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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 INDEXES
Laspeyres Index
Compares the cost of a basket of
goods at base year with the current
year =Base Weighted (Price) Index
Paasche Index
Compare 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%.

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20140613 JKE 316E_extra topic on Index Numbers

  • 1. Extra Video Conference Topic: Index Numbers JKE 316E QUANTITATIVE ECONOMICS
  • 2. 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).
  • 3. 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.
  • 4. LASPEYRES vs PAASCHE INDEXES Laspeyres Index Compares the cost of a basket of goods at base year with the current year =Base Weighted (Price) Index Paasche Index Compare 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
  • 9. Eg. 1 Calculate Price Index
  • 10. Eg. 1 Calculate Quantity Index
  • 11. 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).
  • 12. Eg. 2
  • 13. Eg. 2
  • 15. Eg. 2 Answers The results show that: i) prices have increased by 38.7%. ii) quantities decreased by 13.1%.