J.K.SHAH CLASSES S.Y.J.C.

- STATISTICS

CHAPTER 5 INDEX NUMBER

 Basic concept
1. Index Numbers are special kind of average, expressed in ratio, calculated
as percentage & used as numbers.
2. Index number is a number which is used as a tool for comparing prices &
quantities of a particular commodity or a group of commodities in a
particular time period with respect to other time period or periods.
3. Index Numbers indicate relative change in price or quantity or value
expressed in percentage.
4. Index Numbers are always unit free.
5. The year in which comparison is made is called the “Current Year” & the
year with respect to which the comparison is made is the “Base year”.
 Types:
1) Price Index:
When the comparison is made in respect of prices is called price index
numbers.
2) Quantity Index:
When the comparison is made in respect of Quantities it is called Quantity
Index numbers.
3) Value Index:
When comparison is made in respect of values (value = Price X Qty.) it is
called value Index Number.
 Terminology OR Notation
1) Po = Price of Commodity in Base year
2) P1 = Price of Commodity in Current year
3) qo = Quantity of commodity consumed in Base year
4) q1 = Quantity of commodity consumed in Current year
5) Vo = Value spent on a commodity during the base year

Vo = Po qo

6) V1 = Value spent on a commodity during the Current year

V1 = P1 q1
7) i = Price relative
P
V1 = p1 × 100
o

8) P01 = Price Index number of current year with respect to base year.
9) Q01 = Quantity Index number of current year with respect to base year.
10) V01 = Value index number of current year with respect to base year.

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 Construction of Index Numbers

Index Number are constructed by the following two methods.
i) Simple Aggregate method:
P1
Price Index No. (P01) = po
× 100
q1
Quantity Index No. (Q01) = × 100
qo

P 1 q1 1
Value Index No. (V01) = po qo
× 100 × 100
o

ii) Weighted Aggregate Method:

P1
P01 = po
× 100

In most of cases, quantities are taken as weights.

1) Laspeyear’s price Index No.

P q
P01 (L) = 1 × 100
po qo
Here, Base year Quantities are taken as weights.

2) Passche’s Price Index No.

P q
P01 (P) = p1 q1 × 100
o 1

Here, Current year Quantities are taken as weights.

3) Dorbish – Bowley’s price Index No.
1 1 1
o o o 1
P01 (D - B) = x100
OR

P 1( ) 1( )
=

A.M. of Laspeyre’s & Paasche’s Index No.

4) Fisher’s price Index No.

P1 q P 1 q1
P01 (F) =√ p qo
× po q1
× 100

OR
=√ ( )× ( )

GM of Laspeyre’s & Paasche’s Index No.

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5) Marshall – Edgeworth price Index No.
P1 q P1 q1
P01 (ME) =
p qo p q1
× 100
OR
P1(q q1 )
= × 100
p (q q1 )

Here, sum of base Year & Current year quantities are taken as weight.

6) Walsch’s price Index No.

P 1 √q q 1
P01 (W) = × 100
p √q q 1
Here, GM of Base year & Current year quantities are taken as weight

Cost of living index Number:

 Also known as consumer price index Number.
 An index number of the cost of buying goods & services in day-to-day life
for a specific consumer class.
 Cost of living Index Number is used in calculating purchasing power of
money. Also used in determining Real wages

Method
1. Family budget method
CLI =
Whether I = Price relative
P
= 1 × 100
P
W = Exp. Incurred against each commodity in the base years.
= P0 q0

2. Aggregates Expenditure methods:

P1 q
CLT = × 100
p q

In this method, quantities consumed in base year taken as weights.

 Real Income:

ncome
Real Income = CL
× 100
To maintain the same standard of living in the subsequent years his real income
in all those subsequent years must be same as his base year income.

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OBJECTIVES

I) Choose the correct alternative.

