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current year to derive p q . Take sum total of the Ex. 1 : Construct Laaspeyre’s Index for the given
1 1
products to derive Σp q . data :
1 1
3) Apply the formula : Commodities Base year Current year
Σp q p 0 q p 1 q 1
0
Value Index Number V = 1 1 × 100
01 Σp q A 20 4 30 6
0 0
B 10 5 20 8
Commodities Base year Current year C 40 8 60 5
p q p q p q p q
0 0 0 0 1 1 1 1 D 30 4 40 4
P 5 4 20 20 10 200
Solution :
Q 10 3 30 30 8 240
Commodities Base Current
R 15 2 30 40 6 240 year year
p q p q p q p q
S 20 1 20 50 4 200 0 0 1 1 1 0 0 0
A 20 4 30 6 120 80
Total Σp q = 100 Σp q = 880
0 0 1 1 B 10 5 20 8 100 50
Σp q C 40 8 60 5 480 320
Value Index Number V = 1 1 × 100
01 Σp q D 30 4 40 4 160 120
0 0
880
V = × 100 = 880 Total 860 570
01 100
Steps : 1) Find out the product p q of the
V = 880 1 0
01 different commodities.
B) Weighted Index Number : In this method, 2) Find out the product p q of the different
0 0
suitable weights are assigned to various commodities.
commodities. It gives relative importance 3) Add all the products p q obtained to derive
1 0
to the commodity in the group. In most of Σp q .
1 0
the cases ‘quantities’ are used as weights. 4) Add all the products p q obtained to derive
There are various methods of constructing Σp q . 0 0
0 0
weighted index number such as Laaspeyre’s 5) Apply the given formula :
Price Index, Paasche’s Price Index etc. Σp q
P = 1 0 × 100
Some Solved Examples : 01 Σp q
0 0
Étienne Laspeyres : German P = 860 × 100 = 150.87
economist Étienne Laspeyres 01 570
(1834–1913) formulated an Thus, Laaspeyre’s index P = 150.87
01
index for measuring current
prices or quantities in relation to Do you know?
those of a selected base period. Sensex and Nifty are stock market indices
The distinctive feature of the Laspeyres index which represent Bombay Stock Exchange
is that it uses a group of commodities purchased (BSE) and National Stock Exchange (NSE)
in the base period as the basis for comparison. respectively.
Sensex, also called BSE 30, is the market
1) Laaspeyre’s Price Index Number : In
this technique, ‘base year’ quantities are index consisting of 30 well-established
considered as weights. Laaspeyre’s price and financially sound companies listed on
index is calculated as : Bombay Stock Exchange (BSE). The base
Σp q year of Sensex is 1978-79.
P = 1 0 × 100 Nifty, also called NIFTY 50, is the market
01 Σp q
0 0
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