Unit 2

Prices
 Introduction

Introduction
This unit and Unit 3 examine, in various ways, the question:
Are people getting better or worse off ?
Because this is a statistics module, we shall concentrate on the statistical
aspects of the question. This unit focuses on statistics about prices, and
Unit 3 moves on to consider statistics about earnings; this enables us to
look at the question of whether earnings have been increasing more rapidly
than prices.
However, it is not the case that statistics can provide all the answers – or
even the best answer – to the question of whether people are getting better
or worse off. There are many non-statistical issues which are relevant and
it is important to put the statistical approach in its correct perspective. To
take just one example: if earnings are rising rapidly but unemployment is
also rising, then no statistical analysis based on a comparison of earnings
with prices will have any relevance to the circumstances of a person who
has become unemployed.
In the question examined in these units, people does not refer specifically
to you, Open University students, but to the whole of society in the UK.
That is quite a big batch (more than 62 million in 2010, according to an
estimate from the UK’s Office for National Statistics), consisting of men,
women and children, living alone, in large or small households, or in
institutions; some of them working, others unemployed, some retired and
others not yet old enough for paid work.
It is not possible, using statistical techniques, to provide a complete answer
to this one question covering such a big theme, particularly an answer
which is valid for all these people and their varied economic and social
circumstances; data and techniques both have to be used with common
sense. Instead, the aim of these texts is more modest: to explore small
batches of data relevant to the question (and relating to some individuals
and groups in society), using basic analytical and graphical techniques.
We start with price data and look at some different ways of measuring the
overall location of a batch of price figures for a single item. In looking for
patterns in data, the initial procedures are to round the figures, if
necessary, in an appropriate and convenient way, then to draw a stemplot
(as described in Unit 1). The next step is to find a measure representing
the location of the batch; this will be a value lying between the lowest and
highest values of the batch. You have already met one important location
measure: the median. (There will be more about this in what follows.)
Another very important measure is the arithmetic mean, which is
introduced in Subsection 1.3.
Section 2 shows how to calculate the weighted mean, which is a quantity
related to the arithmetic mean. You will also learn about some
circumstances where it makes sense to calculate a weighted mean.

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Unit 2 Prices

Having considered the location of a batch, it is often helpful to examine

the spread of values and the shape of the distribution of values between
the extremes and around the average. Section 3 shows how to calculate
one particular measure of spread for a batch: the interquartile range. It
also shows some diagrammatic methods for representing the spread and
shape of the distribution of values in a batch.
Section 4 introduces the notion of a price index for indicating changes in
the price of a single item and for two or more different items. Section 5
looks at the UK’s Retail Prices Index (RPI) and Consumer Prices Index
(CPI), which measure changes in prices over time.
The central question, Are people getting better or worse off ?, is partly
addressed in this unit, which focuses on the ‘prices’ element. If prices are
rising, then, other things being equal, we are worse off. It is left to Unit 3
to examine the other important element, ‘earnings’. If our earnings are
increasing, then, other things being equal, we are better off. However,
other things are usually not equal – prices and earnings are generally
changing at the same time, and Unit 3 also covers the question of how to
deal with both sorts of changes at once.
Note that Section 5 is longer than all the other sections, so you should
plan your study time accordingly.
Section 6 directs you to the Computer Book. You are also guided to the
Computer Book after completing Section 1 and Subsection 2.1. It is better
to do the work at those points in the text, although you can leave it until
later if you prefer.

1 Measuring location
Measuring location has two components:
• gathering data about the quantity of interest
• determining a value to represent the location of the data.
The task of gathering appropriate data is somewhat problem-specific –
general strategies are available, but exact details usually need to be decided
for each problem. To determine the price of an electric kettle, for example,
we would have to decide the size and type of kettle we’re interested in,
where and when it’s purchased, and so forth. In contrast, choosing a value
to summarise the location of a set of data is more straightforward. In this
section, we will focus on the two most common measures of location: the
median and the mean. The data gathered about the quantity of interest
does not affect the way we calculate these location measures.

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 1 Measuring location

1.1 Data on prices

In order to measure how prices change, we need data on prices and some
way of measuring their overall location. Price data take many forms, some
of which you have met in Unit 1.
In examining the overall location, prices of all goods are relevant, but some
are more important than others. Ballpoint pens are relatively unimportant
in most people’s shopping baskets, coffee prices are unimportant for tea
drinkers, and chicken prices are of little concern to vegetarians. Our first
batch of price data is coffee prices (see Table 1).

‘Data, data, data!’ he cried

impatiently. ‘I can’t make
Example 1 Jars of coffee
bricks without clay.’ (Sherlock
Table 1 Prices of a 100 g jar of a well-known brand of instant coffee Holmes in The Adventure of
obtained in 15 different shops in Milton Keynes on the same day in the Copper Beeches by
February 2012 (in pence, p)
A.C. Doyle (1892))

299 315 268 269 295

295 369 275 268 295
279 268 268 295 305

There are several points to note concerning these prices.

• They relate to a particular brand of coffee. You might expect the
price to vary between brands.
• They relate to a standard 100 g jar. You might expect the price per
gram of this brand of coffee to vary depending upon the size of the
jar – larger jars are often cheaper (per gram).
• They relate to a particular locality. You might expect the price to
vary depending upon where you buy the coffee (e.g. central London,
a suburb, a provincial town, a country village or a Hebridean
island).
• They relate to a particular day. You might expect the price to vary
from time to time depending upon changes in the cost of raw coffee
beans, costs of production and distribution, and the availability of
special offers.
Nevertheless, although we have data for a fixed brand of coffee, size of
jar, locality and date of purchase, this batch of prices still varies from
the lower extreme of 268p to the upper extreme of 369p. (In symbols:
EL = 268 and EU = 369.) One of the most likely reasons for this is
that the prices were collected from different kinds of shops
(e.g. supermarket, petrol station, ethnic grocery and corner shop).
For all these reasons, it is impossible to state exactly what the price of
this brand of instant coffee is. Yet its price is, in its own small way,
relevant to the question: Are people getting better or worse off ?

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Unit 2 Prices

That is, if you drink this particular coffee, then changes in its price in
your locality will affect your cost of living. Similarly, your costs and
economic well-being will also be affected by what happens to the
prices of all the other things you need or like to consume.
On the other hand, someone who never buys instant coffee will be
unaffected by any change in its price; they will be much more
interested in what happens to the prices of alternative products such
as ground coffee, tea, milk or fruit juice. The problem of measuring
the effect of price changes on individuals with different consumption
patterns will be considered in Section 5.

1.2 The median

Example 2 Picturing the coffee data

Despite the variability in the data, Table 1 does provide some idea of
the price you would expect to pay for a 100 g jar of that particular
instant coffee in the Milton Keynes area on that particular day. The
information provided by the batch can be seen more clearly when
drawn as a stemplot, and this is shown in Figure 1.

26 8 8 8 8 9
27 5 9
28
29 5 5 5 5 9
30 5
31 5
32
33
34
35
36 9

n = 15 26 8 represents 268 pence

Figure 1 Stemplot of coffee prices from Table 1

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 1 Measuring location

This shows at a glance that if you shop around, you might well find
this brand of coffee on sale at less than 270p. (Indeed some stores
seem to have been ‘price matching’ at the lowest price of 268p.) On
the other hand, if you are not too careful about making price
comparisons then you might pay considerably more than 300p (£3).
However, you are most likely to find a shop with the coffee priced
between about 270p and 300p. Although there is no one price for this
coffee, it seems reasonable to say that the overall location of the price
is a bit less than 300p.
The median of the batch is a useful measure of the overall location of
the values in a batch. You met the median in Subsection 4.2 of
Unit 1; it was defined as the middle value of a batch of figures when
the values are placed in order. Let us revise, and extend slightly, what
you learned about the median in Unit 1.
The stemplot in Figure 1 shows the prices arranged in order of size.
We can label each of these 15 prices with a symbol indicating where it
comes in the ordered batch. A convenient way of showing this is to
write each value as the symbol x plus a subscript number in brackets,
where the subscript number shows the position of that value within
the ordered batch. Figure 2 shows the 15 prices written out in
ascending order using this subscript notation.

The subscript is (3), so this is the third value in the ordered batch

x(1) x(2) x(3) x(4) x(5) x(6) x(7) x(8) x(9) x(10) x(11) x(12) x(13) x(14) x(15)
268 268 268 268 269 275 279 295 295 295 295 299 305 315 369

EL Median EU

Figure 2 Subscript notation for ordered data

The lower extreme, EL , is labelled x(1) and the upper extreme, EU , is

labelled x(15) . The middle value is the value labelled x(8) since there
are as many values, namely 7, above the value of x(8) as there are
below it. (This is not strictly true here, since the values of x(9) , x(10)
and x(11) happen also to be actually equal to the median.)
This is illustrated in Figure 3 by a V-shaped formation. The median
is the middle value, so it lies at the bottom of the V. This way of
picturing a batch will be developed further in Subsection 3.2.

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Unit 2 Prices

x(1) x(15)
x(2) x(14)
x(3) x(13)
x(4) x(12)
x(5) x(11)
x(6) x(10)
x(7) x(9)
An upside down V-shape
x(8)

Median

Figure 3 Median of 15 values

If you wanted to make a more explicit statement, then you could

write: The median price of this batch of 15 prices is 295p.

If we picture any batch of data as a V-shape like Figure 3, the median of

the batch will always lie at the bottom of the V. In the ordered batch, it is
more places away from the extremes than any other value.
In general, the median is the value of the middle item when all the items of
the batch are arranged in order. For a batch size n, the position of the
middle value is 12 (n + 1). For example, when n = 15, this gives a position
of 12 (15 + 1) = 8, indicating that x(8) is the median value. When n is an
even number, the middle position is not a whole number and the median is
the average of the two numbers either side of it. For example, when
n = 12, the median position is 6 12 , indicating that the median value is
taken as halfway between x(6) and x(7) .

Example 3 Digital cameras

Table 2 Prices for a particular model of digital camera as given on a price
comparison website in March 2012 (to the nearest £)

60 70 53 81 74
85 90 79 65 70

If we put these prices in order and arrange them in a V-shape, they

look like Figure 4.

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 1 Measuring location

53 90
60 85
65 81
70 79
70 74
Figure 4 Prices of 10 digital cameras

Because 10 is an even number, there is no single middle value in this

batch: the position of the middle item is 12 (10 + 1) = 5 12 . The two
values closest to the middle are those shown at the bottom of the V:
x(5) = 70 and x(6) = 74. Their average is 72, so we say that the
median price of this batch of camera prices is £72.

Activity 1 Small flat-screen televisions

Figure 5 is a stemplot of data on the prices of small flat-screen televisions.

(The prices have been rounded to the nearest £10. Originally all but one
ended in 9.99, so in this case it makes reasonable sense to ignore the
rounding and treat the data as if the prices were exact multiples of £10.)
Find the median of these data.

0 9
1 0
Not that kind of flat screen
1 2 3 3 3
1 4 5 5 5 5
1 6 6 7
1 8 8 9
2
2
2 4 5
2 7

n = 20 0 9 represents £90
Figure 5 Prices of all flat-screen televisions with a screen size of 24 inches or
less on a major UK retailer’s website on a day in February 2012

This subsection can now be finished by using some of the methods we have
met to examine a batch of data consisting of two parts, or sub-batches.

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Unit 2 Prices

Activity 2 The price of gas in UK cities

Table 3 presents the average price of gas, in pence per kilowatt hour
(kWh), in 2010, for typical consumers on credit tariffs in 14 cities in the
UK. These cities have been divided into two sub-batches: as seven northern
cities and seven southern cities. (Legally, at the time of writing, Ipswich is
a town, not a city, but we shall ignore that distinction here.)
Table 3 Average gas prices in 14 cities

Northern Southern
Aberdeen 3.740 Birmingham 3.805
Edinburgh 3.740 Canterbury 3.796
Leeds 3.776 Cardiff 3.743
Liverpool 3.801 Ipswich 3.760
Manchester 3.801 London 3.818
Newcastle-upon-Tyne 3.804 Plymouth 3.784
Nottingham 3.767 Southampton 3.795

(a) Draw a stemplot of all 14 prices shown in the table.

(b) Draw separate stemplots for the seven prices for northern cities and
the seven prices for southern cities.
(c) For each of these three batches (northern cities, southern cities and all
cities) find the median and the range. Then use these figures to find
the general level and the range of gas prices for typical consumers in
the country as a whole, and to compare the north and south of the
country.

Activity 2 illustrates two general properties of sub-batches:

• The range of the complete batch is greater than or equal to the ranges of
all the sub-batches.
• The median of the complete batch is greater than or equal to the
smallest median of a sub-batch and less than or equal to the largest
median of a sub-batch.

1.3 The arithmetic mean

Another important measure of location is the arithmetic mean.
(Pronounced arithmetic.)

Arithmetic mean
The arithmetic mean is the sum of all the values in the batch divided
by the size of the batch. More briefly,
sum
mean = .
size

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 1 Measuring location

There are other kinds of mean, such as the geometric mean and the
harmonic mean, but in this module we shall be using only the arithmetic
mean; the word mean will therefore normally be used for arithmetic mean.

Example 4 An arithmetic mean

Suppose we have a batch consisting of five values: 4, 8, 4, 2, 9. In this
simple example, the mean is
sum 4+8+4+2+9 27
= = = 5.4.
size 5 5

Note that in calculating the mean, the order in which the values are
summed is irrelevant.
For a larger batch size, you may find it helpful to set out your calculations
systematically in a table. However, in practice the raw data are usually fed
directly into a computer or calculator. In general, it is a good idea to
check your calculations by reworking them. If possible, use a different
method in the reworking; for example, you could sum the numbers in the
opposite order.
The formula ‘mean = sum/size’ can be expressed more concisely as follows.$
Referring
$ to the values in the batch by x, the ‘sum’ can be written as x.
Here is the Greek (capital) letter Sigma, the Greek version of S, and is
used in statistics to denote ‘the sum of’. Also, the symbol x is often used
to denote the mean – and as you have already seen in stemplots, n$can be
used to denote the batch size. (Some calculators use keys marked x and
x to produce the sum and the mean of a batch directly.)
Using this notation,
sum
mean =
size
can be written as
$
x
x= .
n
In this module we shall normally round the mean to one more figure than
the original data.

Activity 3 Small televisions: the mean

The prices of 20 small televisions were given in Activity 1 (Subsection 1.2).

Find the mean of these prices. Round your answer appropriately (if
necessary), given that the original data were rounded to the nearest £10.

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Unit 2 Prices

1.4 The mean and median compared

Both the mean and median of a batch are useful indicators of the location
of the values in the batch. They are, however, calculated in very different
ways. To find the median you must first order the batch of data, and if you
are not using a computer, you will often do the sorting by means of a
stemplot. On the other hand, the major step in finding the mean consists
of summing the values in the batch, and for this they do not need to be
ordered.
For large batches, at least when you are not using a computer, it is often
much quicker to sum the values in the batch than it is to order them.
However, for small batches, like some of those you will be analysing in this
module without a computer, it can be just as fast to calculate the median
as it is to calculate the mean. Moreover, placing the batch values in order
is not done solely to help calculate the median – there are many other
uses. Drawing a stemplot to order the values also enables us to examine
the general shape of the batch, as you saw in Unit 1. In Section 3 you will
read about some other uses of the stemplot.
Comparisons based on the method of calculation can be of great practical
interest, but the rest of this subsection will consider more fundamental
differences between the mean and the median – differences which should
influence you when you are deciding which measure to use in summarising
the general location of the values in a batch.
Many of the problems with the mean, as well as some advantages, lie in
the fact that the precise value of every item in the batch enters into its
calculation. In calculating the median, most of the data values come into
the calculation only in terms of whether they are in the 50% above the
median value or the 50% below it. If one of them changes slightly, but
without moving into the other half of the batch, the median will not
change. In particular, if the extreme values in the batch are made smaller
or larger, this will have no effect on the value of the median – the median
is resistant to outliers, as noted in Subsection 4.2 of Unit 1. In contrast,
changes to the extremes could have an appreciable effect on the value of
the mean, as the following examples show.

Example 5 Changing the extreme coffee prices

For the batch of coffee prices in Figure 1 (Subsection 1.2), the sum of
the values is 4363p, so the mean is
4363p
! 290.9p.
15
Suppose the highest and lowest coffee prices are reduced so that
x(1) = 240 and x(15) = 340.

