7.3.4 - Method of Averaging relatives
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Practice Questions
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Define an index number.
💡 Hint: Think about how we measure price changes over time.
What is a relative price?
💡 Hint: Consider the comparison between current and past prices.
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Interactive Quizzes
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What is the formula for calculating the Laspeyre index?
💡 Hint: Consider how weights influence the index.
True or False: Paasche’s index uses base period quantities as weights.
💡 Hint: Think about what the term 'Paasche' means in terms of periods.
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Challenge Problems
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You are given the prices of vegetables over two years: 2019 Prices (Potatoes - Rs 20, Tomatoes - Rs 30, Onions - Rs 25) and 2021 Prices (Potatoes - Rs 25, Tomatoes - Rs 35, Onions - Rs 30). Calculate both the Laspeyre and Paasche indices using weighted averages based on the quantities from 2019.
💡 Hint: Break the problem down by calculating each index step-by-step.
A company’s base salary for employees is Rs 3000, and the CPI indicates an increase from 200 to 250. Determine how much salary should be adjusted to maintain living standards.
💡 Hint: Apply the CPI to adjust the salary accordingly.
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