1. Simple Index Numbers and Weighted Index Numbers
Simple Index Numbers
Weighted Index Numbers
In this method, every commodity is given equal importance. It is the easiest method for constructing index numbers.
In this method, suitable weights are assigned to various commodities. It gives relative importance to the commodity in the group. In most of the cases ‘quantities’ are used as weights.
This method can be applied to determine the Price Index Number, Quantity Index Number, and Value Index Number.
There are various methods of constructing weighted index numbers such as Laaspeyre’s Price Index, Paasche’s Price Index, etc.
2. Price Index and Quantity Index.
1. Price Index Number is calculated by two methods, namely
a. Simple Aggregative Method
b. Simple Average of Price Relative Method
1. Quantity Index Number is calculated by two methods, namely
a. Weighted Average of Price Relative Method
b. Weighted Aggregative Method
2. Price Index number is also known as the Unweighted Index Number.
2. Quantity Index Number is also known as Weighted Index Number.
3. Price Index Number takes into account the prices of the commodity of the base year as well as of the current year.
3. Quantity Index takes into consideration the weights of goods assigned according to the quantity.
3. Laaspeyre’s Index and Paasche’s Index.
1. In Laaspeyre’s index, base year quantities are taken as weights.
1. In Paasche’s index, current year quantities are taken as weights.
2. Laaspeyre’s index can be calculated as
Laaspeyre’s index = p1q0/p0q0 * 100
2. Paasche’s index can be calculated as
Paasche’s index = p1q1/p0q1* 100