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 1 Measuring location

The median of this altered batch is the same as before, 295p.

However, the sum of the values is now 4306p and so the mean is
4306p
! 287.1p.
15

Example 6 Changing the small television prices

Suppose the highest two television prices in Activity 1
(Subsection 1.2) are altered to £350 and £400. The median, at £150,
remains the same as that of the original batch, whereas the new mean
is
£3470
= £173.5 ! £174
20
compared with the original mean of £162.
Now, even with the very high prices of £350 and £400 for two
televisions, the overall location of the main body of the data is still
much the same as for the original batch of data. For the original
batch the mean, £162, was a reasonably good measure of this.
However, for the new batch the mean, £174, is much too high to be a
representative measure since, as we can see from the stemplot in
Activity 1, most of the values are below £174.

Example 6 is the subject of Screencast 1 for Unit 2 (see the

M140 website).

A measure which is insensitive to changes in the values near the

extremes is called a resistant measure.
The median is a resistant measure whereas the mean is sensitive.

In the following activities, you can investigate some other ways in which
the median is more resistant than the mean.

Activity 4 Changing the gas prices

In Activity 2 (Subsection 1.2) you may have noticed that Cardiff and
Ipswich had rather low gas prices compared to the other southern cities.
Here you are going to examine the effect of deleting them from the batch of
southern cities. Complete the following table and comment on your results.

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Unit 2 Prices

Batch Mean Median

Seven southern cities

Five southern cities (excluding Cardiff and Ipswich)

Activity 5 A misprint in the gas prices

Suppose the value for London had been misprinted as 8.318 instead of
3.818 (quite an easy mistake to make!). How would this affect your results
for the batch of five southern cities (again omitting Cardiff and Ipswich)?
Batch Mean Median
Five cities (correct data)

Five cities (with misprint)

Suppose you wanted to use these values – the correct ones, of course – to
estimate the average price of gas over the whole country. The simple
arithmetic mean of the 14 values given in Table 3 would not allow for the
fact that much more gas is consumed in London, at a relatively high price,
than in other cities. To take account of this you would need to calculate
what is known as a weighted arithmetic mean. Weighted means are the
subject of the next section.

Exercises on Section 1

Exercise 1 Finding medians

For each of the following batches of data, find the median of the batch.
(We shall also use these batches of data in some of the exercises in
Section 3; they come from Figure 37 and Table 11 of Unit 1 (towards the
end of Subsections 5.2 and 5.1 respectively).)
(a) Percentage scores in arithmetic:

0 7
1 5
2
3 3 5
4 2 2 3
5 5 8
6 4 6 8
7 1 1 6 8 9
8 0 1 1 3 4 5 5 6 9
9 1 1 3 5 9
10 0 0

n = 33 0 7 represents a score of 7%

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 2 Weighted means

(b) Prices of 26 digital televisions (£):

170 180 190 200 220 229 230 230 230

230 250 269 269 270 279 299 300 300
315 320 349 350 400 429 649 699

Exercise 2 Finding means

Calculate the mean for each of the batches in Exercise 1.

Exercise 3 The effect of removing values on the median and

mean
In the data on prices for small televisions in Activity 1 (Subsection 1.2),
the three highest-priced televisions were considerably more expensive than
all the others (which all cost under £200). Suppose that in fact these
prices had been for a different, larger type of television that should not
have been in the batch. (In fact that is not the case – but this is only an
exercise!) Leave these three prices out of the batch and calculate the
median and the mean of the remaining prices.
How do these values compare with the original median (150) and mean
(162)? What does this comparison demonstrate about how resistant the
median and mean are?

You have now covered the material needed for Subsection 2.1 of
the Computer Book.

2 Weighted means
For goods and services, price changes vary considerably from one to
another. Central to the theme question of this unit and the next, Are
people getting better or worse off ?, there is a need to find a fair method of
calculating the average price change over a wide range of goods and
services. Clearly a 10% rise in the price of bread is of greater significance
to most people than a similar rise in the price of clothes pegs, say. What
we need to take account of, then, are the relative weightings attached to
the various price changes under consideration.

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Unit 2 Prices

2.1 The mean of a combined batch

This first subsection looks at how a mean can be calculated when two
unequally weighted batches are combined.

Example 7 Alan’s and Beena’s biscuits

Suppose we are conducting a survey to investigate the general level of
prices in some locality. Two colleagues, Alan and Beena, have each
visited several shops and collected information on the price of a
standard packet of a particular brand of biscuits. They report as
follows (Figure 6).
• Alan visited five shops, and calculated that the mean price of the
standard packet at these shops was 81.6p.
• Beena visited eight shops, and calculated that the mean price of the
standard packet at these shops was 74.0p.

74.0 81.6
pence
Figure 6 Means of biscuit prices

If we had all the individual prices, five from Alan and eight from
Beena, then they could be amalgamated into a single batch of 13
prices, and from this combined batch we could calculate the mean
price of the standard packet at all 13 shops. However, our two
investigators have unfortunately not written down, nor can they fully
remember, the prices from individual shops. Is there anything we can
do to calculate the mean of the combined batch?
Fortunately there is, as long as we are interested in arithmetic means.
(If they had recorded the medians instead, then there would have
been very little we could do.)
The mean of the combined batch of all 13 prices will be calculated as
sum (of the combined batch prices)
.
size (of the combined batch)
We already know that the size of the combined batch is the sum of
the sizes of the two original batches; that is, 5 + 8 = 13. The problem
here is how to find the sum of the combined batch of Alan’s and
Beena’s prices. The solution is to rearrange the familiar formula
sum
mean =
size
so that it reads
sum = mean × size.

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 2 Weighted means

This will allow us to find the sums of Alan’s five prices and Beena’s
eight prices separately. Adding the results will produce the sum of the
combined batch prices. Finally, dividing by 13 completes the
calculation of finding the combined batch mean.
Let us call the sum of Alan’s prices ‘sum(A)’ and the sum of Beena’s
prices ‘sum(B)’.
For Alan: mean = 81.6 and size = 5, so sum(A) = 81.6 × 5 = 408.
For Beena: mean = 74.0 and size = 8, so sum(B) = 74.0 × 8 = 592.
For the combined batch:
combined sum
mean =
combined size
408 + 592
=
13
1000
= ! 76.9
13
Here, the result has been rounded to give the same number of digits
as in the two original means.

The process that we have used above is an important one. It will be used
several times in the rest of this unit. The box below summarises the
method, using symbols.

Mean of a combined batch

The formula for the mean xC of a combined batch C is
xA nA + xB nB
xC = ,
nA + nB
where batch C consists of batch A combined with batch B, and
xA = mean of batch A, nA = size of batch A,
xB = mean of batch B, nB = size of batch B.

For our survey in Example 7,

xA = 81.6, nA = 5, xB = 74.0, nB = 8.
The formula summarises the calculations we did as
(81.6 × 5) + (74.0 × 8)
xC = .
5+8
This expression is an example of a weighted mean. The numbers 5 and 8
are the weights. We call this expression the weighted mean of 81.6
and 74.0 with weights 5 and 8, respectively.

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Unit 2 Prices

To see why the term weighted mean is used for such an expression, imagine
that Figure 7 shows a horizontal bar with two weights, of sizes 5 and 8,
hanging on it at the points 81.6 and 74.0, and that you need to find the
point at which the bar will balance. This point is at the weighted mean:
approximately 76.9.
74.0 76.9 81.6
pence

5
8

Figure 7 Point of balance at the weighted mean

This physical analogy illustrates several important facts about weighted

means.
• It does not matter whether the weights are 5 kg and 8 kg or 5 tonnes and
8 tonnes; the point of balance will be in the same place. It will also
remain in the same place if we use weights of 10 kg and 16 kg or 40 kg
and 64 kg – it is only the relative sizes (i.e. the ratio) of the weights that
matter.
• The point of balance must be between the points where we hang the
weights, and it is nearer to the point with the larger weight.
• If the weights are equal, then the point of balance is halfway between
the points.
This gives the following rules.

Rules for weighted means

Rule 1 The weighted mean depends on the relative sizes (i.e. the
ratio) of the weights.
Rule 2 The weighted mean of two numbers always lies between the
numbers and it is nearer the number that has the larger weight.
Rule 3 If the weights are equal, then the weighted mean of two
numbers is the number halfway between them.

Example 8 Two batches of small televisions

Suppose that we have two batches of prices (in pounds) for small
televisions:
Batch A has mean 119 and size 7.
Batch B has mean 185 and size 13.

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 2 Weighted means

To find the mean of the combined batch we use the formula above,
with
xA = 119, nA = 7, xB = 185, nB = 13.
This gives
(119 × 7) + (185 × 13)
xC =
7 + 13
833 + 2405
=
20
3238
=
20
= 161.9 ! 162.
Note that this is the weighted mean of 119 and 185 with weights 7
and 13 respectively. It lies between 119 and 185 but it is nearer to 185
because this has the greater weight: 13 compared with 7.

Example 8 is the subject of Screencast 2 for Unit 2 (see the

M140 website).
You have also now covered the material needed for
Subsection 2.2 of the Computer Book.

2.2 Further uses of weighted means

We shall now look at another similar problem about mean prices – one
which is perhaps closer to your everyday experience.

Example 9 Buying petrol

Suppose that, in a particular week in 2012, a motorist purchased
petrol on two occasions. On the first she went to her usual, relatively
low-priced filling station where the price of unleaded petrol was
136.9p per litre and she filled the tank; the quantity she purchased
was 41.2 litres. The second occasion saw her obliged to purchase
petrol at an expensive service station where the price of unleaded
petrol was 148.0p per litre; she therefore purchased only 10 litres.
What was the mean price, in pence per litre, of the petrol she
purchased during that week?
To calculate this mean price we need to work out the total
expenditure on petrol, in pence, and divide it by the total quantity of
petrol purchased, in litres.

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Unit 2 Prices

The total quantity purchased is straightforward as it is just the sum

of the two quantities, so 41.2 + 10.
To find the expenditure on each occasion, we need to apply the
formula:
cost = price × quantity.
This gives 136.9 × 41.2 and 148.0 × 10, respectively.
So the total expenditure, in pence, is (136.9 × 41.2) + (148.0 × 10).
The mean price, in pence per litre, for which we were asked, is this
total expenditure divided by the total number of litres bought:
(136.9 × 41.2) + (148.0 × 10)
.
41.2 + 10
We have left the answer in this form, rather than working out the
individual products and sums as we went along, to show that it has
the same form as the calculation of the combined batch mean. (The
answer is 139.07p per litre, rounded from 139.067 97p per litre.)

The phrase ‘goods and services’ is an awkward way of referring to the

things that are relevant to the cost of living; that is, physical things you
might buy, such as bread or gas, and services that you might pay someone
else to do for you, such as window-cleaning. Economists sometimes use the
word commodity to cover both goods and services that people pay for, and
we shall use that word from time to time in this unit. (Note that there are
other, different, technical meanings of commodity that you might meet in
different contexts.)

The mean price of a quantity bought on two different

occasions
In general, if you purchase q1 units of some commodity at p1 pence
per unit and q2 units of the same commodity at p2 pence per unit,
then the mean price of this commodity, p pence per unit, can be
calculated from the following formula:
p 1 q1 + p 2 q 2
p= .
q1 + q 2

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 2 Weighted means

Example 10 Buying potatoes

Suppose that, in one month, a family purchased potatoes on two
occasions. On one occasion they bought 10 kg at 40p per kg, and on
another they bought 6 kg at 45p per kg. We can use this formula to
calculate the mean price (in pence per kg) that they paid for potatoes
in that month. We have
#
q1 = 10 quantity
first occasion
p1 = 40 price
and
#
q2 = 6 quantity
second occasion.
p2 = 45 price
This gives
(40 × 10) + (45 × 6)
p=
10 + 6
400 + 270
=
16
670
=
16
= 41.875 ! 41.9.
So the mean price for that month is 41.9p per kg.

The two formulas we have been using,

xA nA + xB nB p 1 q 1 + p 2 q2
and ,
nA + nB q1 + q2
are basically the same; they are both examples of weighted means.
The first formula is the weighted mean of the numbers xA and xB , using
the batch sizes, nA and nB , as weights.
The second formula is the weighted mean of the unit prices p1 and p2 ,
using the quantities bought, q1 and q2 , as weights.
The general form of a weighted mean of two numbers having associated
weights is as follows.

Weighted mean of two numbers

The weighted mean of the two numbers x1 and x2 with
corresponding weights w1 and w2 is
x1 w 1 + x2 w 2
.
w 1 + w2

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Unit 2 Prices

Weighted means have many uses, two of which you have already met. The
type of weights depends on the particular use. In our uses, the weights
were the following.
• The sizes of the batches, when we were calculating the combined batch
mean from two batch means.
• The quantities bought, when we were calculating the mean price of a
commodity bought on two separate occasions.
Another very important use is in the construction of an index, such as the
Retail Prices Index; we shall therefore be making much use of weighted
means in the final sections of this unit.
In the next example, we do not have all the information required to
calculate the mean, but we can still get a reasonable answer by using
weights.

Example 11 Weighted means of two gas prices

Let us return to the gas prices in Table 3 (Subsection 1.2). This has
information about the price of gas for typical consumers in individual
cities, but no national figure. Suppose that you want to combine these
figures to get an average figure for the whole country; how could you
do it? At the end of Section 1, it was suggested that weighted means
could provide a solution. The complete answer to this question, using
weighted means, is in Example 13 towards the end of this section. To
introduce the method used there, let us now consider a similar, but
simpler, question.
Here we use just two cities, London and Edinburgh, where the prices
were 3.818p per kWh and 3.740p per kWh respectively. How can we
combine these two values into one sensible average figure?
One possibility would be to take the simple mean of the two numbers.
This gives
1
2 (3.818 + 3.740) = 3.779.
However, this gives both cities equal weight. Because London is a lot
larger than Edinburgh, we should expect the average to be nearer the
London price than the Edinburgh price.
This suggests that we use a weighted mean of the form
3.818q1 + 3.740q2
,
q1 + q2
where q1 and q2 are suitably chosen weights, with the weight q1 of the
London price larger than the weight q2 of the Edinburgh price.
The best weights would be the total quantities of gas consumed in
2010 in each city. However, even if this information is not available to

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 2 Weighted means

us, we can still find a reasonable average figure by using as weights a

readily available measure of the sizes of the two cities: their
populations.
The populations of the urban areas of these cities are approximately
8 300 000 and 400 000 respectively. So we could put q1 = 8 300 000 and
q2 = 400 000.
However, we know that the weighted mean depends only on the ratio
of the weights. Therefore, the weights q1 = 83 and q2 = 4 will give the
same answer.
These weights give
(3.818 × 83) + (3.740 × 4)
.
83 + 4

Activity 6 Using the rules for weighted means

Using the rules for weighted means, would you expect the weighted mean
price to be nearer the London price or the Edinburgh price? To check,
calculate the weighted mean price.

Although we cannot think of the weighted mean price in Activity 6 as a

calculation of the total cost divided by the total consumption, the answer
is an estimate of the average price, in pence per kWh, for typical
consumers in the two cities, and it is the best estimate we can calculate
with the available information.
Sometimes the weights in a weighted mean do not have any significance in
themselves: they are neither quantities, nor sizes, etc., but simply weights.
This is illustrated in the following activity.

Activity 7 Weighted means of Open University marks

As an Open University student, an example of the use of weighted means

with which you are familiar, or will soon become familiar, is the
combination of scores from different pieces of assessment, such as
interactive computer-marked assignment (iCMA) and tutor-marked
assignment (TMA) scores, to provide an overall score (OS).
Suppose that you obtain a score of 80 for your iCMAs and a score of 60 for
your TMAs. (I am not saying these are typical scores for M140!) Calculate
what your overall score will be if the weights for the two components are
as follows.

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Unit 2 Prices

(a) iCMA 50, TMA 50

(b) iCMA 40, TMA 60
(c) iCMA 65, TMA 55
(d) iCMA 25, TMA 75
(e) iCMA 30, TMA 90

We have seen in Example 11 and Activity 7 that only the ratio of the
weights affects the answer, not the individual weights. So weights are often
chosen to add up to a convenient number like 100 or 1000. This is Rule 1
for weighted means (see Subsection 2.1).
Activity 7 should also have reminded you of another important property of
a weighted mean of two numbers: the weighted mean lies nearer to the
number having the larger weight. This is part of Rule 2 for weighted
means.

