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:

Example of construction of weighted index number
Example of construction of weighted index number

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:

Solution of example through Laspeyre’s Method
Solution of example through Laspeyre’s Method

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:

Solution of example through Paasche’s Method
Solution of example through Paasche’s Method

Commodity

A

50

10

52

600

624

B

7

3

9

28

36

C

3

7

5

18

30