Page 217 - DCOM203_DMGT204_QUANTITATIVE_TECHNIQUES_I

Quantitative Techniques – I

Notes 10.7 Value Index Number

A value index number gives the change in value in current period as compared with base period.
The value index, denoted by V01, is given by the formula

p q
1 1
V 100
01 .
p q
0 0

Tasks
1. “For the construction of index numbers, the best method on theoretical grounds is
not the best from practical point of view, so, out of a long list of methods no method
is really ideal “. Comment.

2. Study conceptual differences between price index number and quantity index
numbers.

Self Assessment

Fill in the blanks:
1. An .................................. is a statistical measure used to compare the average level of
magnitude of a group of distinct but related variables in two or more situations.
2. The index numbers are very useful device for measuring the average change in prices or
any other characteristics like............................., ..............................etc.
3. Index number is often used to average a ................................. expressed in different units for
different items of a group.
4. Price of eggs is expressed as ..............................
5. Price index can be used to determine the ............................... and ............................. of average
change in the prices for the group.
6. The year from which comparisons are made is called the ........................year.
7. The year under consideration for which the comparisons are to be computed is called the
.................................. year.
8. While taking weighted average of price relatives, the .............................. are often taken as
weights.
9. Laspeyres’s Index has an ......................... bias.
10. Paasche’s Index has a .............................. bias.

10.8 Comparison of Laspeyres’s and Paasche’s Index Numbers

Out of various formulae discussed so far, the Laspeyres's and Paasche's formulae are generally
preferred for the construction of index numbers. The main reason for this is that the values of
these index numbers have a simple interpretation. For example, in case of Laspeyres's index, the
base year quantities are used as weights and Sp q gives the cost of base year bundle of goods
1 0
valued at current year prices. Similarly, Sp q gives the cost of base year bundle valued at base
0 0
p q
1 0
year prices. Therefore, the ratio gives the change in cost of purchasing the bundle q .
0
p q
0 0
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