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# Choose the correct answer 1 index number is a a

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Unformatted text preview: al 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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