Index Number: Construction of weighted index Number: Laspeyre's and Paasche's Method
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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.
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 |
Paasche’S Method
Formula:
Solution:
Commodity | |||||
A | 50 | 10 | 52 | 600 | 624 |
B | 7 | 3 | 9 | 28 | 36 |
C | 3 | 7 | 5 | 18 | 30 |