Page 234 - DECO504_STATISTICAL_METHODS_IN_ECONOMICS_ENGLISH

Statistical Methods in Economics

Notes the most popular for reasons of its practicability. The Paasche type index can only be constructed
when up-to-date data for the weights are available. Furthermore, the price index of a given
year can be compared only with the base year. For example, let P =102, P = 130, and P = 145.
82 83 84
Then P and P are using different weights and cannot be compared with each other.
83 84
• Prof. Irving Fisher has given a number of formulae for constructing index numbers and of
these he calls one as the ‘ideal’ index.
• It shall be clear from the above formula that Fisher’s Ideal Index is the geometric mean of the
Laspeyre and Paasche indices. Thus in the Fisher method we average geometrically formulae
that are in opposite directions.
• A practical index to compute because it is excessively laborious. The data, particularly for the
Paasche segment of index, are not really available. In practice, statisticians will continue to rely
upon simple, although perhaps less exact, index number formulae.

16.4 Key-Words

1. Aggregate method : The term Aggregate Method refers the way price and volume data
are handled when daily prices are gathered into weekly, monthly or
even longer-term aggregate files. These settings are included in UA
Preferences. Click "Aggregate Method" to see your current setting
and adjust as desired.
2. Weighted index number : When all commodities are not of equal importance. We assign weight
to each commodity relative to its importance and index number
computed from these weights is called weighted index numbers.
16.5 Review Questions

1. Discuss the Simple aggregative method of constructing Price index number.
2. What are weighted index numbers ? Describe various types of weighted aggregative index
numbers.
3. Why Fisher’s formula for computing index numbers is said to be ideal ?
4. Distinguish between Laspeyre’s and Paasche’s index.
5. Explain the situations in which weighted and unweighted index numbers are useful.

Answers: Self-Assessment

1. (i) T (ii)T (iii)F (iv)T (v)F
16.6 Further Readings

1. Elementary Statistical Methods; SP. Gupta, Sultan Chand & Sons,
New Delhi - 110002.
2. Statistical Methods — An Introductory Text; Jyoti Prasad Medhi, New Age
International Publishers, New Delhi - 110002.
3. Statistics; E. Narayanan Nadar, PHI Learning Private Limied, New Delhi - 110012.
4. Quantitative Methods—Theory and Applications; J.K. Sharma, Macmillan
Publishers India Ltd., New Delhi - 110002.

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