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D-IV AKM / 1-G POLITEKNIK NEGERI MALANG 2019-2020

 WEIGHTED
AGGREGATE PRICE
INDEX II
 GROUP 7

Birra Lailatul N. Irmadela N.R.F. Priti Pradipta Robinson Iriantsoa

1842520022 1842520104 1842520167 1842520226
1G AKM 1G AKM 1G AKM 1G AKM
06 11 20 25
01 DEFINITION

02 FISHER PRICE INDEX

03 MARSHALL EDGEWORTH INDEX

04 DORBISH & BOWLEY’S METHOD

DEFINITION
WEIGHTED
AGGREGATE
PRICE INDEX
The ratio of the sum of weighted prices of
current and base time periods multiplied
by 100.
FORMULA

𝐼 = σ 𝑃𝑛𝑊
𝑃𝑜𝑊
× 100

PnW = sum of weighted current price

PoW = sum of weighted base price
FISHER INDEX PRICE
FISHER PRICE
INDEX

Customer Price Index (CPI) used to

measure the price level of goods and
services over a given period. A geometric
average of the Laspeyres Price Index and
the Paasche Price Index.
FORMULA I

𝐹𝑖𝑠ℎ𝑒𝑟 𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥

𝑃𝐼𝑞0 𝑃𝐼𝑞1
= ෍ 𝑃𝑂𝑞0 × ෍ 𝑃𝑂𝑞1

p1 = price of current year

p0 = price of base year
q1 = quantity of current year
q2 = quantity of base year
FORMULA II

𝐿𝑎𝑠𝑝𝑒𝑦𝑟𝑒𝑠 𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥

𝑃𝑖,𝑡 ×(𝑄𝑖,0)
= σ (𝑝𝑖,0)×(𝑄1,0) × 100

(Pi,t) = price of individual item at observation period

(Pi, 0) = price of individual item at base period
(Qi, 0) = quantity of individual item at the base period
FORMULA II

𝑃𝑎𝑎𝑠𝑐ℎ𝑒 𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥=

𝑃𝑖,𝑡 ×(𝑄𝑖,𝑡)
σ (𝑝𝑖,0)×(𝑄1,0) × 100

(Pi,t) = price of individual item at observation period

(Qi, t) = quantity of individual item at the observation period
(Pi, 0) = price of individual item at base period
(Qi, 0) = quantity of individual item at the base period
How to Calculate the Fisher Price Index

Calculate the
Step Paasche Index for
Step
1 each period 3
Calculate the
Laspeyres Price
Step Take the geometric
average of te
Index for each 2 Laspeyres and
period Pasche in each
period
Example
The following information
regarding the change in price
and quantities of each
individual good in a
hyporhetical economy is
provided. Determine the
fisher price index for year 0,
year 1, and year 2 using year
0 as the base year.
Solution
$𝟑𝟎+$𝟐𝟎+$𝟑𝟕.𝟓𝟎
YEAR 0
𝑳𝑷𝑰 = × 100 = 100
$𝟑𝟎+$𝟐𝟎+$𝟑𝟕.𝟓𝟎

$𝟑𝟎+$𝟐𝟎+$𝟑𝟕.𝟓𝟎
𝑷𝑷𝑰 = × 100 = 100
$𝟑𝟎+$𝟐𝟎+$𝟑𝟕.𝟓𝟎 Year 0 Item A Item B Item C

Price $2.00 $1.00 $1.50

𝑭𝑷𝑰 = (𝟏𝟎𝟎 × 𝟏𝟎𝟎)𝟎.𝟓 = 100
Quantity 15 20 25

Value $30 $20 $37.50

Solution
YEAR I
($𝟐.𝟐𝟓×𝟏𝟓)+($𝟏.𝟏𝟎×𝟐𝟎)+($𝟐.𝟏𝟎×𝟐𝟓)
𝑳𝑷𝑰 = × 100 = 123.71
$𝟑𝟎+$𝟓+$𝟑𝟕.𝟓𝟎

