Index Number - 10 General Price Index - 2 - Fixed Base Method
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Case/Problem
The following presentation is the data about the average prices of three food items A, B and C in a city. Construct the general index number for these three items by fixed base method with base year 2015:
Year
Item 2015 2016 2017 2018 2019
A 36 37 37.80 38 39
B 60 72 76 76 78
C 60 62 64 68 72
Price Relatives
Price relative of relative change in price means the ratio of the price of an item in the current year to its price in the base year. If we express the price relative as a percentage, it is called a price index number of the item. Price relative shows the change in price of the item as compared to the price in the base year.
Price relative = (Price in current year) / (price in base year) = P1/Po
Price Index Number = (P1/Po) x 100
General Index Number (of the group)
The average of price relatives of all the items of the group is called General Index Number of the group, which is usually expressed as percentage.
General Index Number = [∑(P1/Po)/n] x 100
Where 'n' is number of items in the group
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