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income can be measured.
4.
Index numbers are also used for analysing market price
for particular kinds of goods and services.
Method of Constructing Consumer price index:
There are two methods of constructing consumer price
index. They are
1.
Aggregate Expenditure method (or) Aggregate method.
2.
Family Budget method (or) Method of Weighted
Relative method.
259 1. Aggregate Expenditure method:
This method is based upon the Laspeyre’ s method. It is
widely used. The quantities of commodities consumed by a
particular group in the base year are the weight.
Σp1q 0
The formula is Consumer Price Index number =
× 100
Σp 0 q 0
2. Family Budget method or Method of Weighted Relatives:
This method is estimated an aggregate expenditure of an
average family on various items and it is weighted. The formula is
Σpw
Consumer Price index number =
Σw
p1
Where P =
× 100 for each item. w = value weight (i.e) p0q0
p0
“Weighted average price relative method” which we have studied
before and “Family Budget method” are the same for finding out
consumer price index.
Example 9:
Construct the consumer price index number for 1996 on the
basis of 1993 from the following data using Aggregate expenditure
method.
Price in
Commodity
Quantity consumed
1993
1996
A
100
8
12
B
25
6
7
C
10
5
8
D
20
15
18
Solution:
Commodity
q0
p0
p1
p0q0
p1q0
A
100
8
12
800
1200
B
25
6
7
150
175
C
10
5
8
50
80
D
20
15
18
300
360
Total
1300
1815
Consumer price index by Aggregate expenditure method
260 Σp1q 0
× 100
Σp 0 q 0
1815
=
×100 = 139.6
1300 = Example 10:
Calculate consumer price index by using Family Budget
method for year 1993 with 1990 as base year from the following
data. Items
Food
Rent
Clothing
Fuel and lighting
Miscellaneous Price in
1990
1993
(Rs.)
(Rs.)
150
140
75
90
25
30
50
60
60
80 Weights
35
20
10
15
20 Solution:
Items Food
Rent
Clothing
Fuel and
lighting
Miscellaneous W P0 P1 P= PW 35
20
10 150
75
25 140
90
30 p1
× 100
p0
93.33
120.00
120.00 15
20
100 50
60 60
80 120.00
133.33 Consumer price index by Family Budget method =
11333.15
100
= 113.33
261
= Σpw
Σw 3266.55
2400.00
1200.00
1800.00
2666.60
11333.15 Exercise – 10
I. Choose the correct answer:
1. Index number is a
(a) measure of relative changes
(b) a special type of an average
(c) a percentage relative
(d) all the above
2. Most preferred type of average for index number is
(a) arithmetic mean
(b) geometric mean
(c) hormonic mean
(d) none of the above
3. Laspeyre’ s index formula uses the weights of the
(a) base year
(b) current year
(c) average of th...
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 Winter '08
 Moshiri
 Business

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