Tutorial Methods of Consumer Price Index Numbers


Methods of Consumer Price Index Numbers


   


There are two methods for the compute of consumer price index numbers. (a) Aggregate expenditure method (2) Family Budget Method

Aggregate Expenditure Method:
In this method, the quantities of commodities consumed by the particular group in the base year are estimated and these figures or their proportions are used as weights. Then the total expenditure on each commodity for each year is calculated. The price of the current year is multiplied by the quantity or weight of the base year. These products are added. Similarly for the base year total expenditure on each commodity is calculated by multiplying the quantity consumed by its price in the base year. These products are also added. The total expenditure of the current year is divided by the total expenditure of the base year and the resulting figure is multiplied by to get the required index numbers. In this method, the current period quantities are not used as weights because these quantities change from year to year.

Where,
Represent the price of the current year,
Represents the price of the base year and
Represents the quantities consumed in the base year.

Family Budget Method:
In this method, the family budgets of a large number of people are carefully studied and the aggregate expenditure of the average family on various items is estimated. These values are used as weights. Current year’s price are converted into price relatives on the basis of base year’s prices and these prices relatives are multiplied by the respective values of the commodities, in the base year. The total of these products is divided by the sum of the weights and the resulting figure is the required index numbers.
Where and

Example:
Construct the consumer price index number for on the basis of from the following data using: (1) Aggregate expenditure method (2) Family budget method.


Commodities

Quantity consumed in

Unit

Prices

quintal

quintal

quintal

quintal

quintal

quintal

quintal

quintal

kg

kg

quintal

quintal

Solution:
(1) Consumer price index number of by Aggregate expenditure method:

Commodities

Quantity consumed

Unit

Prices



quintal

quintal

quintal

quintal

quintal

quintal

quintal

quintal

kg

kg

quintal

quintal

Consumer price index number of is

(2) Consumer price index number of by Family Budget Method:

Commodities

Quantity consumed

Prices

Product



quintal

quintal

quintal

quintal

kg

quintal

Consumer price index number of is



Exclusive Topics

Higher Mathematics

Other Math Links

  • Math for Programmers
  • Newsletter