Page 222 - DECO504_STATISTICAL_METHODS_IN_ECONOMICS_ENGLISH

Statistical Methods in Economics Dilfraz Singh, Lovely Professional University

Notes Unit 16: Methods—Simple (Unweighted) Aggregate Method

and Weighted Aggregate Method

CONTENTS
Objectives
Introduction
16.1 Simple (Unweighted) Aggregate Method
16.2 Weighted Aggregate Method
16.3 Summary
16.4 Key-Words
16.5 Review Questions
16.6 Further Readings

Objectives

After reading this unit students will be able to:
• Discuss Simple (Unweighted) Aggregate Method.
• Explain Weighted Aggregate Method.

Introduction

A large number of formulae have been devised for constructing index numbers. Broadly speaking,
they can be grouped under two heads:
(a) Unweighted indices, and (b) Weighted indices.
In the unweighted indices weights are not expressly assigned where again the weighted indices
weights are assigned to the various items. Each of these types may further be divided under two
heads:
(1) Simple Index Numbers
Simple Index Number is that Index number in which all the items are assigned equal importance. In
other words, weights are not assigned to the different commodities and as such it is also called
unweighted Index Number.
There are two methods of calculating Simple Index Number.
(i) Simple aggregate method
(ii) Simple average of price relative method.
(2) Weighted Index Numbers
In constructing simple index numbers, all commodities are given equal importance but in
practice, all commodities don’t have equal importance. For example, for a consumer, wheat is
more important than vegetable or pulse. Similarly, clothes are more important than a video. To
express the relative importance of different commodities, weights on some definite basis are
used. When index numbers are constructed taking into consideration the importance of different
commodities, then they are called weighted index numbers. There are two methods of
constructing weighted index numbers:
(i) Weighted Aggregative Method
(ii) Weighted Average of Price Relative Method.

216 LOVELY PROFESSIONAL UNIVERSITY