Paper 4: Fundamentals of Business Mathematics & Statistic

FUNDAMENTALS OF BUSINESS MATHEMATICS AND STATISTICS I 7.5

Where
Σp 0 = total of prices of all commodities of base year
Σp 1 = total of prices of all commodities of current year
p 01 = Index Number of current year
Examples: 2
From the following data construct a price Index for year 2012 taking year 2009 as base

Commodities Prices in 2009 Prices in 2012

Potato (per Kg) 12 20

Wheat (per Kg) 20 25

Bread 10 13

Chese (per 100 gms) 8 10

Solution:

Table : Construction of Price Index

Commodities P 0 P 1

Potato (per Kg) 12 20

Wheat (per Kg) 20 25

Bread 10 13

Chese (per 100 gms) 8 10

Σp 0 = 50 Σp 1 = 68

= Σ ×

Σ

= ×

=

01 1

0

01

P 100

(^68100)
50
P 136
p
p
This means that as compared to 2009, in 2012 there is a net increase in the prices of the given commodities
to the extent of 36%.
This method has following limitations –
(1) The index is affected by the units in which the prices are quoted (such as litres, kilogram etc.). In the
preceding example, if the prices of chese is taken in per kg (instead of as per 100 gms) e.g. 80 in 2009 and 100 in 2012 the index so computed would differ as follows :