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8.5952
= Antilog
4
= Antilog [ 2.1488] = 140.9
10.5.3 Weighted aggregate index numbers
In order to attribute appropriate importance to each of the
items used in an aggregate index number some reasonable weights
must be used. There are various methods of assigning weights and
consequently a large number of formulae for constructing index
numbers have been devised of which some of the most important
ones are
1. Laspeyre’ s method
2. Paasche’ s method
3. Fisher’ s ideal Method
4. Bowley’ s Method
5. Marshall Edgeworth method
6. Kelly’ s Method
246 1. Laspeyre’ s method:
The Laspeyres price index is a weighted aggregate price
index, where the weights are determined by quantities in the based
period and is given by
Σp1q 0
Laspeyre’ s price index = P01L =
× 100
Σp 0 q 0
2. Paasche’ s method
The Paasche’ s price index is a weighted aggregate price
index in which the weight are determined by the quantities in the
current year. The formulae for constructing the index is
Σp1q1
Paasche’ s price index number = P01P =
× 100
Σp 0 q1
Where
P0 = Price for the base year
P1 = Price for the current year
q0 = Quantity for the base year q1 = Quantity for the current year
3. Fisher’ s ideal Method
Fisher’ s Price index number is the geometric mean of the
Laspeyres and Paasche indices Symbolically
Fisher’ s ideal index number = P01F = L × P
Σp1 q 0
Σp1q1
×
× 100
Σp 0 q 0
Σp 0 q1
It is known as ideal index number because
(a) It is based on the geometric mean
(b) It is based on the current year as well as the base year
(c) It conform certain tests of consistency
(d) It is free from bias.
4. Bowley’ s Method:
Bowley’ s price index number is the arithmetic mean of
Laspeyre’ s and Paasche’ s method. Symbolically
L+P
Bowley’ s price index number = P01B =
2
1 Σp1q 0
Σp1q1 =
+ × 100
2 Σp 0 q 0
Σp 0 q1 = 247 5. Marshall Edgeworth method
This method also both the current year as well as base year
prices and quantities are considered. The formula for constructing
the index is
Σ(q 0 + q1 )p1
Marshall Edgeworth price index = P01ME =
× 100
Σ(q 0 + q1 )p 0
Σp1q 0 + Σp1q1
=
× 100
Σp 0 q 0 + Σp 0 q1
6. Kelly’ s Method
Kelly has su...
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This note was uploaded on 01/18/2014 for the course BUS 100 taught by Professor Moshiri during the Winter '08 term at UC Riverside.
 Winter '08
 Moshiri
 Business

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