2.3 More than two numbers

The idea of a weighted mean can be extended to more than two numbers.
To see how the calculation is done in general, remind yourself first how we
calculated the weighted mean of two numbers x1 and x2 with
corresponding weights w1 and w2 .
1. Multiply each number by its weight to get the products x1 w1 and x2 w2 .
2. Sum these products to get x1 w1 + x2 w2 .
3. Sum the weights to get w1 + w2 .
4. Divide the sum of the products by the sum of the weights.
This leads to the following formula.

Weighted mean of two or more numbers

The weighted mean of two or more numbers is
sum of {number × weight} sum of products
= .
sum of weights sum of weights

This is the formula which is used to find the weighted mean of any set of
numbers, each with a corresponding weight.

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 2 Weighted means

Example 12 A weighted mean of wine prices

Suppose we have the following three batches of wine prices (in pence
per bottle).
Batch 1 with mean 525.5 and batch size 6.
Batch 2 with mean 468.0 and batch size 2.
Batch 3 with mean 504.2 and batch size 12.
We want to calculate the weighted mean of these three batch means
using, as corresponding weights, the three batch sizes. Rather than
applying the formula directly, the calculations can be set out in
columns.
Table 4 Data on wine purchases

Batch Number (batch mean) Weight (batch size) Number × weight

(= product)

Batch 1 525.5 6 3 153.0

Batch 2 468.0 2 936.0
Batch 3 504.2 12 6 050.4

Sum 20 10 139.4

The weighted mean is

sum of products 10 139.4
= = 506.97.
sum of weights 20
We round this to the same accuracy as the original means, to get a
weighted mean of 507.0. (Note that this lies between 468.0 and 525.5.
This is a useful check, as a weighted mean always lies within the range
of the original means.)

The physical analogy in Example 12 can be extended to any set of

numbers and weights. Suppose that you calculate the weighted mean for:
1.3 with weight 2
1.9 with weight 1
1.7 with weight 3.
This is given by
(1.3 × 2) + (1.9 × 1) + (1.7 × 3) 2.6 + 1.9 + 5.1 9.6
= = = 1.6.
2+1+3 6 6
This is pictured in Figure 8 below, with the point of balance for these
three weights shown at 1.6.

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Unit 2 Prices

1.3 1.6 1.7 1.9

1
2
3

Figure 8 Point of balance for three means

You will meet many examples of weighted means of larger sets of numbers
in Subsection 5.2, but we shall end this section with one more example.

Example 13 Weighted means of many gas prices

Example 11 showed the calculation of a weighted mean of gas prices
using, for simplicity, just the two cities London and Edinburgh. We
can extend Example 11 to calculate a weighted mean of all 14 gas
prices from Table 3, using as weights the populations of the 14 cities.
The calculations are set out in Table 5.
Table 5 Product of gas price and weight by city

Price (p/kWh) Weight Price × weight

x w xw

Aberdeen 3.740 19 71.060

Edinburgh 3.740 42 157.080
Leeds 3.776 150 566.400
Liverpool 3.801 82 311.682
Manchester 3.801 224 851.424
Newcastle-upon-Tyne 3.804 88 334.752
Nottingham 3.767 67 252.389
Birmingham 3.805 228 867.540
Canterbury 3.796 5 18.980
Cardiff 3.743 33 123.519
Ipswich 3.760 14 52.640
London 3.818 828 3161.304
Plymouth 3.784 24 90.816
Southampton 3.795 30 113.850

Sum 1834 6973.436

The entries in the weight column, w, are the approximate

populations, in 10 000s, of the urban areas that include each city (as
measured in the 2001 Census). For each city, we multiply the price, x,
by the weight, w, to get the entry in the last column, xw.
The weighted mean of the gas prices using these weights is then
sum of products (price × weight)
sum of weights

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 2 Weighted means

or, in symbols,
$
xw
$ .
w
$ $
As xw = 6973.436 and w = 1834, the weighted mean is
6973.436
= 3.802 310 ! 3.802.
1834
So the weighted mean of these gas prices, using approximate
population figures as weights, is 3.802p per kWh.
Note that this weighted mean is larger than all but three of the gas
prices for individual cities. That is because the cities with the two
highest populations, London and Birmingham, also have the highest
gas prices, and the weighted mean gas price is pulled towards these
high prices.

Although the details of the calculation above are written out in full in
Table 5, in practice, using even a simple calculator, this is not necessary. It
is usually possible to keep a running sum of both the weights and the
products as the data are being entered. One way of doing this is to
accumulate the sum of the weights into the calculator’s memory while the
sum of the products is cumulated on the display. If you are using a
specialist statistics calculator, the task is generally very straightforward.
Simply enter each price and its corresponding weight using the method
described in your calculator instructions for finding a weighted mean.

Activity 8 Weighted means on your calculator

Use your calculator to check that the sum of weights and sum of products
of the data in Table 5 are, respectively, 1834 and 6973.436, and that the
weighted mean is 3.802. (No solution is given to this activity.)

Activity 9 Weighted mean electricity price

Table 6 is similar to Table 5, but this time it presents the average price of
electricity, in pence per kilowatt hour (kWh). These data are again for the
year 2010 for typical consumers on credit tariffs in the same 14 cities we
have been considering for gas prices, with the addition of Belfast. Again,
the weights are the approximate populations of the relevant urban areas,
in 10 000s.

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Unit 2 Prices

Table 6 Populations and electricity prices in 15 cities

Price (p/kWh) Weight Price × weight

x w xw

Aberdeen 13.76 19
Belfast 15.03 58
Edinburgh 13.86 42
Leeds 12.70 150
Liverpool 13.89 82
Manchester 12.65 224
Newcastle-upon-Tyne 12.97 88
Nottingham 12.64 67
Birmingham 12.89 228
Canterbury 12.92 5
Cardiff 13.83 33
Ipswich 12.84 14
London 13.17 828
Plymouth 13.61 24
Southampton 13.41 30

Sum

Use these data to calculate the weighted mean electricity price. (Your
calculator will almost certainly allow you to do this without writing out all
the values in the xw column.)

Exercises on Section 2

Exercise 4 A combined batch of camera prices

Find the mean price of the batch formed by combining the following two
batches, A and B, of camera prices.
Batch A has mean price £80.7 and batch size 10.
Batch B has mean price £78.5 and batch size 17.

Exercise 5 The mean price of fabric

Suppose you buy 8.5 metres of fabric in a sale, at £10.95 per metre, to
make some bedroom curtains. The following year you decide to make a
matching bedspread and so you buy 6 metres of the same material, but the
price is now £12.70 per metre. Calculate the mean price of all the
material, in £ per metre.

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 3 Measuring spread

3 Measuring spread
As you have already seen, it is difficult to measure price changes when they
so often vary from shop to shop and region to region. Taking some average
value, such as the median or the mean, helps to simplify the problem.
However, it would be a mistake to ignore the notion of spread, as averages
on their own can be misleading.
Information about spread can be very important in statistical analysis,
where you are often interested in comparing two or more batches. In this
section we shall look first at measures of spread, and then at some
I like to sleep each night
methods of summarising the shape of a batch of data.
with my feet in the oven
But how can spread be measured? Just as there are several ways of and my head in the freezer.
measuring location (mean, median, etc.), there are also several ways of That way I’m comfortable
measuring spread. Here, we shall examine two such measures: the range on average.
and the interquartile range.
In the next unit you will learn about a further measure of spread called the
standard deviation.

3.1 The range

You met the range in Subsection 4.2 of Unit 1. The definition is provided
below.

The range
The range is the distance between the lower and the upper extremes.
It can be calculated from the formula:
range = EU − EL ,
where EU is the upper extreme and EL is the lower extreme.

Given an ordered batch of data, for example in a stemplot, the range can
easily be calculated. However, the range tells us very little about how the
values in the main body of the data are spread. It is also very sensitive to
changes in the extreme values, like those considered in Subsection 1.4. It
would be better to have a measure of spread that conveys more
information about the spread of values in the main body of the data. One
such measure is based upon the difference between two particular values in
the batch, known as the quartiles. As the name suggests, the two
quartiles lie one quarter of the way into the batch from either end. The
major part of the next subsection describes how to find them.

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Unit 2 Prices

3.2 Quartiles and the interquartile range

Finding the quartiles of a batch is very similar to finding the median.
In Subsection 1.2, we represented a batch as a V-shaped formation, with
the median at the ‘hinge’ where the two arms of the V meet. The median
splits the batch into two equal parts. Similarly, we can put another hinge
in each side of the V and get four roughly equal parts, shaped like this: ∧∧.
For a batch of size 15, it looks like Figure 9.

Lower quartile Upper quartile

x(4) x(12)
x(3) x(5) x(11) x(13)
x(2) x(6) x(10) x(14)
x(1) x(7) x(9) x(15)
x(8)

Median

More birds, now showing the Figure 9 Median and quartiles

shape of the ∧∧ diagram
The points at the side hinges, in this case x(4) and x(12) , are the quartiles.
There are two quartiles which, as with the extremes, we call the lower
quartile and the upper quartile. The lower quartile separates off the
bottom quarter, or lowest 25%. The upper quartile separates off the top
quarter, or highest 25%. They are denoted Q1 and Q3 respectively.
(Sometimes they are referred to as the first quartile and the third quartile.)
You might be wondering, if these are Q1 and Q3 , what happened to Q2 ?
Well, have a think about that for a moment.
Q1 separates the bottom quarter of the data (from the top three quarters),
and Q3 separates the bottom three quarters (from the top quarter). So it
would make sense to say that Q2 separates the bottom two quarters (from
the top two quarters). But two quarters make a half, so Q2 would denote
the median, and since there is already a separate word for that, it’s not
usual to call it the second quartile.
Usually we cannot divide the batch exactly into quarters. Indeed, this is
illustrated in Figure 9 where the two central parts of the ∧∧ are larger
than the outer ones. As with calculating the median for an even-sized
batch, some rule is needed to tell us how many places we need to count
along from the smallest value to find the quartiles. However, there are
several alternatives that we could adopt and the particular rule that we’re
going to use is somewhat arbitrary. Different authors and different
software may use slightly different rules.

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 3 Measuring spread

The rule adopted here is the one used by Minitab. If your calculator can
find quartiles, note that it may use a different rule, and you may also have
used different rules in other Open University modules.
As you might have expected, the rule involves dividing (n + 1) by 4,
where n is the batch size (as opposed to dividing by 2 to find the median).
However, the rule is slightly more complicated for the quartiles and it
depends on whether (n + 1) is exactly divisible by 4.

The quartiles
(n + 1)
The lower quartile Q1 is at position in the ordered batch.
4
3(n + 1)
The upper quartile Q3 is at position in the ordered batch.
4
If (n + 1) is exactly divisible by 4, these positions correspond to a
single value in the batch.
If (n + 1) is not exactly divisible by 4, then the positions are to be
interpreted as follows.
• A position which is a whole number followed by 12 means ‘halfway
between the two positions either side’ (as was the case for finding
the median).
• A position which is a whole number followed by 14 means ‘one
quarter of the way from the position below to the position above’.
So for instance if a position is 5 14 , the quartile is the number
one quarter of the way from x(5) to x(6) .
• A position which is a whole number followed by 43 means ‘three
quarters of the way from the position below to the position above’.
So for instance if a position is 4 34 , the quartile is the number
three quarters of the way from x(4) to x(5) .

Before we actually use these rules to find quartiles, let us look at some
more examples of ∧∧-shaped diagrams for different batch sizes n. The case
where (n + 1) is exactly divisible by 4, so that 14 (n + 1) is a whole number,
was shown in Figure 9. The following three figures show the three other
possible scenarios, where (n + 1) is not exactly divisible by 4.

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Unit 2 Prices

For n = 17, 14 (n + 1) = 4 12 and 34 (n + 1) = 13 12 . So Q1 is halfway between

x(4) and x(5) , and Q3 is halfway between x(13) and x(14) .

Lower quartile Upper quartile

x(4) x(5) x(13) x(14)

x(3) x(6) x(12) x(15)
x(2) x(7) x(11) x(16)
x(1) x(8) x(10) x(17)
x(9)

Median

Figure 10 Quartiles for sample size n = 17

For n = 18, 41 (n + 1) = 4 34 and 34 (n + 1) = 14 14 . So Q1 is three quarters of

the way from x(4) to x(5) , and Q3 is one quarter of the way from x(14) to
x(15) .

Lower quartile Upper quartile

x(4) x(5) x(14) x(15)

x(3) x(6) x(13) x(16)
x(2) x(7) x(12) x(17)
x(1) x(8) x(11) x(18)
x(9) x(10)

Median

Figure 11 Quartiles for sample size n = 18

For n = 20, 14 (n + 1) = 5 14 and 34 (n + 1) = 15 34 . So Q1 is one quarter of the

way from x(5) to x(6) , and Q3 is three quarters of the way from x(15) to
x(16) .

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 3 Measuring spread

Lower quartile Upper quartile

x(5) x(6) x(15) x(16)

x(4) x(7) x(14) x(17)
x(3) x(8) x(13) x(18)
x(2) x(9) x(12) x(19)
x(1) x(10) x(11) x(20)

Median

Figure 12 Quartiles for sample size n = 20

Example 14 Quartiles for the prices of small televisions

Figure 12 showed you where the quartiles are for a batch of size 20.
Let us now use the stemplot of the 20 television prices in Figure 13,
which you first met in Figure 5 (Subsection 1.2), to find the lower and
upper quartiles, Q1 and Q3 , of this batch.

0 9
1 0
1 2 3 3 3
1 4 5 5 5 5
1 6 6 7
1 8 8 9
2
2
2 4 5
2 7

n = 20 0 9 represents £90
Figure 13 Prices of flat-screen televisions with a screen size of 24 inches
or less

To calculate the lower quartile Q1 you need to find the number that is
one quarter of the way from x(5) to x(6) . These values are both 130, so
Q1 is 130. To calculate the upper quartile Q3 you need to find the
number three quarters of the way from x(15) to x(16) . These values are
both 180, so Q3 is 180.

That example was easier than it might have been, because for each
quartile the two numbers we had to consider turned out to be equal!

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Unit 2 Prices

Example 15 Quartiles for the camera prices

Table 2 (Subsection 1.2) gave ten prices for a particular model of
digital camera (in pounds). In order, the prices are as follows.
53 60 65 70 70 74 79 81 85 90
To find the lower and upper quartiles, Q1 and Q3 , of this batch, first
find 14 (n + 1) = 2 34 and 34 (n + 1) = 8 14 .
The lower quartile Q1 is the number three quarters of the way from
x(2) to x(3) . These values are 60 and 65. The difference between them
is 65 − 60 = 5, and three quarters of that difference is 34 × 5 = 3.75.
Therefore Q1 is 3.75 larger than 60, so it is 63.75. As with the
median, in this module we will generally round the quartiles to the
accuracy of the original data, so in this case we round to the nearest
whole number, 64. In symbols, Q1 = 60 + 34 (65 − 60) = 63.75 ! 64.
The upper quartile Q3 is the number one quarter of the way from x(8)
to x(9) . These values are 81 and 85. The difference between them is
85 − 81 = 4, and one quarter of that difference is 14 × 4 = 1. Therefore
Q3 is 1 larger than 81, so it is 82. (No rounding necessary this time.)
In symbols, Q3 = 81 + 14 (85 − 81) = 82.

Example 15 is the subject of Screencast 3 for Unit 2 (see the

M140 website).

Activity 10 Finding more quartiles

(a) Find the lower and upper quartiles of the batch of 15 coffee prices in
Figure 14. (This batch of coffee prices was first introduced in Table 1
of Subsection 1.1.)

26 8 8 8 8 9
27 5 9
28
29 5 5 5 5 9
30 5
31 5
32
33
34
35
36 9

n = 15 26 8 represents 268 pence

Figure 14 Stemplot of 15 coffee prices

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 3 Measuring spread

(b) Find the lower and upper quartiles of the batch of 14 gas prices in
Figure 15. (This batch of gas prices was first introduced in Table 3 of
Subsection 1.2.)

