A simple index number :: Economics

A simple world power telephone number advocate come is a number that expresses the relative change in footing,quantity, or protect from one period to another (1).Price tycoon number = bell of basket in reliable period x 100 constitute of basket in suitcase periodAn proponent number provides a quantitative description of change over sentence - how much profit? How much decrease?Market researchers argon also using superpower numbers are also using indicatornumbers to correspond a research result with an overall norm, to measurehow the investment, specially in advertising industry, are working.How changes in these figures are related to the current providence asadvertising is promoted as an engine that drives the economy ratherthan a supplement?2. A composite index2.1 Laspeyres Price IndexThe most commonly used weighted impairment index is the Laspeyres PriceIndex named after its inventor. It is a weighted aggregate price indexthat uses the quantities in the base period/ social class as weights (Harper,1991,p215). In essence, Laspeyres price index for the year metricshows the extent of price changes since base year on the assumptionthat the expenditure pattern was the same in the year measured as inbase year. Thus, only price is allowed to change and the index for thecurrent period reflects this price.2.2 Paasche Price IndexAnother weighted price index is the Paasche Price Index, which usesthe current quantity weights and adjusts the base each time a newperiod is considered. It is a weighted aggregate price index that usesthe quantities in the current year as the weights (Harper, 1991,p215).Paasche price index shows the changes assuming the expenditure patternwas the same in base year as in the year measured.2.3 Advantages and LimitationsBoth the Laspeyres index and the Paasche index comport advantages andlimitations, as indicated following2.3.1 AdvantagesLaspeyres index Easy to calculate. The Laspeyres index is the more favorable to use on a c ontinuing basis, because the weights of base year retain fixed. It trick be easier and cheaper to produce since the only quantities required are for the base period. Laspeyres where the same base weights can be used for a number of periods making it less demanding of selective information. As the weights dont change period to period (fixed basket) it can be considered to show exclusively price (or quantity) change (1).Paasche index------------- Uses quantities from the current period, thus reflects current buying habits2.3.2 LimitationsLaspeyres index It cannot be used if quantities are unobtainable. Laspeyres, as time moves on the fixed basket becomes less relevant.Paasche index There can be a mass of statistical data requirement, as Paasche