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Index Number - Unweigthed Index

This document explains index numbers, which measure changes in variables over time, focusing on unweighted index numbers. It outlines the components necessary for calculating index numbers, including the number of items, base year, current year, and weights. Three types of unweighted index numbers are discussed: simple relative index, average relative index, and simple aggregate index, with formulas provided for each type.

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WAN NURSHAZELIN WAN SHAHIDAN
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220 views2 pages

Index Number - Unweigthed Index

This document explains index numbers, which measure changes in variables over time, focusing on unweighted index numbers. It outlines the components necessary for calculating index numbers, including the number of items, base year, current year, and weights. Three types of unweighted index numbers are discussed: simple relative index, average relative index, and simple aggregate index, with formulas provided for each type.

Uploaded by

WAN NURSHAZELIN WAN SHAHIDAN
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

TOPIC 4

INDEX NUMBERS

At the end of this topic, student should able to:


1. Calculate and explained unweighted index number

Index number is defined as a statistical measure aimed to illustrate changes


in a variable or a group of variables with the respect to the time. There are
three types of index numbers; price index, quantity index and value index.
Basic component of the index numbers:
1. Number of items
Difference type of index numbers use different formula. Different
formula dictates different number of items to be used.
2. Base year and current year
The base year is the period where comparison is made. Choosing the
base year, the following has to be observed.
a) There should be not exist great gap between base year and the
current year. This would avoid inaccuracy in the calculation.
b) The base year should be a normal and stable year. It should not
be associated with calamities, such as economic inflation,
weather hazards and etc.
The current year is the year when the study is carried out.
3. Weight
A weight is a value that shows the importance of an item in the index
number. An item of more importance is given a higher weight value
while an item of less importance is given a lower weight.
Type of index numbers
Three common forms of index numbers are price index, quantity index and
value index. These index numbers can be divided into two categories:
unweighted index and weighted index.
Unweighted or simple index (have same level of importance) include
1. Simple relative index
2. Average relative index
3. Simple aggregate index
Simple Relative Index
The simple relative index measures the changes in price for a specific item
over certain year to that base year. If we denote P 0 as a base year and Pt as a
current year, then the relative price is given by
Pt
I= ×100
Po
P0
Index for base year is 100 because I = ×100=100
P0

Where Pt = price in current year


P0 = price in base year
# the calculation for finding a quantity and value index is similar to that of
any price index with certain minor adjustment. The variable q for quantity
and variable v for value will replace p for price.
Average Relative Index
The average relative index compares the overall changes for a group of
items. This index is computed by summing up all the price / quantity / value
relatives of all the items and then dividing by the number of items. It can be
calculated as follows:

1 Pt
I=
n
∑ P0
× 100

Where n = number of items involved


Pt = price in current year
P0 = price in base year
# for quantity and value do make minor adjustment to the formula.
Simple Aggregate Index
Simple aggregate index compare the changes in group of items with the
same level of important.

I=
∑ P t ×100
∑ P0
Where ∑ Pt = total price of a group of items in current year
∑ P0 = total price of group of items is base year
# following the same pattern, we able to come up with simple aggregate for
quantity and value index.

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