374 0 0 3
375
376 0 7
377 6
378 4
379 5 6
380 1 1 4 5
381 8

n = 14 374 0 represents 3.740p per kWh

Figure 15 Stemplot of 14 gas prices

A measure of spread
Now we can define a new measure of spread based entirely on the lower
and upper quartiles.

The interquartile range

The interquartile range (sometimes abbreviated to IQR) is the
distance between the lower and upper quartiles:
IQR = Q3 − Q1 .

Note that this value is independent of the sizes of EU and EL .

Example 16 The prices of small televisions, yet again!

For the batch of 20 television prices in Example 14,
IQR = Q3 − Q1
= 180 − 130
= 50.
So the interquartile range is £50.

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Unit 2 Prices

Activity 11 Coffee prices again

Calculate both the range and the interquartile range of the batch of
15 coffee prices, last seen in Figure 14.

Activity 12 Interquartile range of gas prices

In Activity 10(b) you found the quartiles of the 14 gas prices from
Activity 2 (Subsection 1.2). Find the interquartile range.

You may be wondering why you are being asked to learn a new measure of
spread when you already know the range. As a measure of spread, the
range (EU − EL ) is not very satisfactory because it is not resistant to the
effects of unrepresentative extreme values. The interquartile range, by
contrast, is a highly resistant measure of spread (because it is not sensitive
to the effects of values lying outside the middle 50% of the batch) and it is
generally the preferred choice.

Example 17 Comparing the resistance of the range and

the IQR
Suppose the price of the most expensive jar of coffee is reduced from
369p to 325p. How does this affect the range and the interquartile
range of the batch of coffee prices in Figure 14?
The new range is
EU − EL = 325p − 268p = 57p,
a lot less than the original value of 101p (found in Activity 11). The
interquartile range is unchanged.

3.3 The five-figure summary and boxplots

As well as giving us a new measure of spread – the interquartile range –
the quartiles are important figures in themselves. Our ∧∧-shaped diagram,
Figure 16, gives five important points which help to summarise the shape
of a distribution: the median, the two quartiles and the two extremes.

Q1 Q3

EL M EU
Figure 16 Values in a five-figure summary

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 3 Measuring spread

These are conveniently displayed in the following form, called

the five-figure summary of the batch.

Five-figure summary
n batch size
M median
M
Q3 Q1 lower quartile
n Q1
Q3 upper quartile
EL EU
EL lower extreme
EU upper extreme

Example 18 Five-figure summary for television price data

For the television price data, last seen in Figure 13, we have n = 20,
M = 150, Q1 = 130, Q3 = 180, EL = 90 and EU = 270.
Therefore, the five-figure summary of this batch is

150
n = 20 130 180
90 270

This diagram contains the following information about the batch of

prices.
• The general level of prices, as measured by the median, is £150.
• The individual prices vary from £90 to £270.
• About 25% of the prices were less than £130.
• About 25% of the prices were more than £180.
• About 50% of the prices were between £130 and £180.

We hope you agree that the five-figure summary is quite an efficient way of
presenting a summary of a batch of data.

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Unit 2 Prices

The five values in a five-figure summary can be very effectively presented

in a special diagram called a boxplot. For the 14 gas prices (Figure 15)
the diagram looks like Figure 17.

3.74 3.76 3.78 3.80 3.82

p/kWh
Figure 17 Boxplot of batch of 14 gas prices

The central feature of this diagram is a box – hence the name box plot. The
box extends from the lower quartile (at the left-hand edge of the box) to
the upper quartile (the right-hand edge). This part of the diagram contains
50% of the values in the batch. The length of this box is thus the
interquartile range.
Outside the box are two whiskers. (Boxplots are sometimes called
box-and-whisker diagrams.) In many cases, such as in Figure 17, the
whiskers extend all the way out to the extremes. Each whisker then covers
the end 25% of the batch and the distance between the two whisker-ends is
then the range. (You will see examples later where the whiskers do not go
right out to the extremes.)
So far we have dealt with four figures from the five-figure summary: the
two quartiles and the two extremes. The remaining figure is perhaps the
most important: it is the median, whose position is shown by putting a
vertical line through the box.
Thus a boxplot shows clearly the division of the data into four parts: the
two whiskers and the two sections of the box; these are the four parts of
the ∧∧-shaped diagram and each contains (approximately) 25% of values
in the batch (see Figure 18).

John W. Tukey (1915–2000), inventor of the five-figure

summary and boxplot
John Tukey was a prominent and prolific US statistician, based at
Princeton University and Bell Laboratories. As well as working in
some very technical areas, he was a great promoter of simple ways of
picturing and summarising data, and invented both the five-figure
summary and the boxplot (except that he called them the
‘five-number summary’ and the ‘box-and-whisker plot’).

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 3 Measuring spread

He had what has been described as an ‘unusual’ lecturing style. The

statistician Peter McCullagh describes a lecture he gave at Imperial
College, London in 1977:
Tukey ambled to the podium, a great bear of a man dressed in
baggy pants and a black knitted shirt. These might once have
been a matching pair, but the vintage was such that it was hard
to tell. . . . The words came . . . , not many, like overweight
parcels, delivered at a slow unfaltering pace. . . . Tukey turned to
face the audience . . . . ‘Comments, queries, suggestions?’ he
asked . . . . As he waited for a response, he clambered onto the
podium and manoeuvred until he was sitting cross-legged facing
the audience. . . . We in the audience sat like spectators at the
zoo waiting for the great bear to move or say something. But
the great bear appeared to be doing the same thing, and the
feeling was not comfortable. . . . After a long while, . . . he John Tukey teaching at
extracted from his pocket a bag of dried prunes and proceeded Princeton University
to eat them in silence, one by one. The war of nerves continued
. . . four prunes, five prunes. . . . How many prunes would it take
to end the silence?
(Source: McCullagh, P. (2003) ‘John Wilder Tukey’, Biographical
Memoirs of Fellows of the Royal Society, vol. 49, pp. 537–555.)

A typical boxplot looks something like Figure 18 because in most batches

of data the values are more densely packed in the middle of the batch and
are less densely packed in the extremes. This means that each whisker is
usually longer than half the length of the box. This is illustrated again in
the next example.

Q1 M Q3
EL EU

25% 25% 25% 25%

Figure 18 A standard boxplot with annotation

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Unit 2 Prices

Example 19 Boxplot for the prices of small televisions

The boxplot for the batch of 20 television prices (last worked with in
Example 18) is shown in Figure 19.

100 125 150 175 200 225 250 275

£
Figure 19 Boxplot of batch of 20 television prices

You can see that each whisker is longer than half the length of the
box.
However, this boxplot has a new feature. The whisker on the left goes
right down to the lower extreme. But the whisker on the right does
not go right to the upper extreme. The highest extreme data value,
270, which might potentially be regarded as an outlier, is marked
separately with a star. Then the whisker extends only to cover the
data values that are not extreme enough to be regarded as potential
outliers. The highest of these values is 250.
In Unit 3, you will learn in detail how to draw a boxplot. This
includes a rule to decide which data values (if any) can be regarded as
potential outliers that are plotted separately on the diagram.

Example 19 is the subject of Screencast 4 for Unit 2 (see the

M140 website).
One important use of boxplots is to picture and describe the overall shape
of a batch of data. Other uses will be covered in Unit 3.

Example 20 Skew televisions

The stemplot of small television prices, last seen in Figure 13
(Subsection 3.2), shows a lack of symmetry. Since the higher values
are more spread out than the lower values, the data are right-skew.
Skewness and symmetry were discussed in Subsection 5.2 of Unit 1.
The boxplot of these data, given in Figure 19, also shows this
right-skew fairly clearly. In the box, the right-hand part
(corresponding to higher prices) is rather longer than the left-hand
part, and the right-hand whisker is longer than the left-hand whisker.

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 3 Measuring spread

Activity 13 Skew gas prices?

A stemplot of the gas price data from Activity 2 (Subsection 1.2) is shown,
yet again, in Figure 20.

374 0 0 3
375
376 0 7
377 6
378 4
379 5 6
380 1 1 4 5
381 8

n = 14 374 0 represents 3.740p per kWh

Figure 20 Stemplot of 14 gas prices
(a) Prepare a five-figure summary of the batch.
(b) Figure 21 shows the boxplot of these data that you have already seen
in Figure 17. What do the stemplot and boxplot tell us about the
symmetry and/or skewness of the batch?

3.74 3.76 3.78 3.80 3.82

p/kWh
Figure 21 Boxplot of batch of 14 gas prices

Example 21 Camera prices: skew or not?

In Example 20 and Activity 13 you saw how boxplots look for batches
of data that are right-skew or left-skew. What happens in a batch
that is more symmetrical?
For the small batch of camera prices from Table 2 (Subsection 1.2), a
(stretched) stemplot is shown in Figure 22.

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Unit 2 Prices

5 3
5
6 0
6 5
7 0 0 4
7 9
8 1
8 5
9 0

n = 10 5 3 represents £53
Figure 22 Stemplot of ten camera prices

The stemplot looks reasonably symmetric.

A boxplot of the data, Figure 23, confirms the impression of
symmetry. The two parts of the box are roughly equal in length, and
the two whiskers are also roughly equal in length.

50 60 70 80 90
£
Figure 23 Boxplot of batch of ten camera prices

You have now spent quite a lot of time looking at various ways of
investigating prices and, in particular, at methods of measuring the
location and spread of the prices of particular commodities.
In order to begin to answer our question, Are people getting better or worse
off ?, we need to know not just location (and spread) of prices but also how
these prices are changing from year to year. That is the subject of the rest
of this unit.

Exercises on Section 3

Exercise 6 Finding quartiles and the interquartile range

(a) For the arithmetic scores in Exercise 1 (Section 1), find the quartiles
and calculate the interquartile range. The stemplot of the scores is
given below.

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 3 Measuring spread

0 7
1 5
2
3 3 5
4 2 2 3
5 5 8
6 4 6 8
7 1 1 6 8 9
8 0 1 1 3 4 5 5 6 9
9 1 1 3 5 9
10 0 0

n = 33 0 7 represents a score of 7%

(b) For the television prices in Exercise 1, find the quartiles and calculate
the interquartile range. The table of prices is given below.

170 180 190 200 220 229 230 230 230

230 250 269 269 270 279 299 300 300
315 320 349 350 400 429 649 699

Exercise 7 Some five-figure summaries

Prepare a five-figure summary for each of the two batches from Exercise 1.
(a) For the arithmetic scores, the median is 79% (found in Exercise 1),
and you found the quartiles and interquartile range in Exercise 6.
(b) For the television prices, the median is £270 (found in Exercise 1),
and you found the quartiles and interquartile range in Exercise 6.

Exercise 8 Boxplots and the shape of distributions

Boxplots of the two batches used in Exercises 1, 6 and 7 are shown in
Figures 24 and 25. On the basis of these diagrams, comment on the
symmetry and/or skewness of these data.

0 20 40 60 80 100
%
Figure 24 Boxplot of batch of 33 arithmetic scores

131
Unit 2 Prices

* *

100 200 300 400 500 600 700

£
Figure 25 Boxplot of batch of 26 television prices

4 A simple chained price index

You have already seen that it is not a simple task to measure the price of
even a single commodity at a fixed time and place. Measuring the change
in price of a single commodity from one year to the next will be even more
complicated but, as was said in Subsection 1.1, to answer our question it is
necessary to measure the changes in the prices of the whole range of goods
and services which people use. Moreover, since we wish to know how all
the different changes in the prices of these goods and services affect people,
we need to take into account those people’s consumption patterns. For
example, a large increase in the price of high-quality caviar will not affect
most people’s budgets since most households’ shopping lists do not include
this commodity!
This makes the task of measuring price changes and examining how they
affect us seem exceedingly difficult; but such a task is carried out in the
UK regularly each month, organised by the Office for National Statistics.
(Most of the prices are actually collected by a market research company
under contract to the Office for National Statistics.) The results of their
data collection and subsequent calculations are summarised in two
measures called the Consumer Prices Index (CPI) and the Retail Prices
Index (RPI).
These indices (plural of ‘index’) do not measure prices. Each is an index of
price changes over time, and one or both of these indices are commonly
used when people make comparisons about the cost of living. As you will
see in Unit 3, they are highly relevant measures for those engaged in wage
bargaining.
The RPI and the CPI are both ‘chained’ in the sense that the index value
for each year is linked to the year before. The very first link in the chain is
called the base year and it is given an index value of 100, as shown in
Figure 26.

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 4 A simple chained price index

Index value 100

Year 2007 2008 2009 2010 2011 2012 2013

2007 is the
base year

Figure 26 A chained index

4.1 A two-commodity price index

Section 5 includes an outline of how the information used to calculate the
official UK price indices is collected, and describes how the indices are
calculated. To introduce ideas, in this section we describe a very much
simpler example of a price index calculation. It uses exactly the same basic
method of calculation as the actual Retail Prices Index. (Not every index
is calculated in this way, as you will see in Unit 3 with the Average Weekly
Earnings statistic.)
The context is a mythical computing company, Gradgrind Ltd, whose
organisation and exploits will be used occasionally in this and later units
to illustrate various points.
Gradgrind Ltd uses both gas and electricity in its operations. Table 7
shows the price they paid for each fuel in 2007 and 2008. The prices are
shown in £ per megawatt hour (MWh). (It is more usual, in the UK, for
prices to be quoted in pence per kilowatt hour (p/kWh). Here, £/MWh
have been used simply to make some of the later calculations a little more
straightforward. Because there are 100 pence in £1 and 1000 kilowatts in a
megawatt, £10/MWh is exactly the same price as 1p/kWh – so The original Mr. Gradgrind,
Gradgrind’s gas price in 2007, for instance, was 2.4p/kWh.) from an 1870s illustration to
Charles Dickens’ Hard Times,
Table 7 Gradgrind’s energy prices in 2007 and 2008 first published in 1854. Dickens
had Gradgrind describe himself
2007 2008
as, ‘A man of realities. A man
Gas (£/MWh) 24 29 of facts and calculations.’ But
Electricity (£/MWh) 76 87 don’t let that put you off.

If we were interested in looking at the change in price of just one of these

fuels, say gas, things would be relatively straightforward. For instance, it
might well be appropriate to look at the increase in price as a percentage
of the price in 2007.

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Unit 2 Prices

Activity 14 Gradgrind’s gas price increase

Work out the increase in Gradgrind’s gas price between 2007 and 2008 as a
percentage of the 2007 price.

So we could say that, for this company at least, gas has gone up by 20.8%.
In other words, for every £1 they spent on gas in 2007, they would have
spent £1.208 in 2008 if they had bought the same amount of gas in each
year. Or putting it another way, for every 100 units of money (pence,
pounds, whatever) they spent in 2007, they would have spent 120.8 units
of money in 2008 if they had bought the same amount. So a way of
representing this price change would have been to define an index for the
gas price such that it takes the value 100 for 2007, and 120.8 for 2008.
Notice that the value of the gas price index for 2008 could be calculated as
gas price in 2008
(value of the index in 2007, which is taken as 100) × .
gas price in 2007

That is, the value of the index in one year is the value of the index in the
previous year multiplied by a price ratio, in this case the gas price ratio for
2008 relative to 2007. This ratio, as a number, is 1.208.
But Gradgrind did not only use gas, they used electricity as well, and the
aim here is to find a representation of their overall fuel price change, not
just the change in gas prices.
An electricity price ratio for 2008 relative to 2007 can be worked out, like
the gas price ratio. It is 87
76 ! 1.145.

Activity 15 Gradgrind’s electricity price index

Use the electricity price ratio above to find the increase in Gradgrind’s
electricity price between 2007 and 2008 as a percentage of the 2007 price.
What would the 2008 value be for a price index of Gradgrind’s electricity
price alone, calculated in the same way as the gas price index (with 2007
as the base year)?

But this has got us no further in finding a price index that simultaneously
covers both fuels.
One possibility might be to look at how Gradgrind’s total expenditure on
these two fuels changed from 2007 to 2008. The expenditures are given in
Table 8.

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 4 A simple chained price index

Table 8 Gradgrind’s energy expenditure (£) in 2007 and 2008

2007 2008
Gas 9 298 8 145
Electricity 3 205 2 991
Total 12 503 11 136

This seems not to have helped. The total expenditure went down, but you
have already seen that the prices of both gas and electricity went up.

Activity 16 How much fuel did Gradgrind use?

