’ based on current year ‘|’, In symbolic form, 1 Py =P Fg =k "Po Time reversal testis satisfied by simple aggregative and Fisher’s method. This test is not satisfied by Laspeyre’s and Paasche’s index number. Objective Questions 4. A small industrial concern used three raw materials and in its manufacturing, process. The prices of the material show below. Price in % in Price in % in Commodities “year 2011 _the year 2019 Taking 2011 as base year, price index for 2019 is ; fa) 114.95 (b) 123.4 (c) 146,78 {d) 109.87172 side Teall a bike cost % 52000 in 2010 ant . : 55000 in 2015, then price relative is (0) 125 (a) 130 ia 2 (d) 120 6. The consumer price index number for 1990, taking 1989 as the base year and using simple average of price relative method for the following data. a ice in in Price in @ in Pri Commodities “year 2011 the year 2019 Butier ete Cheese 16 2 + Milk sy te totaal Egg 2.80 2.80 is (a) 95 {o) 92 (c) 64 (a) 52 7. The price index for the following data Commodity A BC DE F 10. 11. 12. CBSE New Pattern ~ Applied Mathematis 1 (fey D {a) 30.05 (b) 24.5 {c) 25.20 (d) 30.35 During a certain period, the Cost of living index number goes from 910 311 and the salary of a worker is als raised from & 422 to 2 600. Then the worker really losses the amount is {a) %8.03 (b) 75.90 (c) 76.60 (d) & 7.06 Net monthly income of an empl was % 8000 per month in 2012 and % 11000 per month in 2018. If consumer price index in 2012 was 200, the consumer price index for 2018, if net income of the employee linked to consumer price index, is (a) 310 (b) 300 (c) 275, (d) 260 The price relatives and weights ofa set of commodities are given below. Commodity AB Cc Dp Price Relative 125 120 127 119 Brice im 25 31 16 20 31 2005) 7 Price in 94 97 34 19 29 38 2009 (2) 24 27 34 19 29 is fa) 119.4 (b) 118.75 (c) 121.92 (4) 135.32 The wholesale price index of rice in 2009 compared to 2005 is 210, If the cost of rice was @ 15 per kg in 2005, then cost in 2009, is (a) 26.2 {c) 31.5 (b) 29.4 {d) 35.4 The index number for 2011 taking 2005 as the base year by simple average of price relative method. ee ee Commodity ABC D © BE UD UE 9. 95 101 121 120 40 Price i 2005 () 98 105 184 161 52 ee is 13. Weight xox ya If the sum of weights is 40 and the index for the set is 122, then value of x and y are respectively. (7.8 (b) 6.5 (c) 8,7 (d) 5,6 Most widely used weighted index is (a) Fisher's ideal index (b) Laspeyres index (c) Paasche’s index (d] None of thie above |. Fisher’s method is considered as ‘ideal’ because (a) itis based on variable weights (b} itis based on Geometric Mean (GM) whichis regarded as the best mean for calculating index number (c] it takes consideration the price and quantities of both the base year and cutre year. (d) Allof the aboveiggb New Pal following table shows the prices ti sil in 1980 and 1984 with weights of the commodities A, B, Cand D Price per Price per Commodity Weights aD ae A 20 25 30 — Te ripe 60H 22 AO a eI Taking 1980 as base year with an index number 100, then the index number of 1984 based on weighted average of price relatives, is (a) 162.50 (c) 183.81 (b) 174.32 (d) 144.50 yy 16, The formula 2 x 100 is used to =Ppofo calculate? {a) Laspeyre’s index value (b) Paasche's consumer price index (c) Paasche's cost of living index (a) Laspeyre's consumer price index 17. Let us assume that Ep, = 509, pow = 412, then weighted aggregate price index is (a) 123.54 (b) 144.52 (c) 113.24 (a) 115.62 18. The index number for 2005 with 2000 as the base year by the weighted aggregate method Price in Price in Commodity (in %) the (in 3) the Weight SSMS year 20 year 2005 "8" A 40180 10 B 400 550 7 2 125 150 = a a 0300 1 stern ~ Applied Mathematics XII (Term 1) 173 is (a) 140.52 (b) 144.7 (c) 152.5 (d) 154.6 19. The index value for the following data. Logo = 320 and Ep,g, = 460 by using Paasche’s method, is (a) 135.49 (b) 143.75 (c) 154.42 (a) 162.76 20. The index value for the following data Lpogo = 362, Ep, Fo = 473 by using Laspeyre’s Method, is (a) 129.42 (b) 137.24 (c) 130.66 {d) 143.42 21, IfP,, is a price index in the current year ‘I’ with base of preceding year ‘0" and P,y is a price index for the base year ‘0' base on current year ‘I’ then {a} Po, Pip =0 (b) Pox Py =} (c) Par xP =—1 (d) Py) x Pig =2 22. The index value for the following data Epon = 584, Zpiog = 484, Ego = 623 and Ep,9, = 517, by using Fisher’s price index Number, is (a) 101.54 (v) 106.77 {c) 12.34 (a) 115.16 Case Based MCQs 23. When we assign each commodity (good) a weight in according to their relative importance. The index number constructed using weights are called weighted index numbers. Consider the following data. Current Year (2012) Base Year Commodity 2008) _CBSE New Pattern ~ 174 Answer the following questions using the above information. (i) The index value by using Laspeyre’s method is (a) 135.23 {b) 140.45, {c) 146.48 (d) 130.76 (il) The index value by using Paasche’s method is {a} 125.63 (b) 137.56 (ch 130.83 (d) 124.16 (iii) Fisher's method is considered as ‘ideal’ because {alit is based on geometric mean which is regarded as the best mean for calculating index number. (b)itis satisfies the time reversal test. (c) Both(a} andiblare true. (d) None of the above (iv) The index value by using Fisher’s method is (3) 133.01 (b) 140.32 (c) 129.43, (a) 138.45 (v) The value of p,) (index number of base year in computed on the basis of current year (f4,) is (a) 0.0075 (b) 0.75 (0) 725 (4) 0.075 24. A students of class XIlth standard try to solve assignment question related to topic Index Number which are as EO Applied Mathematics X11 (term D base year, was found to be 133, Zo = 295 and following table, Commodiies ABC DE Ty Price (in 2) in 2007 82 72 * 5 36 Prices (in 2) in2010 105 95.50 71 3 1 y 4650 Answer the following question using the above information, (i) The value of xis (a) 22 (b) 20, {c) 25 (a) 30, (ii) The value of y is (a) 33.70 (b) 40.41 (ec) 37.10 (a) 45.23 (ii) The value of sy is equal to (a) 830 (b) 720 (c) 674 (d) §31 (iv) Whol le sale price index (WPI) is used to (2) Consumer price indies (b) Cost'of living (c) The relative changes in the prices of commodities traded in the whole market (6) Price poticy () If feo = 15000 and Ew = 200 then Index Number is {a) 75 (>) 80 follows : consider the following data, (c) 86 (a) 79 the price index for 2010, taking 2007 as ANSWERS Multiple Choice Questions L@ 2@ 3am 4 @ 50 6a 7 O &W %@ ma 1 12 @ 1) 14. %@ 16 @ 72 18.0) 19.6) 2 21. (b) 22, (b) Case Based MCOs 23. 0 - (a: (W)C (i) - ()-@;)- @ 24. (0D): (iD - (A); (i) - (0) fv) -(0;(0)- (@)