S3

MATHEMATICS
SUPPORT CENTRE

Title: Simple Index numbers

Target: On completion of this worksheet you should be able to calculate

simple index numbers, and a weighted index.

Index numbers make a comparison Exercise.

between a value (quantity or price) in the
current period and the corresponding value 1. The price of a laptop computer
in a base period. All calculations are given in 1997 is 3 000
in percentages without the % sign. in 1999 is 2 000
in 2000 is 1 000
value Construct a price index for a laptop with
index number = 100 base year 1999.
base value
2. The price of a car in 1990 is 6 000, in
Example.
1995 is 8 000, and in 2000 is 9 000.
A pint of milk cost 26p in January 1988,
Construct a price index for the car with
29p in 1990, 36p in 1997 and 34p in 1999.
base year 1990.
The milk price index in 1990 with 1988 as
3. The price of a train ticket to London
base is
from Lanchester in
29
100 = 111 5 1995 is 30
26 1996 is 40
1997 is 50
Exercise 2000 is 60
Find the milk price index in each case: Construct a price index for the ticket
1. For 1999 with 1988 as base. with base year 2000.
2. For 1999 with 1997 as base.
4. Using the information in the table
Answers: construct index numbers for
The index in 1999 with base 1988 is 1308
The index in 1999 with base 1997 is 944 Prices in pence
Index numbers can go down as well as up! Item 1998 1999 2000
White bread 51 51 52
Carrots 24 22 19
Cod fillets /lb 277 324 374
Notice that milk went up by 5p between
1990 and 1999 (a 17.2% increase) but the a. Bread for the 3 years with 1998 as base.
index increased from 1115 to 1308, or b. Carrots for the 3 years with base year
193 points. 1999.
c. Cod fillets for the 3 years with base year
An increase of so many points in the 2000.
index number does not mean a
percentage increase of the same amount, Answers: 1) 150,100,50; 2) 100,1333,150;
unless you are referring back to the base 3) 50,667, 833, 100 4a) 100,100,1020;
period. 4b) 1091,100,864; 4c) 741,866,100;
Often we look at the price of a group of Example.
goods in various quantities - 'baskets'. The Paasche Price Index for my cinema
and theatre tickets for January 2000 with
Quantities and prices can vary from year to
base January 1999 is
year, so to make 'fair' comparisons the
(1 10) + (6 3 50) 31
Laspeyres Price Index uses the base year 100 = 100 = 119 2
quantities throughout. (1 8) + (6 3) 26

The Laspeyre Price Index =

price of basket of goods in current year
100 Exercise.
price of basket of goods in base year Calculate the Laspeyres and the Paasche
Price Index for January 2000 for each of
Example. the following with base January 1999.
My friend eats only brown bread and honey,
and each week in 1999 ate 7 loaves of sliced 1. For my travel costs.
brown bread and 2kg of honey. Now she My weekly travel costs are train fares
eats 8 loaves and 15kg of honey. to and from work, and bus fares to and
from the town centre. The cost and
We can calculate the Laspeyres Index for number per week are as follows:
her food consumption for Jan 2000 with Jan
1999 as base as follows. price Qty price Qty
Jan 99 Jan 99 Jan 00 Jan 00
Loaf of bread 1kg honey train fare 185 10 2 6
Price in Jan 1999 52p 168 bus fare 075 4 1 4
Price in Jan 2000 54p 196
2. For my share portfolio.
The price of the basket in Jan 1999: My shares in Company A and B are:
(7 x 052) + (2 x 168)
= 364 + 336 = 700 price Qty price Qty
Jan 99 Jan 99 Jan 00 Jan 00
The price of the basket in Jan 2000: Company A 170 1000 200 1500
(7 x 054) +(2 x 196) Company B 190 200 100 200
= 378 + 392 = 770
7 70
Index = 100 = 11100 = 110 3. For the Coffee Club.
7 00
price Qty price Qty
Jan 99 Jan 99 Jan 00 Jan 00
Exercise. Tea bags 156 1kg 201 15kg
1. I enjoy going to the cinema and theatre. 250g
Here are details of tickets I bought and Instant coffee 151 2kg 186 25kg
prices. 100g
price Qty price Qty
Jan 99 Jan 99 Jan 00 Jan 00 4. For my shares.
cinema tickets 3 8 350 6
I have a small portfolio of shares in
theatre tickets 8 2 10 1
Companies A , B and C.
Calculate a Laspeyre's Price Index for
January 2000 with base January 1999. price Qty price Qty
Jan 99 Jan 99 Jan 00 Jan 00
Answer: 120 Company A 090 100 1 200
Company B 1 200 090 100
People tend to change to cheaper goods, Company C 2 200 4 300
and buy less, when prices go up so may
well not buy the same quantities each year. Answers:
question Laspeyres Paasche
1 1116 1135
To account for this another index, the
2 1058 1092
Paasche Price Index, updates the 3 1241 1243
quantities and calculates the index using
4 1565 1693
this year's quantities throughout.