Professional Documents
Culture Documents
& Statistics
Chapter 20
Index Numbers
Copyright 2010 McGraw-Hill Australia Pty Ltd
PowerPoint slides to accompany Croucher, Introductory Mathematics and Statistics, 5e
20-1
Learning Objectives
Interpret and use a range of index numbers commonly
used in the Australian business sector
Define an index number and explain its use
Perform calculations involving simple, composite and
weighted index numbers
Understand the basic structure of the consumer price
index (CPI) and perform calculations involving its use
Understand other indexes used in the Australian
business sector
20-2
20.1 Introduction
An index number is a statistical value that measures
the change in a variable with respect to time
Two variables that are often considered in this analysis
are price and quantity
With the aid of index numbers, the average price of
several articles in one year may be compared with the
average price of the same quantity of the same articles
in a number of different years
There are several sources of official statistics that
contain index numbers for quantities such as food
prices, clothing prices, housing, wages and so on
20-3
20-4
Price relative
The price relative of an item is the ratio of the price of the
item in the current period to the price of the same item in the
base period
The formal definition is:
pn
Price relative
po
Copyright 2010 McGraw-Hill Australia Pty Ltd
PowerPoint slides to accompany Croucher, Introductory Mathematics and Statistics, 5e
20-5
pn
100
po
20-6
20-7
p
p
100
Where
Spn = the sum of the prices in the current period
Spo = the sum of the prices in the base period
Copyright 2010 McGraw-Hill Australia Pty Ltd
PowerPoint slides to accompany Croucher, Introductory Mathematics and Statistics, 5e
20-8
20-9
pn
100
po
where
k = the number of items
pn = the price of an item in the current period
po = the price of an item in the base period
Copyright 2010 McGraw-Hill Australia Pty Ltd
PowerPoint slides to accompany Croucher, Introductory Mathematics and Statistics, 5e
20-10
Laspeyres index
The Laspeyres index is also known as the average of
weighted relative prices
In this case, the weights used are the quantities of each item
bought in the base period
20-11
pq
Laspeyres index
p q
n o
100
o o
Where:
qo = the quantity bought (or sold) in the base period
pn = price in current period
po = price in base period
Thus, the Laspeyres index measures the relative change in
the cost of purchasing these items in the quantities
specified in the base period
20-12
pq
Paasche index
p q
n n
100
o n
Where:
pn = the price in the current period
po = the price in the base period
qn = the quantity bought (or sold) in the current period
Copyright 2010 McGraw-Hill Australia Pty Ltd
PowerPoint slides to accompany Croucher, Introductory Mathematics and Statistics, 5e
20-13
20-14
20-15
Fisher' s index
p q p q
p q p q
n o
n n
o o
o n
100
20-16
20-17
20-18
20-19
20-20
20-21
20-22
20-23
Changes in quality
it is necessary to ensure that identical or equivalent items are
priced in successive time periods
This involves evaluating changes in the quality of goods and
services
20-24
International CPIs
A comparison of the CPIs for a number of countries,
including Australia, as measured in September quarters
The base year is 2000
During the 8-year period up to 200809, of the countries
listed, Japan had the smallest increase in CPI (0.4%), while
Indonesia had the largest (111.0%)
20-25
20-26
20-27
20-28
20-29
20-30
Summary
We have interpreted and used a range of index
numbers commonly used in the Australian business
sector
We defined an index number and explained its use
We performed calculations involving simple, composite
and weighted index numbers
We understood the basic structure of the consumer
price index (CPI) and performed calculations involving
its use
We understood other indexes used in the Australian
business sector
20-31