The consumer Price index for the working class of a town in 1965 was 222, He index of food being 250,the index of clothing 290 and the index of all other items including fuel and light 120.ln 1970, the cost of living index stood at 331 index of food being 325, of clothing 445 and of all other items 310. find out the relative importance of (a) food, (b) clothing and (c) all other items in the budgets of working class families in the base period?
Answers
Index Numbers
Index number is a specialized average designed to measure the change in the level of an activity or item, either with respect to time or geographic location or some other characteristic. It is described either as a ratio or a percentage. For example, when we say that consumer price index for 1998 is 175 compared to 1991, it means that consumer prices have risen by 75% over these seven years.
Wholesale Price Index(WPI) and Consumer Price Index (CPI) are widely used terms. They indicate the inflation rates, and also changes in standard of living. Consumer price index is based on prices of five sets of items - Food, Housing (Rent), Household goods, Fuel and light, and Miscellaneous. Each item is based on study of a number of items - e.g. Food includes Rice, Wheat, Dal, Milk, and so on.
Methods of constructing index numbers
Price Relative means the ratio of price of a certain item in current year to the price of that item in base year, expressed as a percentage (i.e. Price Relative = (p2/p1)×100). For example, if a colour TV cost Rs 12000 in 1981 and Rs. 18000 in 1998, the price relative is
(18000/12000)×100 = 150.
Generally instead of one item, rates of a number of items are given, for current year as well as for base year. Sometimes different weights, or quantities are also given for those items. There are a number of ways to calculate index numbers in such cases.
Unweighted index numbers
Simple Aggregative
Simple Average of Price Relatives
Weighted (or Arithmetic Mean method)
Weighted Aggregative
Weighted Average of Price Relatives
where I = (p2/p1)×100
Step-by-step explanation:
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