Construction of weighted index number

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In weighted index number each item is given weight according to the importance. There are two group methods to calculate index number of this category:

• Weighted aggregate method

• Weighted average of price relative method

Here, two types of weighted aggregate method are used to calculate weighted index number:

• Laspeyre’s Method [Uses base year quantities ]

• Paasche’s Method [ Use current year quantities as weights]

Example:

 Commodity Price (in Rs.) Quantity bought in units 1997 1998 1997 1998 A 50 52 10 12 B 7 9 3 4 C 3 5 7 6

Find the price index number from the following data.

(A) Laspeyre’S Method

Steps:

1. Multiply with to get for each item/commodity and service.

2. Multiply with to get for each item/commodity and service.

3. Add all by and multiply by 100 to obtain Laspeyre’s price index number.

Formula:

Solution:

 Commodity A 50 10 52 520 500 B 7 3 9 27 21 C 3 7 5 35 21

(B) Paasche’S Method

Formula:

Solution:

 Commodity A 50 10 52 600 624 B 7 3 9 28 36 C 3 7 5 18 30

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