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Methods of Index Number - Part 1

We all know that index number is the measure of changing in the price. Whether it is the prices of consumable goods or share market. Basic method of calculation of index number will be same. We use two main method of index number. Every method has two sub-method. If you will learn first method, to learn second method will become more easy.

1st Method : Unweighted Method of Index Number

1st Sub-method : Simple Aggregative Method

Price Index (P01)

= Total of Current Year Prices / Total of Base Year Prices X 100

2nd Sub-method : Simple Average of Relative Method

We will calculate each good's price relative by following formula

= P1/P0 X 100

Now, we will calculate the average of this

= Total of Price Relative / N

2nd Method : Weighted Method of Index Number

1st Sub- Method : Weighted Aggregative Method

We just add the weighted in simple Aggregative method. For adding weight, we use different formulas which have been shown in above video.

2nd Sub-Method : Weighted Average of Relative Method 

Price Index (POI) = ? PW / ?W

P is price relative = P1 / P0

W is weight =  Base year price X base year quantity

= p0 X q0

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Vinod Kumar ( Educator )

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