Use the data in Tables 7 and 8 to find the quantity of each fuel that
Gradgrind used in 2007 and 2008 (in MWh). Hence explain why the
energy expenditure fell.

Remember the aim is to produce a measure of price changes. So looking at

expenditure changes does not do the right thing, since expenditure
depends on the amount of fuel consumed as well as the price.
One possibility might be as follows. We could work out how much
Gradgrind would have spent on fuel in 2008 if the consumptions of both
fuels had not changed from 2007. That would remove the effect of any
changes in consumption. Then we could calculate an overall energy price
ratio for 2008 relative to 2007 by dividing the total expenditure on energy
for 2008 (using the 2007 consumption figures) by the total expenditure on
energy for 2007 (again using the 2007 consumption figures).
You should have found, in Activity 16, that the quantities of gas and
electricity consumed in 2007 were, respectively, 387.4 MWh and 42.2 MWh.
To buy those quantities at 2008 prices would have cost (in £):
29 × 387.4 = 11 234.6 for the gas and 87 × 42.2 = 3671.4 for the electricity,
giving a total expenditure of
£(11 234.6 + 3671.4) = £14 906.0.
So a reasonable overall energy price ratio for 2008 relative to 2007 can be
found by dividing this total by the 2007 total expenditure, again calculated
using the 2007 consumptions. The appropriate figure for 2007 is just the
actual total expenditure, which (in £) was 9298 + 3205 = 12 503 (see
Table 8). This gives an overall energy price ratio for 2008 relative to 2007
as
14 906.0
! 1.192.
12 503
Now we have an appropriate price ratio, the Gradgrind energy price index
can be set as 100 for the base year, 2007, and the value of the 2008 index is
found by multiplying the 2007 index value by the price ratio:
2008 index = 100 × 1.192 = 119.2.

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Unit 2 Prices

This is indeed how a chained index of this kind is calculated – but the
calculations are rather messy. You might be wondering whether it would
be simpler to calculate the overall energy price ratio as a weighted mean of
the two price ratios for the two fuels, in much the same way that weighted
means were used to combine prices in Section 2. If you did think this, you
would be right – and furthermore, the resulting overall energy price ratio is
exactly the same as has just been found, if we make the right choice of
weights. The overall energy price ratio for 2008 relative to 2007 is just a
weighted mean of the two price ratios for gas and electricity, with the 2007
expenditures as weights.
Just to show it really does come to the same thing, let us see how it works
with the numbers, using the formula for weighted means in Subsection 2.3.
Price ratio (2008 relative to 2007) Weight (2007 expenditure)
Gas 1.208 9298
Electricity 1.145 3205

The weighted average of these price ratios is

(1.208 × 9298) + (1.145 × 3205) 14 901.709
= ! 1.192,
9298 + 3205 12 503
giving the same value for the overall energy price ratio for 2008 relative to
2007 as we found earlier. (And this is not some sort of fluke that applies
only to these particular numbers; it can be shown mathematically that it
always works.)

Activity 17 Gradgrind’s energy price ratio for 2009 relative

to 2008

Table 9 Gradgrind’s energy prices and expenditures for 2008 and 2009

2008 2009
Gas price (£/MWh) 29 30
Gas expenditure (£) 8 145 23 733
Electricity price (£/MWh) 87 98
Electricity expenditure (£) 2 991 2 275

(a) Using the data in Table 9, calculate the price ratios for gas and for
electricity, in each case for 2009 relative to 2008.
(b) With the 2008 expenditures as weights, use your answers to part (a)
to calculate the overall energy price ratio for 2009 relative to 2008.
(c) Now see what happens if you use the 2009 expenditures as weights to
calculate the overall energy price ratio for 2009 relative to 2008. How
do the results of the calculation differ from what you got in part (b)?

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 4 A simple chained price index

The reason that the price ratios you calculated in parts (b) and (c) in
Activity 17 were so different is that Gradgrind’s ‘energy mix’ changed a lot
over the year. Compared with 2008, in 2009 they spent a great deal more
on gas but less on electricity. The weighted mean of the gas and electricity
price ratios is, in both cases, nearer the price ratio for gas than that for
electricity – this is Rule 2 for weighted means – but it is even nearer the
gas weighted mean when the 2009 expenditures are used. This is because
the weight for gas is proportionally much greater than it is when the 2008
expenditures are used as weights.
This all shows that it does make a difference which expenditures are used
as weights. In practice, it is much more common to use the expenditures
from the earlier year – 2008 in this case – as weights. In some
circumstances, though, there are good reasons for using the later year, or
indeed some more complicated set of weights that depend on both
expenditures. However, in this unit we shall use the expenditures from the
earlier year to provide the weights, partly because that matches more
closely what is done in calculating the official UK price indices.
Another possibility for weights would have been to continue to use the
2007 expenditures. These were used to find the overall energy price ratio
for 2008 relative to 2007 and could be used for later years as well. Again,
in some circumstances this would make sense, but here the pattern of
Gradgrind’s fuel expenditure has changed a lot over time, and weights
should change in consequence. To continue to use the 2007 expenditures
for all later years would mean that this change in the relative importance
to Gradgrind of the two fuels would never be taken into account. Instead,
to obtain the overall energy price ratio from one year to the next, we use
the fuel expenditures in the earlier year as weights, so each year the
weights change.
That determines the choice of weights in forming an overall price ratio.
Now, how is that used to find the energy price index ? Here we simply
continue the ‘chaining’ that started when finding the 2008 index: the 2009
index is found by multiplying the value of the index for the previous year,
2008, by the overall energy price ratio for 2009 relative to 2008. The value
of the index for 2008 was calculated earlier as 119.2, and (using the
weights from the previous year) the overall energy price ratio for 2009
relative to 2008 was found in Activity 17(b) as 1.059. So the value of
Gradgrind’s energy price index for 2009 is
119.2 × 1.059 ! 126.2.
(So, in a particular kind of average way, Gradgrind’s energy prices for 2009
have risen by 26.2% since the base year, 2007.)

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Unit 2 Prices

In general, the value index for a particular year is found by multiplying the
value of the index for the previous year by the overall energy price ratio for
that year relative to the previous year. This is illustrated in Figure 27.

Price ratios ×1.192 ×1.059

Index 100 119.2 126.2

Base year 2007 2008 2009

Figure 27 Determining a chained price index

In the process of chaining, the overall price ratio is calculated anew each
year, looking back only at the previous year. The ratio is used to ‘chain’ to
earlier years and hence determine the value of the index. This method of
calculating a chained price index is summarised below. Although there
were only two commodities (gas and electricity) in Gradgrind’s index, this
summary is not restricted to two commodities.

Procedure used to calculate a chained price index

1. For each year calculate the following.
• The price ratio for each commodity covered by the index:
price that year
.
price previous year
• The weighted mean of all these price ratios, using as weights the
expenditure on each commodity in the previous year. This
weighted mean is called the all-commodities price ratio.
2. For each year, the value of the index is
value of index for previous year × all-commodities price ratio.
The value of the index in the first year is set at 100; this date is the
base date of the index.

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 4 A simple chained price index

Activity 18 Gradgrind’s energy price index for 2010

Use the data in Table 10, and other necessary numbers from previous
calculations, to calculate the value of Gradgrind’s energy price index
for 2010.
Table 10 Gradgrind’s energy prices and expenditures for 2009 and 2010

2009 2010
Gas price (£/MWh) 30 28
Gas expenditure (£) 23 733 23 969
Electricity price (£/MWh) 98 88
Electricity expenditure (£) 2 275 2 920

The Retail Prices Index (RPI), published by the UK Office for National
Statistics, is calculated once a month rather than once a year, but the
method used is basically that outlined above, though with far more than
two commodities. The process of finding the weights in the Retail Prices
Index is also more complicated, because it involves taking into account the
expenditures of millions of people as measured in a major survey. However,
the principles are the same as for Gradgrind. The calculation each January
follows exactly this method. In the other 11 months of the year, the
calculation is very similar but uses only the increases in prices since the
previous January. In the next section, you will learn more about how all
this works.

Exercise on Section 4

Exercise 9 Gradgrind’s energy price index for 2011

Use the data in Table 11, and the fact that Gradgrind’s energy price index
for 2010 was 117.4 (as found in Activity 18), to calculate the value of
Gradgrind’s energy price index for 2011.
Table 11 Gradgrind’s energy prices and expenditures for 2010 and 2011

2010 2011
Gas price (£/MWh) 28 30
Gas expenditure (£) 23 969 24 282
Electricity price (£/MWh) 88 86
Electricity expenditure (£) 2 920 3 117

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Unit 2 Prices

5 The UK government price indices

‘The huge squeeze on Brits was laid bare today as figures showed
inflation has soared to a 20-year high.’ (The Sun, 18 October 2011)
‘Overall, prices in the economy rose 0.6% on the month from
August.’ (Guardian, 18 October 2011)
‘Inflation in the UK continued to fall in February, thanks largely to
lower gas and electricity bills.’ (BBC News website, 20 March 2012)
‘UK inflation rises more than expected.’
(Daily Telegraph, 16 August 2011)
How often have you read or heard statements like these in the media? Have
you ever wondered how ‘inflation’ is measured, or precisely what is meant
by a statement such as ‘prices rose by 0.6%’ ? In Subsection 5.3, you will
see that ‘rates of inflation’ are often calculated in the UK using an index of
prices paid by consumers, the Consumer Prices Index (CPI), or another
slightly different index, the Retail Prices Index (RPI). These indices may
be used to calculate the percentage by which prices in general have risen
over any given period, and (roughly speaking) this is what is meant by
inflation. But what exactly do these price indices measure, and how are
they calculated? These are the questions that are addressed in this section.

5.1 What are the CPI and RPI?

The CPI and the RPI are the main measures used in the UK to record
changes in the level of the prices most people pay for the goods and
services they buy. The RPI is intended to reflect the average spending
pattern of the great majority of private households. Only two classes of
private households are excluded, on the grounds that their spending
patterns differ greatly from those of the others: pensioner households and
high-income households. The CPI, however, has a wider remit – it is
intended to reflect the spending of all UK residents, and also covers some
costs incurred by foreign visitors to the UK.
The CPI and RPI are calculated in a similar way to the price index for
Gradgrind Ltd’s energy in Section 4. However, they are calculated once a
month rather than just once a year, and are based on a very large ‘basket
of goods’. The contents of the basket and the weights assigned to the
items in the basket are updated annually to reflect changes in spending
patterns (as was the case with Gradgrind’s index for energy prices), and
the index is ‘chained’ to previous values. However, once decided on at the
beginning of the year, the contents of the basket and their weights remain
fixed throughout the year.

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 5 The UK government price indices

For the RPI, the price ratio for the basket each month is calculated
relative to the previous January. Then the value of the index is obtained
by multiplying the value of the index for the previous January by this price
ratio. For example,
RPI for Nov. 2011 = RPI for Jan. 2011
× (price ratio for Nov. 2011 relative to Jan. 2011).

The CPI works in much the same way, except that price ratios are
calculated relative to the previous December. So, for example,
CPI for Nov. 2011 = CPI for Dec. 2010
× (price ratio for Nov. 2011 relative to Dec. 2010).
Since these price indices are calculated from price ratios, they measure
price changes in terms of the ratio of the overall level of prices in a given
month to the overall level of prices at an earlier date. In practice, data on
most prices are collected on a particular day near the middle of the month;
the values of the RPI and CPI calculated using these data are referred to
simply as the values of the RPI and CPI for the month. For example, the
RPI took the value 239.9 in February 2012. This value measures the ratio
of the overall level of prices in February 2012 to the overall level of prices
on a date at which the index was fixed at its starting value of 100. This
date, called a base date, is 13 January 1987 (at the time of writing). Thus
the general level of prices in February 2012, as measured by the RPI, was
239.9/100 = 2.399 times the general level of prices in January 1987.
The base date has no significance other than to act as a reference point.
(The CPI base date is 2005 and this refers to the average level of prices
throughout 2005, not to a specific date in 2005.)
The RPI and CPI are each based on a very large ‘basket’ of goods and
services. (The two baskets are similar, but not exactly the same.) Each
contains around 700 items including most of the usual things people buy:
food, clothes, fuel, household goods, housing, transport, services, and so
on.
Each basket is an ‘average’ basket for a broad range of households. The
items in the baskets are often grouped into broader categories. For the
RPI, the five fundamental groups are:
• Food and catering.
• Alcohol and tobacco.
• Housing and household expenditure.
• Personal expenditure.
• Travel and leisure.
These groups are divided into 14 more detailed subgroups (which are
further divided into sections), as shown in Figure 28.

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Unit 2 Prices

Leisure goods
Fares and
other travel
costs

Leisure
services

Food
Motoring
expenditure
Travel Catering
and leisure Food and
catering
Personal goods
and services Personal Alcohol Alcoholic drink
expenditure and tobacco
Clothing and
footwear Tobacco
Housing and
household
Household expenditure
services

Household
goods Housing
Fuel
and
light

Figure 28 Structure of the RPI in 2012 (based on data from the Office for
National Statistics)

The inner circle shows the five groups, and the outer ring shows the
14 subgroups. Notice that in the inner circle the sector labelled ‘Food and
catering’ has been drawn almost twice as large (as measured by area) as
that labelled ‘Alcohol and tobacco’. This reflects the fact that the typical
household spends nearly twice as much on food and catering as on alcohol
and tobacco. The weight of an item or group reflects how much money is
spent on it. So the weight of the ‘Food and catering’ group is almost twice
that of ‘Alcohol and tobacco’.
The outer ring represents the same total expenditure as the inner circle,
but in more detail. For example, in the outer ring the area labelled ‘Food’
(which mostly consists of food bought for use in the home) is more than
twice as large as that labelled ‘Catering’ (which includes meals in
restaurants and canteens, and take-away meals and snacks), reflecting the
fact that the typical household spends more than twice as much on food as
on catering; the weight of the subgroup ‘Food’ is more than double the

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weight of the subgroup ‘Catering’. The chart gives a good indication of

average spending patterns in the UK in the early 21st century.

Activity 19 The expenditure of a typical household

(a) Using Figure 28, estimate roughly what fraction of the expenditure of
a typical household is on each of the following groups and subgroups:
• Personal expenditure
• Housing and household expenditure
• Housing
(b) Suppose that a household spends a total of £540 per week on goods
and services that are covered by the RPI. Use your answers to
part (a) to estimate very approximately how much is spent each week
on each of the groups and subgroups in part (a).

To ensure that the basket of goods for the index reflects the proportion of
average spending devoted to different types of goods and services, it is
necessary to find out how people actually spend their money. The Living
Costs and Food Survey (LCF) records the spending reported by a sample
of 5000 households spread throughout the UK. Data from the LCF are
used to calculate the weights of most of the items included in the
RPI basket. Since 1962, the weights have been revised each year, so that
the index is always based on a basket of goods and services that is as
up to date as possible. Because of this regular weight revision, the index is
chained (as was the Gradgrind Ltd index).
(Most of the weights for the CPI come from a different source, the UK
National Accounts, though in turn this source is partly based on data from
the LCF. Again, the weights are revised each year.)
The weight of a group or subgroup directly depends on the average
expenditure of households on that item. In Subsection 2.1, you saw that it
is only the relative size of the weights that affects the value of the weighted
mean – this is Rule 1 for weighted means. So instead of using the average
expenditure of an item as its weight, the expenditure figures for the items
can all be multiplied by the same factor to produce a new, more
convenient, set of weights. For the RPI, this factor is chosen so that the
sum of the weights is 1000.

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Table 12 shows the 2012 weights used in the RPI for the groups and
subgroups. Notice that each group weight is obtained by summing the
weights for its subgroups.
Table 12 2012 RPI weights

Group Subgroup Weight Group weight

Food and catering Food 114
Catering 47 161
Alcohol and tobacco Alcoholic drink 56
Tobacco 29 85
Housing and Housing 237
household Fuel and light 46
expenditure Household goods 62
Household services 67 412
Personal Clothing and footwear 45
expenditure Personal goods and services 39 84
Travel and leisure Motoring expenditure 131
Fares and other travel costs 23
Leisure goods 33
Leisure services 71 258

All items (i.e. the sum of the weights) 1000

The following checklist provided contains the major categories of goods

and services included in the RPI. In the next activity, you will be asked to
complete the last three columns of this checklist to make rough estimates
of your household’s group weights.
The figures already in the checklist were completed for a two-person
household. Some of the figures were accurate, others were necessarily very
rough estimates. Nevertheless, the household’s weights give a reasonable
indication of the proportion of the household’s expenditure (in 2012) on
the five main groups used in the RPI.

