Edexcel GCSE (9 – 1)
Statistics
Mr M Dominguez
[email protected]
Chapter 7 Index numbers
§ 7.1 Index numbers
Index numbers compare the price of an item with a base year price –
its price in another year. The base year price has an index on 100.
The table below contains information on the cost of milk production per litre
every 5 years. Year 2000 2005 2010 2015
Price 16.93 18.47 24.67 24.46
If the cost to produce one litre of milk in 1995 was 24.94.
Find the production price of milk from 2000-2015 relative to 1995.
Year 1995 2000 2005 2010 2015 2005:
Price 24.94 16.93 18.47 24.67 24.46
to the nearest whole
Index 100 68 74 99 98
Base year, index 16.93 as a
price
index number= × 100
number 100 percentage of 24.94 base year price
Q1. In 2004, the cost of a litre of petrol was 78p. Using 2004 as a base year,
the price index of petrol for each of the next five years is shown in the table
below:
Year 2004 2005 2006 2007 2008 2009
Index 100 103 108 109 112 120
a) Which year is the base year? 2004
b) What do the index numbers tell you about the price of petrol? Increasing
c) If the price in 2006 was 84.2p. Find the price in
a) 2007 85.0p
b) 2009 93.6p
d) If 2006 becomes the new base year, find the new index number for 2007.
Year 2006 2007
Price 84.2 85
Index 100 101
Q2. The table shows how the cost of gold (in US dollars per ounce) has
changed over the years 2003 to 2005.
Year 2003 2004 2005
Price ($/oz) 363.38 409.72 444.74
Take 2003 as the base year with an index of 100.
(a) (i) Express the price in 2004 as an index number. 113 (112.75 to 2dp)
Give your answer to the nearest whole number.
(ii) Write down the percentage increase in the cost of gold between 2003
and 2004. 13%
(b) Calculate the percentage increase in the cost of gold between 2004 and
2005. 8.5%
(c) The index value for the cost of gold in 2006 is 166.
Work out the cost of gold in 2006. 603.21
Page 320
§ 7.2 RPI, CPI and GDP
The Retail Price Index (RPI) show the rate of change of prices in everyday life. It
can be used as a measure of inflation.
It is a weighted index, this means that the parts it is made up of do not have
equal value. For example an increase in food prices would increase the RPI
more than an increase in the cost of a car.
The Consumer Price Index (CPI) also measure the rate of price changes in
everyday life, but does not include mortgage payments.
Both can be used as a measures of inflation.
Both are a weighted index, which means that it’s parts do not have equal value. For
example an increase in food prices would increase the RPI more than an increase in the
cost of a car.
The government decides what commodities make up the RPI and CPI and in what
relevant proportions.
When answering questions we generally assume that
any product/commodity will increase/decease in line
with RPI and CPI.
The following table gives information on the retail price index from 1987
to 2004 with 1987 as a base year.
a. The cost of a car in 1987 was $15,000. According to the
RPI, how much would you expect to pay in 2004?
b. By what percentage did the RPI increase between 1990
and 2000? 167 −120=47 %
The following table gives information on the Consumer Price
Index from 2005 to 2015 with 2005 as a base year and police
wages.
Year 2005 2010 2015
CPI 100 114 130
Salary $49,000 $56,000 $59,000
Compare the increase in police wages with the CPI:
a. Between 2005 and 2010
b. Between 2005 and 2015.
Explain why that although wages have increased for the
police in the last 10 years, in real terms they are worst off
then they where in 2010.
Page 322 Q 1 to 4
Gross Domestic Product (GDP) is the value of goods and services a
country produces within a stated time period.
The weighting of each industry is very important. There may be 5 key industries but they
would not have equal weighting.
Many counties have different weightings, this gives rise to the classifications of counties
as LDCs and MCDs
An economy is in recession when its GDP falls in two (or more) successive
quarters
The first quarter of 2013.
Jan to Mar 2013
The UK economy was not in recession as growth was never below 0.
(although the rate of growth was negative between 2015Q1 and 2015Q4)
The consumer price index is weighted to reflect the importance of different
items in the average shopping basket. The weightings change every year to
reflect changes in consumer spending
current weighted mean price
Weighted index number= × 100
base year weighted mean price
Item 2000 Index 2003 Index Weight ‘03 index X
price price weighting
Pasta 100 105 23 2415
Bread 100 98 10 980
Potatoes 100 103 6 618
Chips 100 101 15 1515
Total 54 5528
a. Using the information in the table calculate the Average
weighted index price for 2003.
b. By what percentage did the price of an average shopping basket
increase between 2000 and 2003? Increase by 2.37%
a 282
b 218.6 Page 325 Q 7 & 8
§ 7.3 Chain based index numbers
Chain based index numbers compare prices on consecutive years. For
example to calculate the chain based index number for 2016 we would use
the price in 2015 and to calculate the chain based index number in 2017 we
would use the price in 2016.
price
chain based index number= × 100
last year ′s price
Years 1974 1975 1976 1977 1978 1979
Price 18 21 25 23 28 30
Index 117 119 92 122 107
a) Find the chain base index numbers for each year.
b) Describe the percentage change in price between 1976 and 1977
c) What is the average percentage change over the 6 years?
