20140613 jke 316e_extra topic on index numbers
DESCRIPTION
What is the uses of index numbers? What is the differences between Paasche and Laspeyres Index? What is the differences between price index and quantity index?TRANSCRIPT
Extra Video Conference
Topic: Index Numbers
JKE 316E QUANTITATIVE ECONOMICS
Index numbers
Obj: To measures changes in the price (P), quantity (Q) OR value of a group of articles or commodities over a specified period of time
Eg: Price Index – to compare the current price of a group of articles with the corresponding price of that group at some time in the past
Time in the past = base year
& Index at base date = 100, so that easy to find the % increase since the base date
Eg: August 2013, Consumer Price Index = 131.8, i.e. 31.8% increase in price since Jan 2001 (base year).
Uses of Index (esp. in Economics)
The main use of index no. is to find the rate of inflation.
Used in wage negotiation.Index linking.To calculate the purchasing power
of the currency.
LASPEYRES vs PAASCHE INDEXESLaspeyres Index
Compares the cost of a basket of goods at base year with the current year =Base Weighted (Price) Index
Paasche IndexCompare the cost of the current basket of goods at the current year with the cost of the same basket of goods at base year =Current Weighted (Price) Index
LASPEYRES vs PAASCHE INDEXES
LASPEYRES vs PAASCHE INDEXES
Eg. 1
Eg. 1 Calculate…
Eg. 1 Calculate Price Index
Eg. 1 Calculate Quantity Index
Eg. 2
The following data shows the quantities and prices of FOUR components purchased by a company in 2008 and 2013.
i) Calculate a Laspeyres Price Index which shows the change in prices between 2008 and 2013.
ii) Calculate a Paasche Quantity Index which shows the change in quantities between 2008 and 2013.
iii) Briefly comment on your results in parts (i) and (ii).
Eg. 2
Eg. 2
Eg. 2 Calculate…
Eg. 2 Answers
The results show that:
i) prices have increased by 38.7%.
ii) quantities decreased by 13.1%.