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A checklist for one household’s average monthly expenditure

Expenditure and weights Your expenditure and weights

Expenditure Group Group Expenditure Group Group

2012 totals weights 2012 totals weights
(£) (£) (£) (£)
Food and catering
– at home 370
– canteens, snacks and take-aways 80
– restaurant meals 20
470 266
Alcohol and tobacco
– alcoholic drink 8
– cigarettes and tobacco 0
8 5

Housing and household expenditure

– mortgage interest/rent 82
– council tax 95
– water charges 47
– house insurance 29
– repairs/maintenance/DIY 40
– gas/electricity/coal/oil bills 210
– household goods (furniture
appliances, consumables, etc.) 70
– telephone and internet bills 20
– school and university fees 0
– pet care 0
593 336
Personal expenditure
– clothing and footwear 45
– other (hairdressing,
chemists’ goods, etc.) 10
55 31

Travel and leisure

– motoring (purchase, maintenance,
petrol, tax, insurance) 210
– fares 200
– books, newspapers, magazines 80
– audio-visual equipment, CDs, etc. 15
– toys, photographic and
sports goods 3
– TV purchase/rental, licence 0
– cinema, theatre, etc. 30
– holidays 100
638 362
1764 1000

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The total expenditure was £1764. So the group weights were calculated by
multiplying all the group total expenditures by a constant factor of
1000/1764, to ensure the weights sum to 1000. The weight for ‘Food and
catering’, for example, is
1000
470 × ! 266.
1764
Another way to calculate this is to multiply the proportion of monthly
expenditure spent on food and catering by 1000. The proportion is
470
! 0.266.
1764
Since the total weight is 1000, the weight for ‘Food and catering’ is
0.266 × 1000 = 266.
Notice that the group weights for this particular household differ quite
considerably from those used in the RPI in 2012 (see Table 12). For
instance, a much greater proportion of expenditure is on ‘Food and
catering’ and a much smaller proportion is spent on ‘Alcohol and tobacco’.

Activity 20 Your own household’s expenditure

Make rough estimates of your own household’s expenditure last year and
complete the final columns of the checklist above. For some categories, you
may find it easier just to make a rough estimate of, say, your annual
expenditure and then divide by 12. If you have no idea at all for a
category, then use the corresponding figure in the checklist as a starting
point for your own expenditure and adjust it up or down depending on
how you think you spend your money. One way of checking that your
figures are sensible is to consider how the sum of the expenditures relates
to your household’s monthly income. Do not spend more than 15 minutes
on estimating your expenditure; accurate figures are not needed.
Divide each group expenditure by your monthly expenditure total and
then multiply by 1000 to calculate your household’s group weights.
How do your household’s weights compare with those used in the RPI
in 2012?

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5.2 Calculating the price indices

This subsection concentrates on how the RPI is calculated. Generally the
CPI is calculated in a similar way, though some of the details differ. To
measure price changes in general, it is sufficient to select a limited number
of representative items to indicate the price movements of a broad range of
similar items. For each section of the RPI, a number of representative
items are selected for pricing. The selection is made at the beginning of
the year and remains the same throughout the year. It is designed in such
a way that the price movements of the representative items, when
combined using a weighted mean, provide a good estimate of price
movements in the section as a whole.
For example, in 2012 the representative items in the ‘Bread’ section (which
is contained in the ‘Food and catering’ group) were: large white sliced loaf,
large white unsliced loaf, large wholemeal loaf, bread rolls, garlic bread.
Changes in the prices of these types of bread are assumed to be
representative of changes in bread prices as a whole. Note that although
the price ratio for bread is based on this sample of five types of bread, the
calculation of the appropriate weight for bread is based on all kinds of
bread. This weight is calculated using data collected in the Living Costs
and Food Survey.

Collecting the data

The bulk of the data on price changes required to calculate the RPI is
collected by staff of a market research company and forwarded to the
Office for National Statistics for processing. Collecting the prices is a
major operation: well over 100 000 prices are collected each month for
around 560 different items. The prices being charged at a large range
of shops and other outlets throughout the UK are mostly recorded on
a predetermined Tuesday near the middle of the month. Prices for the
remaining items, about 140 of them, are obtained from central sources
because, for example, the prices of some items do not vary from one
place to another.

One aim of the RPI is to make it possible to compare prices in any two
months, and this involves calculating a value of the price index itself for
every month.

Changing the representative items

The Office for National Statistics (ONS) updates the basket of goods
every year, reflecting advancing technology, changing tastes and
consumers’ spending habits. The media often have fun writing about
the way the list of representative items changes each year. Some
examples follow.

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In the 1950s, the mangle, crisps and dance hall admissions were
added to the basket, with soap flakes among the items taken out.
Two decades later, the cassette recorder and dried mashed
potato made it in, with prunes being excluded.
Then after the turn of the century, mobile phone handsets and
fruit smoothies were included. The old fashioned staples of an
evening at home – gin and slippers – were removed from the
basket.
So now, in 2012, it is the turn of tablet computers to be added
to mark the growing popularity of this type of technology.
That received the most coverage when it was added to the
basket of goods, with the ONS highlighting this digital-age
addition in its media releases.
But those seafaring captains who once used the then unusual
fruit as a symbol to show they were home and hosting might be
astonished to find that centuries on, the pineapple has also been
added to the inflation basket.
Technically, the pineapple has been added to give more varied
coverage in the basket of fruit and vegetables, the prices of
which can be volatile.
(Source: BBC News website, 14 March 2012)

So, calculating the RPI involves two kinds of data:

• the price data, collected every month
• the weights, representing expenditure patterns, updated once a year.
Once the price data have been collected each month, various checks, such
as looking for unbelievable prices, are applied and corrections made if
necessary. Checking data for obvious errors is an important part of any
data analysis.
Then an averaging process is used to obtain a price ratio for each item
that fairly reflects how the price of the item has changed across the
country. The exact details are quite complicated and are not described
here. (If you want more details, they are given in the Consumer Price
Indices Technical Manual, available from the ONS website. Consumer
Price Indices: A brief guide is also available from the same website.) For
each item, a price ratio is calculated that compares its price with the
previous January. For instance, for November 2011, the resulting price
ratio for an item is an average value of
price in November 2011
.
price in January 2011

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The next steps in the process combine these price ratios, using weighted
means, to obtain 14 subgroup price ratios, and then the group price ratios
for the five groups. Finally, the group price ratios are combined to give the
all-item price ratio. This is the price ratio, relative to the previous
January, for the ‘basket’ of goods and services as a whole that make up the
RPI.
The all-item price ratio tells us how, on average, the RPI ‘basket’
compares in price with the previous January. The value of the RPI for a
given month is found by the method described in Section 4, that is, by
multiplying the value of the RPI for the previous January by the all-item
price ratio for that month (relative to the previous January):
RPI for month x = (RPI for previous January)
× (all-item price ratio for month x)
Thus, to calculate the RPI for November 2011, the final step is to multiply
the value of the RPI in January 2011 by the all-item price ratio for
November 2011.

Example 22 Calculating the RPI for November 2011

Here are the details of the last two stages of calculation of the RPI for
November 2011, after the group price ratios have been calculated,
relative to January 2011. The appropriate data are in Table 13.
Table 13 Calculating the all-item price ratio for November 2011

Group Price ratio Weight Ratio × weight

r w rw
Food and catering 1.030 165 169.950
Alcohol and tobacco 1.050 88 92.400
Housing and household expenditure 1.037 408 423.096
Personal expenditure 1.128 82 92.496
Travel and leisure 1.026 257 263.682
Sum 1000 1041.624
(Source: Office for National Statistics)

You may have noticed that the weights here do not exactly match
those in Table 12. That is because the weights here are the 2011
weights, and those in Table 12 are the 2012 weights, and as has been
explained, the weights are revised each year.
The all-item price ratio is a weighted average of the group price ratios
given in the table. If the price ratios are denoted by the letter r, and
the weights by w, then the weighted mean of the price ratios is the
sum of the five values of rw divided by the sum of the five values of w.

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The formula, from Subsection 2.3, is

sum of products (price ratio × weight)
all-item price ratio =
$ sum of weights
rw
= $ .
w
The sums are given in Table 13. (The sum of the weights is 1000,
because the RPI weights are chosen to add up to 1000.) Although
Table 13 gives the individual rw values, there is no need for you to
write down these individual products when finding a weighted mean
(unless you are asked to do so). As mentioned previously, your
calculator may enable you to calculate the weighted mean directly, or
you may use its memory to store a running total of rw.
Now the all-item price ratio for November 2011 (relative to
January 2011) can be calculated as
1041.624
= 1.041 624.
1000
This tells us that, on average, the RPI basket of goods cost 1.041 624
times as much in November 2011 as in January 2011.
The published value of the RPI for January 2011 was 229.0. So, using
the formula,
RPI for Nov. 2011 = (RPI for Jan. 2011)
× (all-item price ratio for Nov. 2011)
= 229.0 × 1.041 624
= 238.531 896 ! 238.5.
The final result has been rounded to one decimal place, because
actual published RPI figures are rounded to one decimal place.

Example 22 is the subject of Screencast 5 for Unit 2 (see the

M140 website).

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The same 2011 weights were used to calculate the RPI for every month
from February 2011 to January 2012 inclusive. For each of these months,
the price ratios were calculated relative to January 2011, and the RPI was
finally calculated by multiplying the RPI for January 2011 by the all-item
price ratio for the month in question. In February 2012, however, the
process began again (as it does every February). A new set of weights, the
2012 weights, came into use. Price ratios were calculated relative to
January 2012, and the RPI was found by multiplying the RPI value
for January 2012 by the all-item price ratio. This procedure was used until
January 2013, and so on.
The process of calculating the RPI can be summarised as follows.

Calculating the RPI

1. The data used are prices, collected monthly, and weights, based on
the Living Costs and Food Survey, updated annually.
2. Each month, for each item, a price ratio is calculated, which gives
the price of the item that month divided by its price the previous
January.
3. Group price ratios are calculated from the price ratios using
weighted means.
4. Weighted means are then used to calculate the all-item price ratio.
Denoting the group price ratios by r and the group weights by w,
the all-item price ratio is
$
rw
$ .
w

5. The value of the RPI for that month is found by multiplying the
value of the RPI for the previous January by the all-item price
ratio:
RPI for month x =RPI for previous January
× (all-item price ratio for month x).

The weights for a particular year are used in calculating the RPI for
every month from February of that year to January of the following
year.

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Activity 21 Calculating the RPI for July 2011

Find the value of the RPI in July 2011 by completing the following table
and the formulas below. The value of the RPI in January 2011 was 229.0.
(The base date was January 1987.)
Table 14 Calculating the RPI for July 2011

Price ratio for July 2011 2011 weights Price ratio

relative to January 2011 × weight
Group r w rw
Food and catering 1.024 165
Alcohol and tobacco 1.042 88
Housing and household
expenditure 1.012 408
Personal expenditure 1.053 82
Travel and leisure 1.030 257

Sum
(Source: Office for National Statistics)

sum (w) = ,
sum of products (rw) = ,
sum of products (rw)
all-item price ratio = = ,
sum(w)
value of RPI in July 2011 = .

The published value for the RPI in July 2011 was 234.7, slightly different
from the value you should have obtained in Activity 21 (that is, 234.6).
The discrepancy arises because the government statisticians use more
accuracy during their RPI calculations, and round only at the end before
publishing the results.
The following activity is intended to help you draw together many of the
ideas you have met in this section, both about what the RPI is and how it
is calculated.

Activity 22 The effects of particular price changes on the

RPI
Between February 2011 and February 2012, the price of leisure goods fell
on average by 2.3%, while the price of canteen meals rose by 2.8%. Answer
the following questions about the likely effects of these changes on the
value of the RPI. (No calculations are required.)

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 5 The UK government price indices

(a) Looked at in isolation (that is, supposing that no other prices

changed), would the change in the price of leisure goods lead to an
increase or a decrease in the value of the RPI?
Would the change in the price of canteen meals (looked at in
isolation) lead to an increase or a decrease in the value of the RPI?
(b) In each case, is the size of the increase or decrease likely to be large or
small?
(c) Using what you know about the structure of the RPI, decide which of
‘Leisure goods’ and ‘Canteen meals’ has the larger weight.
(d) Which of the price changes mentioned in the question will have a
larger effect on the value of the RPI? Briefly explain your answer.

5.3 Using the price indices

The RPI and CPI are intended to help measure price changes, so we shall
start this section by describing how to use them for this purpose.

Example 23 A news report on inflation

The BBC News website reported (20 March 2012) ‘UK inflation rate
falls to 3.4% in February’. What does that actually mean?
In the UK, the (annual) rate of inflation is the percentage increase in
the value of the CPI (or the RPI) compared to one year earlier. In
M140, it will always be made clear whether you should use the CPI or
the RPI in contexts like this. In the rest of the BBC article, it is
clarified that this ‘inflation’ figure was based on the CPI rather than
the RPI, but its meaning is still not obvious. What is usually meant
in situations like this is the following.
The annual rate of inflation is sometimes called the year-on-year rate
of inflation.
In February 2012, the CPI was 121.8. Exactly a year earlier, in
February 2011, the CPI was 117.8. The ratio of these two values is
value of CPI in February 2012 121.8
= ! 1.034.
value of CPI in February 2011 117.8
So the value of the CPI in February 2012 was 3.4% higher than in the
previous February. That is the source of the number in the BBC
headline.

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Activity 23 The annual inflation rate in February 2012

In February 2012, the RPI was 239.9. Exactly a year earlier, in

February 2011, the RPI was 231.3. Calculate the annual inflation rate for
February 2012, based on the RPI.

The fact that the inflation rates that are generally reported in the media
relate to price increases (as measured in a price index) over a whole year
means that one has to be careful in interpreting the figures, in several ways.
• Media reports might say that ‘inflation is falling’, but this does not
mean that prices are falling. It simply means that the annual inflation
rate is less than it was the previous month. So when the BBC headline
said that the (annual) inflation rate had fallen to 3.4% in February 2012,
it meant that the February 2012 rate was smaller than the January 2012
rate (which was 3.6%). Prices were still rising, but not quite so quickly.
• The change in price levels over one month may be, and indeed usually is,
considerably different from the annual inflation rate. For instance, prices
actually fell between December 2011 and January 2012: the CPI was
121.7 in December 2011 and 121.1 in January 2012. (Prices in the UK
usually fall between December and January in the UK, as Christmas
shopping ends and the January sales begin.) But the annual inflation
rate for January 2012, measured by the CPI, was 3.6%.
• The effect of a single major cause of increased prices can persist in the
annual inflation rates long after the prices originally increased. For
instance, the standard rate of value added tax (VAT) in the UK went up
from 17.5% to 20% at the start of January 2011, causing a one-off
increase in the price (to consumers) of many goods and services. This
showed up in the annual inflation rate for January 2011, where prices

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were 4.0% higher than a year earlier. Moreover, the annual inflation rate
for every other month in 2011 was also affected by the VAT increase,
because in each case the CPI was being compared to the CPI in the
corresponding month in 2010, before the VAT increase.
Another important use of price indices like the RPI and CPI is for
index-linking. This is used for such things as savings and pensions, as a
means of safeguarding the value of money held or received in these forms.

Index-linking an amount
To index-link any amount of money, the amount in question is
multiplied by the same ratio as the change in the value of the price
index. Another term for this process is indexation.

It is important to stress the notion of ratio in index-linking, because it is

only by calculating the ratio of two indices that you can get an accurate
measure of how prices have increased. For example, an increase in the RPI
from 100 to 200 represents a 100% increase in price, whereas a further RPI
increase from 200 to 300 represents only a further 50% increase in price.

Example 24 Index-linking a pension

The value of the RPI for February 2012 was 239.9 whereas the
corresponding figure for February 2011 was 231.3. So an index-linked
pension that was, say, £450 per month in February 2011, would be
increased to
239.9
£450 × (i.e. £466.73) per month
231.3
for February 2012. The reason for index-linking the pension in this
way is that the increased pension would buy the same amount of
goods or services in February 2012 as the original pension bought in
February 2011 – that is, it should have the same purchasing power.

