Simple & Weighted Index Numbers, Methods of Constructing, Simple Aggregative Method, Base Year
🚩Timestamps:-
00:08 Session Agenda
00:44 SIMPLE INDEX NUMBERS
02:10 WEIGHTED INDEX NUMBERS
05:33 Methods of Constructing Index Numbers
06:03 SIMPLE AGGREGATIVE METHOD
09:28 Base Year and its Characteristics
12:20 Practical Problem (Simple Aggregative Method)
15:11 Concluding Remarks
Learning Outcomes:-
Through this module, you will gain understanding
on:-
1.
SIMPLE
INDEX NUMBERS
2.
WEIGHTED
INDEX NUMBERS
3.
Methods
of Constructing Index Numbers
4.
SIMPLE
AGGREGATIVE METHOD
5.
Base
Year and its Characteristics
Simple and Weighted Index Numbers
'Simple' and 'weighted'
are the two broad categories of index numbers. Here is a brief description of
these concepts.
SIMPLE INDEX NUMBERS
These are the index
numbers in which all items of the series are accorded equal weightage or
importance. In case of a simple index of prices,
for example, all goods and
services are to be accorded equal weightage, no matter whether sale/purchase of
certain goods is more than that of the others. It will be a simple average of
the prices of different goods and services.
WEIGHTED INDEX NUMBERS
·
These are the
index numbers in which different items of the series are accorded different
weightage, depending upon their relative importance. It is not a simple average
of prices of different goods and services, as in case of a simple price index.
Instead, it is to be a weighted average of the prices of different goods.
·
Thus, if the
expenditure on rice is twice the expenditure on cloth, then in the construction
of price index, price of rice may be accorded '2' as the weight compared to the
weightage of '1" to the price of cloth.
·
Though difficult
to construct, weighted index numbers certainly offer a much more realistic view
of the change over time compared to the simple index numbers.
The Basic Difference
between Simple Index and Weighted Index
·
In the simple
index, all items of the series are treated as of equal importance.
·
In the weighted
index, weights are accorded to different items depending on their relative
importance.
Methods of Constructing Index Numbers
|
Construction of Simple
Index Numbers |
Construction of Weighted
Index Numbers |
|
1.
Simple
Aggregative Method 2.
Simple Average
of Price Relatives Method |
1.
Weighted
Average of Price Relatives Method 2.
Weighted
Aggregative Method |
Construction of Simple Index Numbers
SIMPLE AGGREGATIVE METHOD
In this method, aggregate
of the prices of commodities in the current year are divided by the aggregate
of their prices in the base year and multiplied by 100 to get index value for
the current year.
Simple aggregate method of index numbers
cannot be used for commodities with different units of measurement. It can be
used only for those commodities which have a common unit of measurement.
·
Current Year:
(denoted by One) Current year is the year for which average change is to be
measured or index number is to be calculated.
·
Base Year:
(denoted by Zero) Base year is the year of reference from which we want to
measure extent of change in the current year. The index number of base year is
generally assumed to be 100.
Base Year and its Characteristics
Base year is the year of comparison,
also called reference year. It should bear the following characteristics:
(i)
It should be a normal year, not showing wide fluctuations in the parameters
related to the index number.
(ii)
It should be a year for which reliable statistical data are available, so that
comparison of the performance of the other years with the base year becomes
meaningful.
(iii)
It should not be a year too far from the period of study. Otherwise, relative
change over time would not make much sense.
(iv)
It should be neither very long nor very short period. Generally, it is not more
than a year and not less than a month.
VIDEO DESCRIPTION (max 5,000 characters)
SIMPLE INDEX NUMBERS, WEIGHTED INDEX NUMBERS, Methods of Constructing Index Numbers, SIMPLE AGGREGATIVE METHOD, Base Year and its Characteristics, Practical Problem (Simple Aggregative Method) | Index Numbers | 11th Commerce | by @statomics11comm
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