1. Price Index Number by Simple Aggregate Method is given by

1
(a) × 100 (b) × 100

1
(c) × 100 (d) × 100
1

2. Quantity Index Number by Simple Aggregate Method is given by

1
(a) × 100 (b) × 100

1
(c) × 100 (d) × 100
1

3. Value Index Number by Simple Aggregate Method is given by

1 1
(a) × 100 (b) × 100
1

1 1 1 1
(c) × 100 (d) × 100
1

4. Price Index Number by Weighted Aggregate Method is given by

1
(a) × 100 (b) × 100
1

1
(c) × 100 (d) × 100
1

5. Quantity Index Number by Weighted Aggregate Method is given by

1
(a) × 100 (b) × 100
1

1
(c) × 100 (d) × 100
1

6. Value Index Number by Weighted Aggregate Method is given by

1 1
(a) × 100 (b) × 100

1 1 1 1
(c) × 100 (d) × 100
1

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7. Laspeyre’s Price Index Number is given by
1
(a) × 100 (b) × 100
1 1 1

1 1 1
(c) × 100 (d) × 100
1

8. Paasche’s Price Index Number is given by

1
(a) × 100 (b) × 100
1 1 1

1 1 1
(c) × 100 (d) × 100
1

9. Dorbish-Bowley’s Price Index Number is given by

1 1 1 1

(a) 1 1
× 100 (b) 1 1
× 100

1 1 1 1

(c) 1
× 100 (d) 1 1 1
× 100

10) Fisher’s Price Number is given by

1 1 1
(a) √ × × 100
1

1
(b) √ × × 100
1 1 1

1 1 1
(c) √ × × 100
1

1
(d) √ × × 100
1 1 1

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J.K.SHAH CLASSES S.Y.J.C. - STATISTICS
11) Marshall-Edgeworth’s Price Index Number is given by
1( 1)
(a) (
× 100
1)

( 1)
(b) × 100
1( 1)

1( 1)
(c) (
× 100
1)

1( 1)
(d) (
× 100
1)

12) Walsh’s Price Index Number is given by

1√ 1
(a) × 100
√ 1

√ 1
(b) × 100
1√ 1

1√ 1
(c) × 100
√ 1

√ 1
(d) × 100
1√ 1

13) The Cost of Living Index Number using Aggregate Expenditure Method is
given by
1
(a) × 100

1 1
(b) × 100
1

1 1
(c) × 100
1

1
(d) × 100

14) The Cost of Living Index Number using Weighted Relative Method is given
by
(a) (b) (c) (d)

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II) Fill in the blanks
1. Price Index Number by Simple Aggregate Method is given by______.
2. Quantity Index Number by Simple Aggregate Method is given by____.
3. Value Index Number by Simple Aggregate Method is given by_______.
4. Price Index Number by Weighted Aggregate Method is given by______.
5. Quantity Index Number by Weighted Aggregate Method is given by____.
6. Value Index Number by Weighted Aggregate Method is given by______.
7. Laspeyre’s Price Index Number is given by_________
8. Paasche’s Price Index Number is given by__________.
9. Dorbish-Bowley’s Price Index Number is given by______.
10. Fisher’s Price Index Number is given by________.
11. Marshall-Edgeworth’s Price Index Number is given by______.
12. Walsh’s Price Index Number is given by_________.

III) State whether each of the following is True or False.

1
1. × 100 is the Price Index Number by Simple Aggregate Method.

2. × 100 is the Quantity Index Number by Simple Aggregate Method.

1

3. × 100 is Value Index Number by Simple Aggregate Method.

1 1

1
4. × 100 is Paasche’s Price Index Number.

1 1
5. × 100 is Laspeyre’s Price Index Number.
1

1 1
6. × × 100 is Dorbish-Bowley’s Price Index Number.

1 √ 1 1
7. [√ ] × 100 is Fisher’s Price Index Number.
√ 1

( 1)
8. × 100 is Marshall- Edgeworth’s Price Index Number.
1( 1)

√ 1
9. × 100 is Walsh’s Price Index Number.
1√ 1

1 1 1
10. √ ×√ × 100 is Fisher’s Price Index Number.
1

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J.K.SHAH CLASSES S.Y.J.C. - STATISTICS
Answers:
I) 1. (c)
2. (c)
3. (d)
4. (c)
5. (c)
6. (d)
7. (c)
8. (d)
9. (c)
10. (a)
11. (a)
12. (a)
13. (a)
14. (a) .

1
II) 1. × 100

1
2. × 100

1 1
3. × 100

1
4. × 100

1
5. × 100

1 1
6. × 100

1
7. × 100

1 1
8. × 100
1

1 √ 1 1
9. [√ ] × 100
√ 1

1 1 1
10. √ ×
1

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J.K.SHAH CLASSES S.Y.J.C. - STATISTICS
1( 1)
11. (
× 100
1)

1√ 1
12. × 100
√ 1

III) 1. True
2. False
3. False
4. False
5. False
6. False
7. False
8. False
9. False
10. False

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