2. Contents
• Introduction
• Paasche Price Index Formula
• Laspeyres Price Index Formula
• Consumer Price Index (CPI)
• Inflation: Definition and Types
• Break-Even Analysis
• Break-Even Analysis Components
• Conclusion
3. Introduction
• Price indices are essential
tools for measuring
changes in prices over
time.
• They help us understand
inflation and its impact on
the economy.
4. Paasche Price Index Formula
• The Paasche Price Index compares the cost of a
specific basket of goods and services in the
current period to the cost of the same basket in a
base period.
• Formula: PPI = (Σ(Pt * Qt) / Σ(Pb * Qt)) * 100
• Pt: Prices in the current period
• Pb: Prices in the base period
• Qt: Quantities in the current period
5. Laspeyres Price Index
Formula
• The Laspeyres Price Index also compares the cost
of a basket of goods and services in the current
period to the cost of the same basket in a base
period.
• Formula: LPI = (Σ(Pb * Qt) / Σ(Pb * Qt)) * 100
6. Consumer Price Index (CPI)
• The Consumer Price Index measures the average
change over time in the prices paid by urban
consumers for a market basket of consumer
goods and services.
• It reflects changes in consumption patterns and
price levels that affect the average consumer.
• Formula: CPI = (Cost of Basket in Current
Period / Cost of Basket in Base Period) * 100
7. Inflation: Definition and
Types
• Inflation is the sustained increase in the general
price level of goods and services in an economy
over a period of time.
• Types of inflation: demand-pull (excess
demand), cost-push (increased production costs),
built-in inflation (wage-price spiral).
8. Causes of Inflation
1. Demand-Pull Inflation: Excessive consumer demand
outpaces supply, leading to price increases.
2. Cost-Push Inflation: Rising production costs (e.g.,
wages, raw materials) lead to higher prices.
3. Monetary Policy: Excessive money supply growth can
lead to more money chasing the same amount of goods,
causing prices to rise.
4. Supply Chain Disruptions: Shortages in supply, such as
due to natural disasters or geopolitical issues, can lead to
higher prices.
5. Exchange Rates: Currency depreciation can lead to
higher import prices.
9. Break-Even Analysis
• Break-Even Analysis helps businesses determine
the point at which total revenue equals total
costs, resulting in neither profit nor loss.
• It helps in making informed decisions about
pricing, production, and business strategies.
• Formula: BEP = Fixed Costs / (Price per Unit -
Variable Cost per Unit)
10. Break-Even Analysis
Components
1.Fixed Costs (FC): Costs that don't change
with production or sales volume.
2.Variable Costs (VC): Costs that vary with
production or sales volume.
3.Total Costs (TC): Sum of fixed and
variable costs.
4.Total Revenue (TR): Income from sales
of goods or services.
5.Break-Even Point (BEP): The point at
which TR equals TC.
11. Conclusion
• Price indices (Paasche, Laspeyres, CPI)
provide insights into price changes and
inflation.
• Inflation is influenced by various factors
and can have significant economic
consequences.
• Break-Even Analysis aids businesses in
making informed decisions about pricing
and production.