$𝟒𝟓+$𝟐𝟐+$𝟑𝟓.𝟕𝟎
𝑳𝑷𝑰 = × 100 = 117.37 Year I Item A Item B Item C
$𝟑𝟎+$𝟐𝟎+$𝟑𝟕.𝟓𝟎

Price $2.25 $1.10 $2.10

𝑭𝑷𝑰 = (𝟏𝟐𝟑. 𝟕𝟏 × 𝟏𝟏𝟕. 𝟑𝟒)𝟎.𝟓 = 120.50
Quantity 20 20 17

Value $45 $22 $35.70

Solution
YEAR II
($𝟐.𝟑𝟓×𝟏𝟓)+($𝟏.𝟏𝟑×𝟐𝟎)+($𝟐.𝟒𝟎×𝟐𝟓)
𝑳𝑷𝑰 = × 100 = 134.69
$𝟑𝟎+$𝟐𝟎+$𝟑𝟕.𝟓𝟎

$𝟓𝟒+$𝟐𝟖+$𝟑𝟑.𝟔𝟎
𝑳𝑷𝑰 = × 100 = 132.46 Year II Item A Item B Item C
$𝟑𝟎+$𝟐𝟎+$𝟑𝟕.𝟓𝟎

Price $2.35 $1.14 $2.40

𝟎.𝟓
𝑭𝑷𝑰 = (𝟏𝟑𝟒. 𝟔𝟗 × 𝟏𝟑𝟐. 𝟒𝟓) = 133.57
Quantity 23 25 14

Value $54 $28 $33.50

Solution
Below is a summarized table of the LPI and PPI
for each year

YEAR II

Pric Index Year 0 Year I Year II

Laspeyres 100.00 123.71 134.69

Paasche 100.00 117.37 132.46

Fisher 100.00 120.50 133.57

MARSHALL
EDGEWEIGHT INDEX
Marshall
Edgeworth
Index
Requires too much labor in selection of
commodities. In some cases the usage of
this index is not suitable. For example the
comparison of the price level of a large
country to a small country.
FORMULA

𝐼𝑎𝑛= σ 𝑃𝑛 (𝑄𝑜+𝑄𝑛)
𝑃𝑜 (𝑄𝑜+𝑄𝑛)
×100
Example

With the help of following data, construct an index number using

Marshall Edgeworth Formula!

Price (per kg) Quantity (1000 kas)

Commodity 1984 1988 Commodity 1984 1988

Wheat 14 22 Wheat 40 60

Price 12 18 Price 25 35

Cotton 8 11 Cotton 60 55
Solution
Solution

Commodity Po Pn Qo Qn Qo+Qn Pn(Qo+Qn) Po(Qo+Qn

Wheat 14 22 40 60 100 2200 1400

Price 12 18 25 35 60 1080 720

Cotton 8 11 60 55 115 1265 920

4545 3040
Solution

Put in Formula:

Io,n =σ 𝑃𝑛 (𝑄𝑜+𝑄𝑛)
𝑃𝑜 (𝑄𝑜+𝑄𝑛)
×100
𝟒𝟓𝟒𝟓
I1984,1988 = × 100 = 14951 × 100 = 149.51
𝟑𝟎𝟒𝟎
DORBISH AND
BOWLEY’S METHOD
DORBISH &
BOWLEY’S
METHOD
Have suggested simple arithmetic mean
of the 2 indicies (Laypeyres and Paasche)
mentioned above so he take into account
the influence of both the periods. Current
as well as base periods.
FORMULA

𝑃𝑜𝑖= 𝐿+𝑃
2

𝑃𝑖𝑄𝑜+𝑃𝑖𝑄𝑖
σ ×100
𝑃𝑜𝑄𝑜+𝑃𝑜𝑄𝑖
𝑃𝑜𝑖= 2

L = Laspeyres Index
P = Paasche Index
THANK YOU
Example

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