If prices of base and current years of more than one commodities, where prices are as per quantity and different measuring units for each of them, how is the price index constructed? An example can be:

Q: Find the Index Number by simple relative method.

COMMODITY
  • PRICE AS OF 1994
  • PRICE AS OF 2004
Wheat
  • 100 (per quantity)
  • 200 (per quantity)
Ghee
  • ​08(per kg)
  • 40 (per kg)
Milk
  • 02 (per litre)
  • 16 (per litre)
Rice
  • 200 (per quantity)
  • 800 (per quantity)
Sugar
  • 1 (per kg)
  • 6 (per kg)

Dear Student,

In response to first part of your query, when prices of goods are given as per quantity and different units are used for the measurement of different items, we will use the simple relative method. This is because of the fact that this method overcomes this weakness by taking into account the [price relative of different items.

In response to second part of your query, the calculation of index number is shown below.
 
1994 (P) 2004 (P) R=P1P0×100
100 200 200
8 40 500
2 16 800
200 800 400
1 6 600
    R=2500

P01=RN=25005=500
 

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