Sept 16, Intro to Index Numbers

Sept 16, Intro to Index Numbers - Index Numbers Chapter 3...

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Unformatted text preview: Index Numbers Chapter 3 (Schrimper) 9/16/10 AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles Why Construct an Index? An index is a (unitless) summary statistic that allows one to compare changes in for a given variable (e.g. prices, production, consumption) over a given time period AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles think about the challenges of comparing the price of watermelons ($/unit), corn ($/bushel), peaches ($/box), and cattle ($/lb) over several years think about the challenges of assessing the price changes of a market basket consisting of jar of peanut butter, a jar of jelly, a loaf of bread, a gallon of milk, a container of salt, a two liter Coke, and a box of dishwashing detergent. Components of an Index Items to include Weights (relative importance must add up to 100%) Base period AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles Examples of Price Indices Prices Received By Farmers Prices Paid By Farmers Farm to Retail Price Spread/Market Basket Individual Commodity Price Indices Food Prices Housing Consumer Price Index Producer Price Index Dow Jones Industrial Index AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles Sports Rankings/Indices With Various Weights and Components Quarterback Ratings: http://brucey.net/nflab/statistics/qb_rating.html Baseball Slugging Percentage http://en.wikipedia.org/wiki/Slugging_percentage Basketball Ratings: (RPI/Sagarin) http://en.wikipedia.org/wiki/Ratings_Percentage_Index#F AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles Price Relatives AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles P 1 Where: P r = a price relative P 1 = the price for one particular period P = the price in an initial (base) period P r = P x 100 An Easy Method to Develop is a Price Index is to Calculate a Simple Average of Price Relatives Simple (non-weighted) Price Index An average of price relatives AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles n I n i / Pr 1 = = i Table 3-1: Average Price Received by U.S. Farmers AEC 305, Food and Agricultural Marketing Principles AEC 305, Food and Agricultural Marketing Principles Item 1988 1997 Cotton ($/lb) .566 .674 Corn ($/bu) 2.54 2.60 Soybeans ($/bu) 7.42 6.50...
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This note was uploaded on 01/13/2011 for the course AEC aec 305 taught by Professor Dr.williamm.snell during the Spring '10 term at Kentucky.

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Sept 16, Intro to Index Numbers - Index Numbers Chapter 3...

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