Pensions can be, and indeed increasingly are, index-linked using the CPI
rather than the RPI.

Activity 24 Index-linking a pension using the CPI

An index-linked pension was £120 per week in November 2010. It is

index-linked using the CPI. How much should the pension be per week in
November 2011? The value of the CPI was 115.6 in November 2010 and
121.2 in November 2011.

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This principle leads to another much-quoted figure which can be calculated

directly from the RPI: the purchasing power of the pound. (This is
the purchasing power of the pound within this country, not its purchasing
power abroad; the latter is a distinct and far more complicated concept.)
The purchasing power of the pound measures how much a consumer can
buy with a fixed amount of money at one point of time compared with
another point of time.
The word compared here is again important; it makes sense only to talk
about the purchasing power of the pound at one time compared with
another. For example, if £1 worth of goods would have cost only 60p four
years ago, then we say that the purchasing power of the pound is only 60p
compared with four years earlier.

Purchasing power of the pound

The purchasing power (in pence) of the pound at date A compared
with date B is
value of RPI at date B
× 100.
value of RPI at date A

The purchasing power of the pound could be calculated using the CPI
instead, though the figures published by the Office for National Statistics
do happen to use the RPI.

Example 25 Calculating the purchasing power of the

pound
(a) The purchasing power of the pound in February 2012 compared
with February 2011 was
231.3
× 100p = 96.415 17p.
239.9
(This uses the two RPI values given in Activity 23.)
We round this to give 96p.
(b) The purchasing power of the pound in February 2012 compared
with the base date, January 1987, was
100
× 100p.
239.9
(At the base date, the value of the RPI is 100 by definition.)
This is, after rounding, 42p.

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 5 The UK government price indices

Activity 25 Annual inflation and the purchasing power of

the pound

Table 15 Values of the RPI from January 2009 to December 2011

Month 2009 2010 2011 Month 2009 2010 2011

January 210.1 217.9 229.0 July 213.4 223.6 234.7
February 211.4 219.2 231.3 August 214.4 224.5 236.1
March 211.3 220.7 232.5 September 215.3 225.3 237.9
April 211.5 222.8 234.4 October 216.0 225.8 238.0
May 212.8 223.6 235.2 November 216.6 226.8 238.5
June 213.4 224.1 235.2 December 218.0 228.4 239.4
(Source: Office for National Statistics)

For each of the following months, use the values of the RPI in Table 15 to
calculate the annual inflation rate (based on the RPI) and to calculate the
purchasing power of the pound (in pence) compared to one year previously.
(a) May 2010 (b) October 2011 (c) March 2011

You have seen that the RPI can be used as a way of updating the value of
a pension to take account of general increases in prices (index-linking).
The RPI is used in other similar ways, for instance to update the levels of
some other state benefits and investments. But the CPI could be used for
these purposes.
Why are there two different indices? Let’s look at how this arose. As well
as its use for index-linking, which is basically to compensate for price
changes, the RPI previously played an important role in the management
of the UK economy generally. The government sets targets for the rate of
inflation, and the Bank of England Monetary Policy Committee adjusts
interest rates to try to achieve these targets. Until the end of 2003, these
inflation targets were based on the RPI, or to be precise, on another price
index called RPIX which is similar to the RPI but omits owner-occupiers’
mortgage interest payments from the calculations. (There are good
economic reasons for this omission, to do with the fact that in many ways
the purchase of a house has the character of a long-term investment, unlike
the purchase of, say, a bag of potatoes.) From 2004, the inflation targets
have instead been set in terms of the CPI. The CPI is calculated in a way
that matches similar inflation measures in other countries of the European
Union. (So it can be used for international comparisons.)
In terms of general principles, though, and also in terms of most of the
details of how the indices are calculated, the differences between the RPI
and CPI are not actually very great. As mentioned in Subsection 5.1, the
CPI reflects the spending of a wider population than the RPI. Partly
because of this, there are certain items (e.g. university accommodation
fees) that are included in the CPI but not the RPI. There are also certain

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items that are included in the RPI but not the CPI, notably some
owner-occupiers’ housing costs such as mortgage interest payments and
house-building insurance. Finally, the CPI uses a different method to the
RPI for combining individual price measurements.
Because of these differences, inflation as measured by the CPI tends
usually to be rather lower than that measured by the RPI. In Example 23,
you saw that the annual inflation rate in February 2012 as measured by
the CPI was 3.4%. The annual inflation rate in the same month, as
measured by the RPI, was 3.7%, as you saw in Activity 23. The RPI
continues to be calculated and published, and to be used to index-link
payments such as savings rates and some pensions. However, there are
reasons why the RPI is more appropriate than the CPI for some such
purposes, and it seems likely to continue in use for a long time.
Furthermore, changes in how index-linking is done can be politically very
controversial. For instance, in 2010, the UK government announced that in
future, public sector pensions would be index-linked to the CPI rather
than the RPI, which caused major complaints from those affected (because
inflation as measured by the CPI is usually lower than that measured
using the RPI, so pensions will not increase so much in money terms).
You might be asking yourself which is the ‘correct’ measure of inflation –
RPI, CPI, or something else entirely. There is no such thing as a single
‘correct’ measure. Different measures are appropriate for different
purposes. That’s why it is important to understand just what is being
measured and how.
In this section, you have seen how price rises are measured using an index
of retail prices. Earnings are discussed in the next unit. Only when prices
and earnings have both been considered can you begin to answer the
central question of these two units: Are people getting better or worse off ?
In the next unit, you will see how to use a price index in conjunction with
an index of earnings to see whether rises in earnings are keeping pace with
rises in prices.

Exercises on Section 5

Exercise 10 Calculating the RPI for February 2012

Find the value of the RPI in February 2012, using the data in Table 16.
The value of the RPI in January 2012 was 238.0.

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 6 Computer work: measures of location

Table 16 Calculating the RPI for February 2012

Price ratio for February 2012 2012 weights Price ratio

relative to January 2012 × weight
Group r w rw
Food and catering 1.009 161
Alcohol and tobacco 1.005 85
Housing and household
expenditure 1.003 412
Personal expenditure 1.040 84
Travel and leisure 1.005 258

Total
(Source: Office for National Statistics)

Exercise 11 Annual inflation rates and the purchasing power

of the pound
For each of the following months, use Table 15 (in Subsection 5.3) to
calculate the annual inflation rate given by the RPI and to calculate the
purchasing power of the pound (in pence) compared to one year previously.
(a) October 2010
(b) January 2011

Exercise 12 Index-linking another pension

An index-linked pension (linked to the RPI) was £800 per month in
April 2010. How much should it be in April 2011? (Again, use the RPI
values in Table 15.)

6 Computer work: measures of

location
In Subsection 1.4, you learned that the median is a resistant measure and
the mean is a sensitive measure. You will explore what this means in
practice for a particular dataset and then verify the rules for weighted
means for a particular example. You should work through all of Chapter 2
of the Computer Book now, if you have not already done so.

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Unit 2 Prices

Summary
In this unit you have been discovering how statistics can be used to answer
questions about prices. You have learned how to find a single number to
summarise the price of an item at a particular point in time, even though
the item might be available from a number of sources. You have also
learned how to combine information on prices across a range of goods and
services. Then, through the use of price ratios, you have seen how changes
in price over time can be quantified. In particular, you have learned about
chained price indices such as the Retail Prices Index (RPI) and Consumer
Prices Index (CPI), used in the UK to measure inflation.
Two more measures of location, the mean and weighted mean, have been
introduced. The mean is a sensitive measure whereas the median is a
resistant measure. The weighted mean only depends on the relative sizes
of the weights, and the weighted mean of two numbers is always closer to
the value with the highest weight.
You have learned about measures of spread, in particular the range and
the interquartile range, and about quartiles, from which the interquartile
range is calculated. The five-figure summary was described, which consists
of the minimum, lower quartile, median, upper quartile and maximum,
along with the size of the batch. A way of displaying the five-figure
summary, the boxplot, was introduced. The ‘box’ in the boxplot runs
between the lower and upper quartiles and has a line in it corresponding to
the median, thus displaying three of the five numbers in the five-number
summary. The other two numbers in the five-number summary, the
minimum and maximum, are given by the lengths of the whiskers or
position of potential outliers.
You have learned how the RPI and the CPI are calculated by the Office for
National Statistics from a ‘basket’ of goods using weighted means to give
price ratios, group price ratios and all-commodities price ratios. These
all-commodity price ratios are then chained to give the value of the index
relative to a base date. The RPI and CPI can be used to calculate
inflation, to index-link amounts of money and to calculate the purchasing
power of the pound at one time compared with another.

160
 Learning outcomes

Learning outcomes
After working through this unit, you should be able to:
• find the median of a batch of data
• find the mean of a batch of data
• describe what is meant by a resistant measure of location, and identify
which measures are resistant
• find the weighted mean of two numbers with associated weights
• use the weighted mean to combine two batch means to find the mean of
the combined batch
• use the weighted mean to find the overall average cost of a commodity
from the price paid and quantity purchased on two occasions
• understand the use of a weighted mean in other contexts and for larger
sets of numbers
• find the upper and lower quartiles and the interquartile range of a batch
of data
• prepare a five-figure summary of a batch of data
• interpret the boxplot of a batch of data
• use the boxplot to investigate the overall shape of a batch of data, in
particular its symmetry and skewness
• calculate a simple chained price index and explain what is meant by its
base date
• describe the major steps in producing the Retail Prices Index
• calculate the value of the Retail Prices Index from the five group price
ratios and weights
• use the Retail Prices Index or the Consumer Prices Index to compare
the general level of prices at two dates and calculate the rise in the
general level of prices over a year (the annual rate of inflation)
• use the Retail Prices Index or the Consumer Prices Index to do
index-linking calculations, and use the Retail Prices Index to find the
purchasing power of the pound at one date compared with another.

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Unit 2 Prices

Solutions to activities
Solution to Activity 1
For a batch size of 20, the median position is 12 (20 + 1) = 10 12 . So, the
median will be halfway between x(10) and x(11) . These are both 150, so the
median is £150.

Solution to Activity 2
(a) A stemplot of all 14 prices in the table is shown below.

374 0 0 3
375
376 0 7
377 6
378 4
379 5 6
380 1 1 4 5
381 8

n = 14 374 0 represents 3.740p per kWh

Stemplot of 14 gas prices

(b) Stemplots for the prices for northern and southern cities are shown
below.
Northern Southern

374 0 0 374 3
375 375
376 7 376 0
377 6 377
378 378 4
379 379 5 6
380 1 1 4 380 5
381 8

n = 7 374 0 represents n = 7 374 30 represents

3.740p per kWh 3.743p per kWh

Stemplots for northern and southern cities separately.

(c) For a batch size of 14, the median position is 21 (14 + 1) = 7 12 . So, the
all-cities median will be halfway between x(7) and x(8) . These
are 3.784 and 3.795, so the median is 3.7895, which is 3.790 when
rounded to three decimal places. (The rounded median should be
written as 3.790 and not 3.79, to show it is accurate to three decimal
places and not just two.)

162
 Solutions to activities

For the northern and southern batches, both of size 7, the median for
each is the value of x(4) (that is, 12 (7 + 1) = 4). This is 3.776 for the
northern batch and 3.795 for the southern batch.
The range is the difference between the upper extreme, EU , and the
lower extreme, EL (range = EU − EL ). So the all-cities range is
3.818 − 3.740 = 0.078,
the range for the northern batch is
3.804 − 3.740 = 0.064,
and the range for the southern batch is
3.818 − 3.743 = 0.075.
The medians and ranges are summarised below.

Median Range
All cities 3.790 0.078
Northern cities 3.776 0.064
Southern cities 3.795 0.075

Thus the general level of gas prices in the country as a whole was
about 3.790p per kWh. The average price differed by only
0.078p per kWh across the 14 cities.
The difference between the median prices for the northern and
southern cities is 0.019p per kWh (3.795 − 3.776 = 0.019), with the
south having the higher median.
The analysis does not clearly reveal whether the general level of gas
prices for typical consumers in 2010 was higher in the south or in the
north, though there is an indication that prices were a little higher in
the south. The range of prices was also rather greater in the south. It
is worth noting that the differences in gas prices between the cities in
Table 3 were generally small, when measured in pence per kWh –
although, with a typical annual gas usage of 18 000 kWh, the price
difference between the most expensive city and the cheapest would
amount to an annual difference in bills of about £14 on a typical bill
of somewhere around £700.

Solution to Activity 3
Using the data for the prices from Activity 1:
sum 90 + 100 + . . . + 270
mean = = = £162.
size 20
$ $
Or using the notation, x = 90 + 100 + . . . + 270 = 3240 and n = 20, so
$
x 3240
mean = x = = = £162.
n 20

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Unit 2 Prices

The prices were rounded to the nearest £10, so it is appropriate to keep

one more significant figure for the mean, that is, to show it accurate to the
nearest £1. So since the exact value is £162, it needs no further rounding.

Solution to Activity 4
The entries are
Mean Median
3.7859 3.795
3.7996 3.796

Whereas deletion of Cardiff and Ipswich has the effect of increasing the
mean price by 0.0137p per kWh, the median price increases by only 0.001p
per kWh. This is what we would expect as, in general, the more resistant a
measure is, the less it changes when a few extreme values are deleted.

Solution to Activity 5
The entries are
Mean Median
3.7996 3.796
4.6996 3.796

Here the median is completely unaffected by the misprint, although the

mean changes considerably.

Solution to Activity 6
You should expect the weighted mean price to be nearer the London price,
because of Rule 2 for weighted means (Subsection 2.1) and given that
London has a much larger weight then Edinburgh.
The weighted mean price given by the formula in Example 11 is (after
rounding) 3.814p per kWh, which is indeed much closer to the London
price than to the Edinburgh price.

Solution to Activity 7
(80 × 50) + (60 × 50) 4000 + 3000 7000
(a) OS = = = = 70.
50 + 50 100 100
This is the same as a simple (unweighted) mean of the two scores,
because the two component scores have equal weight. It lies exactly
halfway between the two scores ( 12 (80 + 60) = 70).
(80 × 40) + (60 × 60) 3200 + 3600 6800
(b) OS = = = = 68.
40 + 60 100 100
This is slightly less than the simple mean in (a) because the
component with the lower score (TMA) has the greater weight.

164
 Solutions to activities

(80 × 65) + (60 × 55) 5200 + 3300 8500

(c) OS = = = ! 70.8.
65 + 55 120 120
This is slightly higher than the simple mean in (a) because the
component with the higher score (iCMA) has the greater weight.
(Note that the weights need not necessarily sum to 100, even when
dealing with percentages.)
(80 × 25) + (60 × 75) 2000 + 4500 6500
(d) OS = = = = 65.
25 + 75 100 100
This is even lower than (b), so even nearer the lower score (TMA),
because the TMA score has even greater weight.
(80 × 30) + (60 × 90) 2400 + 5400 7800
(e) OS = = = = 65.
30 + 90 120 120
This is the same as (d) because the ratios of the weights are the same;
they are both in the ratio 1 to 3. That is, 25 : 75 = 30 : 90 (= 1 : 3).
(We say this as follows: ‘the ratio 25 to 75 equals the ratio 30 to 90’.)

Solution to Activity 9
The table showing the required sums (and the values in the xw column,
that you may not have had to write down), is as follows.

Price (p/kWh) Weight Price × weight

x w xw

Aberdeen 13.76 19 261.44

Belfast 15.03 58 871.74
Edinburgh 13.86 42 582.12
Leeds 12.70 150 1 905.00
Liverpool 13.89 82 1 138.98
Manchester 12.65 224 2 833.60
Newcastle-upon-Tyne 12.97 88 1 141.36
Nottingham 12.64 67 846.88
Birmingham 12.89 228 2 938.92
Canterbury 12.92 5 64.60
Cardiff 13.83 33 456.39
Ipswich 12.84 14 179.76
London 13.17 828 10 904.76
Plymouth 13.61 24 326.64
Southampton 13.41 30 402.30

Sum 1892 24 854.49

$ $
Thus xw = 24 854.49, w = 1892 and
$
xw 24 854.49
$ = = 13.136 623 ! 13.14.
w 1892
So the weighted mean of electricity prices is 13.14p per kWh.

