Page 247 - DECO504_STATISTICAL_METHODS_IN_ECONOMICS_ENGLISH

Unit 19: Methods—Weighted Average of Price Relatives
Pavitar Parkash Singh, Lovely Professional University

Unit 19: Methods—Weighted Average of Price Relatives Notes

CONTENTS
Objectives
Introduction
19.1 Weighted Average of Price Relatives
19.2 Quantity Index Number
19.3 Summary
19.4 Key-Words
19.5 Review Questions
19.6 Further Readings

Objectives

After reading this unit students will be able to:
• Describe Weighted Average of Price Relatives.
• Explain Quantity Index Number.
Introduction

In the weighted aggregative methods discussed earlier price relatives were not computed. However,
like unweighted relative method it is also possible to compute weighted average of relatives. For the
purpose of averaging we may use either the arithmetic mean or the geometric mean.
19.1 Weighted Average of Price Relative Method

In order to compute index number by Weighted Average of Relatives Method, following steps are
necessarily be taken: (1) Express each item of the period for which the index number is being calculated
as a percentage of the same item in the base period. (2) Multiply the percentage as obtained in step (1)
for each item by the weight that has been assigned to that item. (3) Add the results obtained in step
(2), (4) Divide the sum obtained in step (3) by the sum of weights used to obtain the index number.
When arithmetic mean is used,
∑ PV
P 01 = ∑ V

p 1
where P is price relative p 0 × 100 and V is value weights 00 .
pq
When geometric mean is used,

⎡ ∑ Vlog P ⎤
P 01 = Antilog ⎢ ⎣ ∑ V ⎥ ⎦

p 1
where P = p 0 × 100 , V = pq
00

LOVELY PROFESSIONAL UNIVERSITY 241