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Chapter 20 - Updated (Student Version)
Chapter 20 - Updated (Student Version)
Statistics for
Business and Economics (13e)
Anderson, Sweeney, Williams, Camm, Cochran
© 2017 Cengage Learning
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
1
Statistics for Business and Economics (13e)
Chapter 20
Index Numbers
• Price Relatives
• Aggregate Price Indexes
• Computing an Aggregate Price Index from Price Relatives
• Some Important Price Indexes
• Deflating a Series by Price Indexes
• Price Indexes: Other Considerations
• Quantity Indexes
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use. 2
Statistics for Business and Economics (13e)
Price Relatives
• Price relatives are helpful in understanding and interpreting changing economic
and business conditions over time.
• A price relative shows how the current price per unit for a given item compares
to a base period price per unit for the same item.
• A price relative expresses the unit price in each period as a percentage of the unit
price in the base period.
• A base period is a given starting point in time.
(100)
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
3
Statistics for Business and Economics (13e)
Price Relatives
• Example: Besco Products
The prices Besco paid for newspaper and television ads in 2004 and 2014
are shown below. Using 2004 as the base year, compute a 2014 price index
for newspaper and television ad prices.
2004 2014
Newspaper $14,794 $29,412
Television 11,469 23,904
(100)
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
4
Statistics for Business and Economics (13e)
Price Relatives
Newspaper ads Television ads
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
5
Statistics for Business and Economics (13e)
𝐼 𝑡=
∑ 𝑃𝑖𝑡
(100)
∑ 𝑃 𝑖0
where
Pit = unit price for item i in period t
Pi0 = unit price for item i in the base period
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
6
Statistics for Business and Economics (13e)
𝐼 𝑡=
∑ 𝑃𝑖𝑡 𝑄𝑖
(100)
∑ 𝑃 𝑖0𝑄𝑖
where the sums are over all items in the group
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
7
Statistics for Business and Economics (13e)
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
8
Statistics for Business and Economics (13e)
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
9
Statistics for Business and Economics (13e)
𝐼 𝑡=
∑ 𝑃𝑖𝑡
(100)
∑ 𝑃 𝑖0
10.92+11.32+5.13 +6.16
𝐼 2014 = ( 100 )=466
2.12+ 1.97+.79+ 2.32
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
10
Statistics for Business and Economics (13e)
𝐼 𝑡=
∑ 𝑃𝑖𝑡 𝑄𝑖
(100)
10.92 ( 9,473 ) +… +6.16( 15,293)
𝐼 2014 =
∑ 𝑃 𝑖0𝑄𝑖 2.12 ¿ ¿
𝐼 𝑡=
∑ 𝑃𝑖𝑡 𝑄𝑖
(100) 𝐼 2014 =
10.92 ( 8,804 ) + …+6.16 (20,262)
( 100 ) =415
∑ 𝑃 𝑖0𝑄𝑖 2.12( 8,804)+ …+2.32( 20,262)
The Paasche value being less than the Laspeyres indicates usage has increased faster in
the lower-priced sectors.
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
11
Statistics for Business and Economics (13e)
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
12
Statistics for Business and Economics (13e)
𝐼 𝑖=
∑ 𝑃 𝑖𝑡
(100)
∑ 𝑃𝑖 0
where:
Pit = unit price for item i in period t
Pi0 = unit price for item i in the base period
79.00+71.00+ 2.78+67.00 +128.00
𝐼 2014 = ( 100 )=124
57.00+56.00 +1.83+56.00+ 109.00
Annual lawn care expenses increased 24% from 2010 to 2014.
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
13
Statistics for Business and Economics (13e)
𝐼 𝑡=
∑ 𝑃𝑖𝑡 𝑄𝑖
(100)
∑ 𝑃 𝑖0𝑄𝑖
where: Qi = quantity for item i
(100)= 136
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
14
Statistics for Business and Economics (13e)
A variable- 𝐼 𝑡=
∑ 𝑃𝑖𝑡 𝑄𝑖𝑡
(100)
Pro: Reflects current usage;
Con: Weights require
quantity index ∑ 𝑃 𝑖 0 𝑄 𝑖𝑡 continual updating
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
15
Statistics for Business and Economics (13e)
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
16
Statistics for Business and Economics (13e)
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
17
Statistics for Business and Economics (13e)
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
18
Statistics for Business and Economics (13e)
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
20
Statistics for Business and Economics (13e)
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
21
Statistics for Business and Economics (13e)
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
22
Statistics for Business and Economics (13e)
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
23
Statistics for Business and Economics (13e)
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
24
Statistics for Business and Economics (13e)
Deflated Annual
Year Sales ($1000) Change (%)
2010 (8,446/218.1)(100) = 3,873
2011 (9,062/224.9)(100) = 4,029 +4.0
2012 (9,830/229.6)(100) = 4,281 +6.3
2013 (10,724/233.0)(100) = 4,603 +7.5
2014 (11,690/236.7)(100) = 4,939 +7.3
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
25
Statistics for Business and Economics (13e)
4750
4603
4500
4250 4281
4000 4029
3873
3750
2010 2011 2012 2013 2014
Year
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
26
Statistics for Business and Economics (13e)
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
27
Statistics for Business and Economics (13e)
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
28
Statistics for Business and Economics (13e)
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
29
Statistics for Business and Economics (13e)
Quantity Indexes
• An index used to measure changes in quantity levels over time is called a
quantity index.
• A quantity relative shows how the current quantity level for a single item
compares to a base period quantity level for the same item.
• A weighted aggregate quantity index is computed in much the same way
as a weighted aggregate price index.
𝐼 𝑡=
∑ 𝑄𝑖𝑡 𝑤𝑖
(100)
∑ 𝑄𝑖 0 𝑤𝑖
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
30
Statistics for Business and Economics (13e)
Quantity Indexes
• Example: Appliance Mart
Appliance Mart reports the 2005 and 2014 sales for three major kitchen
appliances as shown below. Compute quantity relatives and use them to develop
a weighted aggregate quantity index for 2014.
31
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
Statistics for Business and Economics (13e)
Quantity Indexes
Quantity relative in period t =
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
32
Statistics for Business and Economics (13e)
Quantity Indexes
Unweighted
𝐼 𝑡=
∑ 𝑄 𝑖𝑡
(100)
∑ 𝑄𝑖 0
where: Qit = quantity for item i in period t
Qi0 = quantity for item i in the base period
= 119
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
33
Statistics for Business and Economics (13e)
Quantity Indexes
Weighted (Base-Period Price)
𝐼 𝑡=
∑ 𝑄𝑖𝑡 𝑃 𝑖 0
(100)
∑ 𝑄𝑖 0 𝑃 𝑖 0
where: Pi0 = price for item i in the base period
= 117
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
34
Statistics for Business and Economics (13e)
Quantity Indexes
Weighted (Fixed Price)
𝐼 𝑡=
∑ 𝑄 𝑖𝑡 𝑃 𝑖
(100)
∑ 𝑄𝑖 0 𝑃 𝑖
𝐼 𝑡=
∑ 𝑄 𝑖𝑡 𝑃 𝑖𝑡
(100)
∑ 𝑄𝑖 0 𝑃 𝑖𝑡
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
35
Statistics for Business and Economics (13e)
End of Chapter 20
© 2017 Cengage Learning. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part, except for use as permitted in a license distributed with a certain product or service or
otherwise on a password-protected website or school-approved learning management system for classroom use.
36