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Unit 2 Prices

Solution to Activity 10
(a) Here, because n = 15, an appropriate picture of the data would be
Figure 9. To find the lower and upper quartiles, Q1 and Q3 , of this
batch, first find 14 (n + 1) = 4 and 34 (n + 1) = 12. Therefore Q1 = 268p
and Q3 = 299p.
(b) For this batch, n = 14 so 14 (n + 1) = 3 34 and 34 (n + 1) = 11 14 .
Q1 = 3.743 + 34 (3.760 − 3.743)
= 3.755 75 ! 3.756
and
Q3 = 3.801 + 14 (3.804 − 3.801)
= 3.801 75 ! 3.802.
So the lower quartile is 3.756 p per kWh and the upper quartile is
3.802p per kWh.

Solution to Activity 11
The range is the distance between the extremes:
range = EU − EL
= 369p − 268p
= 101p.
The interquartile range is the distance between the quartiles:
IQR = Q3 − Q1
= 299p − 268p
= 31p.

Solution to Activity 12
The quartiles, before rounding, are Q1 = 3.755 75 and Q3 = 3.801 75. So
IQR = Q3 − Q1
= 3.801 75 − 3.755 75
= 0.046,
and the interquartile range is 0.046p per kWh.

Solution to Activity 13
(a) All the necessary figures have already been calculated. You found the
median (3.790) in Activity 2 and the quartiles (Q1 = 3.756,
Q3 = 3.802) in Activity 10. The extremes (EL = 3.740, EU = 3.818)
and the batch size (n = 14) are clearly shown in the stemplot.
So the five-figure summary is as follows.

166
 Solutions to activities

3.790
n = 14 3.756 3.802
3.740 3.818

(b) Looking at the stemplot, on the whole the lower values are more
spread out, indicating that the data are not symmetric and are
left-skew.
The central box of the boxplot again shows left skewness, with the
left-hand part of the box being clearly longer than the right-hand
part. However, this skewness does not show up in the lengths of the
whiskers in this batch – they are both the same length.

Solution to Activity 14
5
The increase (in £/MWh) is 29 − 24 = 5. This is 24 ! 0.208 as a
5
proportion of the 2007 price. That is, 24 × 100% ! 20.8% of the 2007
price. Or you might have worked this out by finding that the 2008 price is
29
24 × 100% ! 120.8% of the 2007 price, so that again the increase is 20.8%
of the 2007 price.

Solution to Activity 15
The 2008 electricity price is 1.145 × 100% = 114.5% of the 2007 price, so
that the increase is 14.5% of the 2007 price.
The 2008 value of the electricity price index is
(value of the index in 2007, which is 100)
× (electricity price ratio for 2008 relative to 2007)
= 100 × 1.145 = 114.5.

Solution to Activity 16
The expenditure on a particular fuel in a particular year can be calculated
as expenditure = quantity used × price. Therefore, if the expenditure and
price are known, the quantity used can be calculated as
expenditure
quantity used = .
price
In 2007, Gradgrind’s gas cost £24 per MWh, and they spent £9298 on gas,
so the amount of gas they used in MWh was
9298
! 387.4.
24
The other amounts, in MWh, are found in a similar way, and all are shown
in the following table.
2007 2008
Gas 387.4 280.9
Electricity 42.2 34.4

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Unit 2 Prices

The reason that the expenditures went down is simply that Gradgrind
used less of each fuel in 2008 than in 2007.

Solution to Activity 17
(a) The gas price ratio for 2009 relative to 2008 is
30
! 1.034.
29
The electricity price ratio for 2009 relative to 2008 is
98
! 1.126.
87
(Over this year, electricity prices rose a lot more than gas prices.)
(b) The overall energy price ratio for 2009 relative to 2008 is
(1.034 × 8145) + (1.126 × 2991) 11 789.796
= ! 1.059.
8145 + 2991 11 136
(c) Using the 2009 expenditures for weights instead of the 2008
expenditures, the overall energy price ratio for 2009 relative to 2008 is
(1.034 × 23 733) + (1.126 × 2275) 27 101.572
= ! 1.042.
23 733 + 2275 26 008
This price ratio is considerably less than the one found in part (b).
(Note that if full calculator accuracy is retained throughout the
calculations, the price ratio is 1.043 to three decimal places.)

Solution to Activity 18
The gas price ratio for 2010 relative to 2009 is
28
! 0.933.
30
The electricity price ratio for 2010 relative to 2009 is
88
! 0.898.
98
(Both price ratios are less than 1 because, over this year, Gradgrind’s gas
and electricity prices both fell.)
The overall energy price ratio for 2010 relative to 2009 is
(0.933 × 23 733) + (0.898 × 2275) 24 185.839
= ! 0.930.
23 733 + 2275 26 008
Then the value of the index for 2010 is found by multiplying the 2009
value of the index by this overall price ratio, giving
126.2 × 0.930 ! 117.4.

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 Solutions to activities

Solution to Activity 19
(a) What you need to remember here is that the size of an area represents
the proportion of expenditure on that class of goods or services.
(Also, it is admittedly not very easy to estimate these areas ‘by eye’ !
Your estimates might quite reasonably differ from those given here.)
• The sector for ‘Personal expenditure’ looks as if it is approximately
a tenth of the whole inner circle – so approximately a tenth of total
expenditure is personal expenditure.
• ‘Housing and household expenditure’ looks as if it is somewhere
between a third and a half of the inner circle – perhaps
approximately two fifths – so approximately two fifths of
expenditure is on housing and household expenditure.
• The area for ‘Housing’ takes up about a quarter of the outer ring,
so about a quarter of expenditure is on housing.
(b) The amount spent each week on ‘Personal expenditure’ is
approximately
1
× £540 = £54.
10
The amount spent each week on ‘Housing and household expenditure’
is approximately
2
× £540 = £216 ! £220.
5
The amount spent each week on ‘Housing’ is approximately
1
× £540 = £135 ! £140.
4
Recall, however, that the weights represent average proportions of
expenditure, and the spending patterns of the selected household may
differ from those of the ‘typical’ household.

Solution to Activity 20
Every household will be different, but think about the reasons for any
large differences between your weights and those for the RPI.

Solution to Activity 21
Price ratio for July 2011 2011 weights Price ratio
relative to January 2011 × weight
Group r w rw
Food and catering 1.024 165 168.960
Alcohol and tobacco 1.042 88 91.696
Housing and household
expenditure 1.012 408 412.896
Personal expenditure 1.053 82 86.346
Travel and leisure 1.030 257 264.710

Sum 1000 1024.608

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Unit 2 Prices

sum (w) = 1000, sum of products (rw) = 1024.608,

sum of products (rw) 1024.608

all-item price ratio = =
sum(w) 1000
= 1.024 608,

value of RPI in July 2011 = 229.0 × 1.024 608

= 234.635 232
! 234.6.

Solution to Activity 22
More detail has been included in these comments than is expected from
you. When you read them, make sure you understand all the points
mentioned.
(a) The RPI is calculated using the price ratio and weight of each item.
Since the weights of items change very little from one year to the
next, the price ratio alone will normally tell you whether a change in
price is likely to lead to an increase or a decrease in the value of the
RPI. If a price rises, then the price ratio is greater than one, so the
RPI is likely to increase as a result. If a price falls, then the price
ratio is less than one, so the RPI is likely to decrease. Therefore, since
the price of leisure goods fell, this is likely to lead to a decrease in the
value of the RPI. For a similar reason, the increase in the price of
canteen meals is likely to lead to an increase in the value of the RPI.
(b) Both changes are likely to be small for two reasons. First, the price
changes are themselves fairly small. Second, leisure goods and canteen
meals form only part of a household’s expenditure: no single group,
subgroup or section will have a large effect on the RPI on its own,
unless there is a very large change in its price.
(c) The weight of ‘Leisure goods’ was 33 in 2012 (see Table 12). Since
‘Canteen meals’ is only one section in the subgroup ‘Catering’, which
had weight 47 in 2012, the weight of ‘Canteen meals’ will be much
smaller than 47. (In fact it was 3.) So the weight of ‘Leisure goods’ is
much larger than the weight of ‘Canteen meals’.
(d) Since the weight of ‘Leisure goods’ is much larger than the weight of
‘Canteen meals’, and the percentage change in the prices are not too
different in size, the change in the price of leisure goods is likely to
have a much larger effect on the value of the RPI as a whole.

170
 Solutions to activities

Solution to Activity 23
The ratio of the two RPI values is
value of RPI in February 2012 239.9
= ! 1.037,
value of RPI in February 2011 231.3
or 103.7%. Therefore the annual inflation rate, based on the RPI was
3.7%. (Note that this is slightly higher than the annual inflation rate
measured using the CPI.)

Solution to Activity 24
The weekly amount in November 2011 should be
121.2
£120 × ! £125.81.
115.6

Solution to Activity 25
(a) For May 2010, the ratio of the value of the RPI to its value one year
earlier is
223.6
! 1.051,
212.8
so the annual inflation rate is 5.1%.
The purchasing power of the pound compared to one year previously is
212.8
× 100p ! 95p.
223.6
(b) For October 2011, the ratio of the value of the RPI to its value one
year earlier is
238.0
! 1.054,
225.8
so the annual inflation rate is 5.4%.
The purchasing power of the pound compared to one year previously is
225.8
× 100p ! 95p.
238.0
(c) For March 2011, the ratio of the value of the RPI to its value one year
earlier is
232.5
! 1.053,
220.7
so the annual inflation rate is 5.3%.
The purchasing power of the pound compared to one year previously is
220.7
× 100p ! 95p.
232.5

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Unit 2 Prices

Solutions to exercises
Solution to Exercise 1
(a) For the arithmetic scores, the position of the median is
1
2 (33 + 1) = 17, so the median is 79%.
(b) For the television prices, the position of the median is 12 (26 + 1) = 13 12 ,
so the median is halfway between x(13) and x(14) . Thus, the median is
1
2 (£269 + £270) = £269.5 ! £270.

Solution to Exercise 2
For the batch of arithmetic scores in part (a) of Exercise 1, the sum of the
33 values is 2326 and
2326
! 70.5.
33
Therefore, the mean is 70.5%. (The original data are given to the nearest
whole number, so the mean is rounded to one decimal place.)
For the batch of television prices in part (b) of Exercise 1, the sum of the
26 values is 7856 and
7856
= 302.1538 ! 302.2.
26
Therefore, the mean is £302.2.

Solution to Exercise 3
For the median, there are now 17 prices left in the batch, so the median is
at position 12 (17 + 1) = 9. It is therefore 150.
The sum of the remaining 17 values is 2480, so the mean is
2480
= 145.8824 ! 146.
17
In this case, removing the three highest prices has not changed the median
at all, but it has reduced the mean considerably. This illustrates that the
median is a more resistant measure than the mean.

Solution to Exercise 4
Mean price of all the cameras is
(80.7 × 10) + (78.5 × 17) 2141.5
= ,
10 + 17 27
which is £79.3 (rounded to the same accuracy as the original means).

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 Solutions to exercises

Solution to Exercise 5
Mean price of all the material is
(10.95 × 8.5) + (12.70 × 6) 169.275
= ,
8.5 + 6 14.5
which is £11.67 (rounded to the nearest penny).

Solution to Exercise 6
(a) For the arithmetic scores, n = 33 so 41 (n + 1) = 8 12 and 34 (n + 1) = 25 12 .
The lower quartile is therefore
Q1 = 12 (55 + 58)% = 56.5% ! 57%.
The upper quartile is
Q3 = 12 (86 + 89)% = 87.5% ! 88%.
The interquartile range is
Q3 − Q1 = 87.5% − 56.5% = 31%.

(b) For the television prices, n = 26 so 14 (n + 1) = 6 34 and 34 (n + 1) = 20 14 .

The lower quartile is therefore
Q1 = £229 + 34 (£230 − £229) = £229.75 ! £230.
The upper quartile is
Q3 = £320 + 14 (£349 − £320) = £327.25 ! £327.
The interquartile range is
Q3 − Q1 = £327.25 − £229.75 = £97.5 ! £98.

Solution to Exercise 7
(a) Arithmetic scores:
From the stemplot, n = 33, EL = 7 and EU = 100.

79
n = 33 57 88
7 100
Five-figure summary of arithmetic scores

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Unit 2 Prices

(b) Television prices:

From the data table, n = 26, EL = 170 and EU = 699.

270
n = 26 230 327
170 699

Five-figure summary of television prices

Solution to Exercise 8
For the boxplot of arithmetic scores, the left part of the box is longer than
the right part, and the left whisker is also considerably longer than the
right. This batch is left-skew (as was also found in Unit 1 (Activity 20,
Subsection 5.2)).
For the boxplot of television prices, the right part of the box is rather
longer than the left part. The right whisker is also rather longer than the
left, and if one also takes into account the fact that two potential outliers
have been marked, the top 25% of the data are clearly much more spread
out than the bottom 25%. This batch is right-skew.

Solution to Exercise 9
The gas price ratio for 2011 relative to 2010 is
30
! 1.071.
28
The electricity price ratio for 2011 relative to 2010 is
86
! 0.977.
88
The overall energy price ratio for 2011 relative to 2010 is
(1.071 × 23 969) + (0.977 × 2920) 28 523.639
= ! 1.061.
23 969 + 2920 26 889
Then the value of the index for 2011 is found by multiplying the 2010
value of the index by this overall price ratio, giving
117.4 × 1.061 ! 124.6.

Solution to Exercise 10
! !
w = 1000, rw = 1007.760,
$
rw 1007.760
all-item price ratio = $ =
w 1000
= 1.007 760,

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 Solutions to exercises

value of RPI in February 2012 = 238.0 × 1.007 760

= 239.846 88
! 239.8.
(The published index was 239.9. Again, the difference between this and
your calculated value is because the ONS statisticians used more accuracy
in their intermediate calculations.)

Solution to Exercise 11
(a) For October 2010, the ratio of the value of the RPI to its value one
year earlier is
225.8
! 1.045,
216.0
so the annual inflation rate is 4.5%.
The purchasing power of the pound compared to one year previously is
216.0
× 100p ! 96p.
225.8
(b) For January 2011, the ratio of the value of the RPI to its value one
year earlier is
229.0
! 1.051,
217.9
so the annual inflation rate is 5.1%.
The purchasing power of the pound compared to one year previously is
217.9
× 100p ! 95p.
229.0

Solution to Exercise 12
The RPI for April 2011 was 234.4 and the RPI for April 2010 was 222.8.
So in April 2011, the pension should be
234.4
£800 × ! £842 per month.
222.8

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Unit 2 Prices

Acknowledgements
Grateful acknowledgement is made to the following sources:
Table 3 Adapted from: https://www.gov.uk/government/statistical-data-
sets/annual-domestic-energy-price-statistics
Table 5 Taken from:
http://en.wikipedia.org/wiki/List of conurbations in the United Kingdom.
This file is licensed under the Creative Commons Attribution Licence
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Table 6 Department of Energy and Climate Change
Tables 13–15 Office for National Statistics licensed under the
Open Government Licence v.1.0
Table 16 Adapted from data from the Office for National Statistics licensed
under the Open Government Licence v.1.0
Figure 28 Crown copyright material is reproduced under Class Licence
Number C01W0000065 with the permission of the Controller, Office of
Public Sector Information (OPSI)
Subsection 1.1 figure, ‘Data, data, data!’, Mary Evans Picture Library
Subsection 1.2 figure, ‘An upside down V-shape’, GIDZY /
www.flickr.com. This file is licensed under the Creative Commons
Attribution Licence http://creativecommons.org/licenses/by/3.0/
Subsection 1.2 figure, ‘Not that kind of flat screen’, Joey Gannon /
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Subsection 3.2 figure, ‘More birds, now showing the shape of the ∧∧
diagram’, JUMBERO / www.flickr.com. This file is licensed under the
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Subsection 3.3 quote from McCullagh, P. (2003): The Royal Statistical
Society
Subsection 3.3 photo of John Tukey: Taken from
http://rchsbowman.wordpress.com/2011/09/03/statistics-notes-
%E2%80%94-biography-%E2%80%94-john-wilder-tukey/
Subsection 3.3 cartoon: www.causeweb.org
Subsection 5.2 quote from BBC News website, 14 March 2012: Taken from
www.bbc.co.uk/news/business-17356286
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