Chapter 17 Flashcards
A number that expresses the relative change in price, quantity, or value compared to a base period.
Index number
Name three characteristics of a of an index
- It is a percent, but the percent is typically left off
- They have either a base or a base period their set against
- Most businesses report to the nearest whole number or 10th
What are two reasons to convert data to an index
- It’s a convenient way to express change in a diverse group of items
- It makes it easier to asses the trend in a series of exceptionally large numbers
What is the formula for constructing a simple index
P=(pt/p0)*100
p0 = base pt= current period
Formula for constructing average of price relatives
P=SumPi/n
Formula for a simple aggregate index
P=SumPt/SumP0*100
Why isn’t an aggregate index used as ofter
It can be influenced by the units of measure
What are methods for computing a weighted price index
Laspeyres, Paasche, Value, Fishers Ideal
What is a weakness of simple average indexes
It’s not weighted
Advantage and disadvantage of laspeyres
A: Requires quantity data only from base period. More meaningful comparison that is attributed to price
D: Does not reflect buying patterns and may overweight goods with price increases
Paasche
A: Reflects current buying habits
D: Requires quantity data from the current year. Cant attribute change to price alone, overweights goods whos price has declined
What is Fishers index
The geometric mean of Laspreyes and Paasche. Square root of L*P
This type of index measures changes in both the price and quantities
Value index
This special index describes the changes in prices from one period to another for a “market basket” of goods and services
Consumer price index
A special index that reflects the prices of over 3400 commodities. It is a Laspeyres type index
Producer price index