Chain based index numbers gives the relative value of an item based on the
previous year. The base year changes each time.
Years 1974 1975 1976 1977 1978 1979
Price 18 21 25 23 28 30
Index 117 119 92 122 107
a) Find the chain base index numbers for each year.
b) Describe the percentage change in price between 1976 and 1977
c) What is the average percentage change over the 6 years?
Chain based index 116.67 b) The price decreases by 8%
number of 1975
Chain based index 25 c) Finding the average percentage change
¿ ×100=119.05
number of 1976 21 is an application of geometric mean.
increase
Q2. The table shows the cost of Hira’s household insurance over the
past few years.
Year 2002 2003 2004 2005 2006 2003 105.7
Annual £281 £297 £291 £308 £320 2004 98.0
cost (£) 2005 105.8
2006 104.0
a) Use the chain base method to calculate index numbers for the years
2003 to 2006 inclusive.
Give each answer to 1 decimal place.
b) Calculate the geometric mean of the chain base index numbers
found in (a).
= 1.0332
Average index of 103
c) Interpret the answer to part (b). Average rate of 3% increase
per year.
Advantages and Disadvantages
The chief advantage of this method is that for each year the
price of an item can be compared with the price level of the item
in the previous year. Business are mostly interested in
comparison of this type rather than in comparison relating to
distant past. Yet another advantage of the chain base method is
that it is possible to include new items in an index number or to
delete old items which are no longer important. In a fixed base
method this is not possible.
However, the chain base method has the drawback that
comparison cannot be made over a long period.
§ 7.4 Rates of change
Crude rates are simple ways to compare changes in birth and death rates for
large populations. They tell you how many births, deaths, etc there are in every
1000 people. (Over a year).
A crude death rate of 12, means that out of 1000 people 12 die.
The crude birth rate is the number of births per thousand of the population
The crude death rate is the number of deaths per thousand of the population
number of ( deaths / births / people unemployed )
crude rate= ×1000
total population
The crude rate only gives a quick estimation/ judgment. This is because is
represents a sample, but the sample is not stratified. Standardised rates are
calculated in proportion to the age range of the population.
number of ( deaths / births / people unemployed )
crude rate= ×1000
total population
503
crude rate= × 1000=15.3 deaths per thousand
32835
?
64
×1000=8.4 64000=8.4× total population
total population
64000
=8.4 ?
total population
You will be given the standard population for the whole country or area. This
shows how many people would typically be in each age range, per 1000 of the
population. s a hypothetical population of 1000 people that is representative of
the whole population.
This would allow us to compare different towns with different population
dynamics, e.g. compare the death rates of two villages, one is a retirement
village and the other is used by commuters. It also allows us to compare the
death/birth rate of a town with the wider area as a whole.
The method behind calculating the standard population is identical to that of a
weighted mean.
number in age group
Standard population = ×1000
total population
Population of the town
Deaths in the town
Breakdown of the Standardised population
population according to age. of the whole country/area
Find the crude death rate of the town: Why is the crude rate so high? Is the
town an unsafe place to live?
253 ? A high number of older people skew
×1000=7.4
34000 the data and have ?a higher chance of
dying.
Find the death rate for each group.
?
?
?
Find the weighted mean using the standard population weighting
𝑤𝑒𝑖𝑔h𝑡𝑒𝑑𝑚𝑒𝑎𝑛=6.5
The standardised death rate is 6.5 deaths per 1000.
This is lower than the crude death rate because it has been adjusted to reflect a
typical age distribution. It is a fairer result to use if you want to compare the death
rates in two areas.
Find the standardised death rates of both towns and compare the results.
Age (years) Population Number of Standard Death rate
(1000s) deaths population
Standardised death
6.4 26 189 4.1 775
rate for town A:
5 22 221 4.4 972
6 36 247 ?6 1482
8.8 41 216 4.7
?
1015 ?
8.6 53 127 6.2 787
1000 5031
Age (years) Population Number of Standard Death rate
(1000s) deaths population Standardised death
7.7 51 189 6.6 1252 rate for town B:
7 32 221 4.6 1010
6.4 38 247 ?
5.9 1467
6.7 28 216
? ?
4.2 903
6.3 26 127 4.1 524
1000 5155
The standardised death rate for both towns is quite similar despite town A having a
?
larger proportion of older people.
