Page 253 - DMGT404 RESEARCH_METHODOLOGY

Unit 11: Index Numbers

2. It is also used to determine the dearness allowance to compensate the workers for the rise Notes
in prices.
3. It can be used in the formulation of various economic policies of the government.

4. It may be useful in the analysis of markets of certain goods or services.

Example: A particular series of consumer price index covers five groups of items. Between
1975 and 1980 the index rose from 180 to 225. Over the same period the price index numbers of
various groups changed as follows:
Food from 198 to 252; clothing from 185 to 205; fuel and lighting from 175 to 195; miscellaneous
from 138 to 212; house rent remained unchanged at 150.
Given that the weights of clothing , house rent and fuel and lighting are equal, determine the
weights for individual groups of items.
Solution:
Let w % be the weight of food, w % be the weight of miscellaneous group and w% be the weight
1 2
of each of the remaining three groups. Therefore we can write w + w + 3w = 100 or w = 100 –
1 2 2
w – 3w.
1
The given data can be written in the form of table as given below:
Index in Index in
Groups Weights
1975 (I ) 1980 (I )
1
2
Food w 1 198 252
Clothing w 185 205
Fuel & Lighting w 175 195
House Rent w 150 150
Miscellaneous 100 - w 1 - 3w 138 212
Total 100
On the basis of above, the consumer price index of 1975 is
+
-
+
+
1.98w + (185 175 150)w 138(100 w - 3w)
1
1
100 = 180 (given)
or 60w + 96w = 4200 .... (1)
1
Further, the consumer price index of 1980 is
+
+
+
3
252 w + (205 195 150 )w 212 (100 - w - w )
= 1 1 = 225 (given)
100
or 40w - 86w = 1300 .... (2)
1
Solving equations (1) and (2) simultaneously, we get w = 10 and w = 54
1
Substituting these values in expression for w , we get
2
w = 100 – w – 3w = 100 – 54 – 30 = 16
2 1
Self Assessment
Fill in the blanks:
11. Formerly, Consumer Price index was also known as the ………………………index.
12. A consumer price index is used to determine the ……………….from money wages.

LOVELY PROFESSIONAL UNIVERSITY 247