Page 270 - DECO504_STATISTICAL_METHODS_IN_ECONOMICS_ENGLISH

Statistical Methods in Economics

Notes Solution:
Construction of Cost of Living Index for 2005 with 2004 the Base

Expenses on Price in Rs. Price Relative W PW
p
2004 2005 1 × 100 P
p 0
Food 450 435 96.67 35 3383.45
Rent 90 90 100.00 15 1500.00
Clothing 225 195 86.67 20 1733.40
Fuel 75 69 92.00 10 920.00
Misc. 120 135 112.50 20 2250.00
∑ W = 100 ∑ PW = 9786.85

∑ PW
Cost of Living Index =
∑ W
∑ PW = 9786.85, ∑ W = 100
9786.85
Index = = 97.87
100
Thus a fall of (100 – 97.87), i.e., 2.13% has taken place in 2005 as compared to 2004.
Example 3 : Construct the cost of living index number from the data given below:
Group Index Expenditure

1. Food 550 46%
2. Clothing 215 10%
3. Fuel and Lighting 220 7%
4. House Rent 150 12%
5. Miscellaneous 275 25%

Solution:
Construction of Cost of Living Index Number
Group Index Number Expenditure IW
I W

Food 550 46 25,300
Clothing 215 10 2,150
Fuel and Lighting 220 7 1,540
House Rent 150 12 1,800
Miscellaneous 275 25 6,875

∑ W = 100 ∑ IW = 37,665

∑ IW 37,665
Cost of Living Index = = = 376.65.
∑ W 100

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