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INDEX NUMBERS 95 The weighted price index is measures the average change in retail prices. Consider the statement that the n  P1i  CPI for industrial workers (2001=100) ∑i=1W i ×100  P01 =  P0i  is 277 in December 2014. What does ∑ n W i this statement mean? It means that if = 1 the industrial worker was spending = 40 × 200 + 30 ×120 + 20 ×125 +10 ×150 Rs 100 in 2001 for a typical basket of 100 commodities, he needs Rs 277 in = 156 December 2014 to be able to buy an The weighted price index is 156. identical basket of commodities. It is The price index has risen by 56 not necessary that he/she buys the basket. What is important is whether per cent. The values of the unweighted he has the capability to buy it. price index and the weighted price index differ, as they should. The higher Example 4 rise in the weighted index is due to the Construction of consumer price index doubling of the most important item A in Example 3. number. Activity ΣWR 9786 85 CPI = = = 97.86 • Interchange the current period ΣW 100 values with the base period values, in the data given in This exercise shows that the cost of Example 2. Calculate the price living has declined by 2.14 per cent. index using Laspeyre’s, and What does an index larger than 100 Paasche’s formula. What indicate? It means a higher cost of difference do you observe from living necessitating an upward the earlier illustration? adjustment in wages and salaries. The rise is equal to the amount, it exceeds 4. S OME IMPORTANT INDEX N UMBERS 100. If the index is 150, 50 per cent upward adjustment is required. The Consumer price index Consumer price index (CPI), also salaries of the employees have to be known as the cost of living index, raised by 50 per cent. TABLE 7.4 Item Weight in % Base period Current period R=P1/P0× 100 WR W price (Rs) price (Rs) (in%) Food 35 150 145 96.67 3883.45 Fuel 10 25 23 92.00 920.00 Cloth 20 75 65 86.67 1733.40 Rent 15 30 30 100.00 1500.00 Misc. 20 40 45 112.50 2250.00 9786.85 Reprint 2026-27