Page 274 - DECO504_STATISTICAL_METHODS_IN_ECONOMICS_ENGLISH

Statistical Methods in Economics

Notes ∑IW 34000
Food Index = = = 340
∑W 100
Construction of Cost of Living Index

Group Index I Weights W IW

Food 340 60 20,400
Clothing 310 5 1,550
Fuel and Light 220 8 1,760
Rent and Rates 150 9 1,350
Miscellaneous 300 18 5,400
∑IW = 100 ∑IW = 30,460

∑IW 30460
Cost of Living Index = = = 304.6
∑W 100
* Current index has been obtained by adding 100 to the percentage increase in the various food
items.
Example 8: Calculate the Cost of Living Index Number from the following data:
Items Price Weights
Base Year Current Year
Food 30 47 4
Fuel 8 12 1
Clothing 14 18 3
House Rent 22 15 2
Miscellaneous 25 30 1
Solution:
Construction of Cost of Living Index

p
Items p p 1 ×100 p W PW
0 1 p 0

Food 30 47 156.67 4 626.68
Fuel 8 12 150.00 1 150.00
Clothing 14 18 128.57 3 385.71
House Rent 22 15 68.18 2 136.36
Miscellaneous 25 30 120.00 1 120.00
∑W = 11 ∑PW = 1418.75

∑PW 1418.75
Cost of Living Index = = = 128.98.
∑W 11

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