- Calculate index numbers using Paasche’s method and Fisher’s method from the following data.
| Commodity |
|
|
|
|
| A | 5 | 14 | 3 | 8 |
| B | 8 | 18 | 6 | 25 |
| C | 3 | 25 | 1 | 40 |
| D | 15 | 36 | 12 | 48 |
| E | 9 | 14 | 7 | 18 |
| F | 7 | 13 | 5 | 19 |
To calculate index numbers using Paasche's method and Fisher's method, we first need to understand what these methods entail:
1. Paasche's Method:
- Paasche's index is a Laspeyres-type index, which means it uses the current period's quantities as weights.
- The formula for Paasche's Price Index (PPI) is:
\[PPI = \frac{\sum_{i=1}^{n} (P_{i}^{c} \cdot Q_{i}^{c})}{\sum_{i=1}^{n} (P_{i}^{b} \cdot Q_{i}^{c})} \times 100\]
Where:
- \(P_{i}^{c}\) = Current period's price of commodity i
- \(P_{i}^{b}\) = Base period's price of commodity i
- \(Q_{i}^{c}\) = Current period's quantity of commodity i
- n = Number of commodities
2. Fisher's Method:
- Fisher's index is a geometric mean of the Paasche and Laspeyres indices.
- The formula for Fisher's Price Index (FPI) is:
\[FPI = \sqrt{Paasche \times Laspeyres}\]
Where:
- \(Paasche\) = Paasche's Price Index
- \(Laspeyres\) = Laspeyres Price Index
Now, let's calculate the price indices for the given data using both Paasche's and Fisher's methods:
Step 1: Calculate the Laspeyres Price Index (LPI)
To calculate the Laspeyres index, we need a base period. Let's assume the base period is the first period (i.e., period A). We'll calculate the price indices for all commodities relative to period A.
For commodity A (base period):
- \(P_{A}^{b} = 5\)
- \(Q_{A}^{b} = 14\)
For commodity
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