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Index numbers

Question 5

Relative price index

A manager wishes to index the prices of four of its products between last year
as the base year and this year’s prices. The price and quantity information is as
follows:
Last year This year
Product Price ($) Quantity Price ($) Quantity
(units) (units)
A $10.00 60 $10.60 63
B $8.00 175 $8.80 189
C $17.00 250 $19.55 255
D $25.00 1,000 $25.75 1,100
Calculate the base weighted price index using quantities as the weighting.

Last year This year
Product Price ($) Quantity Price ($) Quantity P 1/P 0
(units) (units)
A $10.00 60 $10.60 63 1.06
B $8.00 175 $8.80 189 1.10
C $17.00 250 $19.55 255 1.15
D $25.00 1,000 $25.75 1,100 1.03
∑ [w×(P /P )]
0
1
Relative price Index = × 100
∑ w
Index = [60 × 1.06 + 175 × 1.1 + 250 × 1.15 + 1,000 × 1.03]/(60 + 175 + 250 +
1,000) × 100
Index = 1,573.6/1,485 × 100 = 106.0

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