Page 254 - DECO504_STATISTICAL_METHODS_IN_ECONOMICS_ENGLISH

Statistical Methods in Economics

Notes • When an index is computed by selecting one item from each of the many sub-groups of items,
the values of each sub-group may be used as weights. Then only the method of weighted average
of relatives is appropriate.
• The price or quantity relatives for each single item in the aggregate are, in effect, themselves a
simple index that often yields valuable information for analysis.
• Though price indices are more widely used, production indices are highly significant as
indicators of the level of output in the economy or in parts of it.
• In constructing quantity index numbers, the problems confronting the statistician are analogous
to those involved in price indices. We measure changes in quantities, and when we weigh we
use prices or values as weights. Quantity indices can be obtained easily by changing p to q and
q to p in the various formulae discussed above.
19.4 Key-Words

1. Relative method : Index numbers measure changes or differences and are used in a variety of
contexts. The Office for National Statistics (ONS) produces index numbers
principally in the field of economics. Economists are interested in how changes
in the monetary value of economic transactions can be attributed to changes
in price (to measure inflation) and changes in quantity (to measure sales
volume or economic output). Index numbers typically measure these changes
over time. However, index numbers can also be used to make other
comparisons, such as between regions of the UK.
19.5 Review Questions

1. Describe weighted Average of Price Relatives method to compute index numbers.
2. What are quantity or volume index numbers ?
3. What are the merits of weighted average of price relative method.
4. What is weighted average of price relative. Method of compute index number? Explain by using
weighted arithmetic mean of Price Relatives.
5. Explain weighted average of Price Relative Method by using Geometric mean of Price Relatives.
Answers: Self-Assessment
1. (i) base year quantities (ii) geometric mean (iii) less than 10%
(iv) Fisher's ideal index (v) comparisons
19.6 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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