Extra Video Conference

Topic: Index Numbers

JKE 316E QUANTITATIVE ECONOMICS

Index numbers

Obj: To measures changes in the price (P), quantity (Q) OR value of a group of articles or commodities over a specified period of time

Eg: Price Index – to compare the current price of a group of articles with the corresponding price of that group at some time in the past

Time in the past = base year

& Index at base date = 100, so that easy to find the % increase since the base date

Eg: August 2013, Consumer Price Index = 131.8, i.e. 31.8% increase in price since Jan 2001 (base year).

Uses of Index (esp. in Economics)

The main use of index no. is to find the rate of inflation.

Used in wage negotiation.Index linking.To calculate the purchasing power

of the currency.

LASPEYRES vs PAASCHE INDEXESLaspeyres Index

Compares the cost of a basket of goods at base year with the current year =Base Weighted (Price) Index

Paasche IndexCompare the cost of the current basket of goods at the current year with the cost of the same basket of goods at base year =Current Weighted (Price) Index

LASPEYRES vs PAASCHE INDEXES

LASPEYRES vs PAASCHE INDEXES

Eg. 1

Eg. 1 Calculate…

Eg. 1 Calculate Price Index

Eg. 1 Calculate Quantity Index

Eg. 2

The following data shows the quantities and prices of FOUR components purchased by a company in 2008 and 2013.

i) Calculate a Laspeyres Price Index which shows the change in prices between 2008 and 2013.

ii) Calculate a Paasche Quantity Index which shows the change in quantities between 2008 and 2013.

iii) Briefly comment on your results in parts (i) and (ii).

Eg. 2

Eg. 2

Eg. 2 Calculate…

Eg. 2 Answers

The results show that:

i) prices have increased by 38.7%.

ii) quantities decreased by 13.1%.