Paasche composite consumption index

Reference no: EM13990223

A micro-market basket price index can be calculated for a household by including several food items typically consumed by that household together. Consider the basic food items in the following table, with their unit price and per capita annual consumption.

Food item in micro market basket	Unit prices (R)		Consumption
Food item in micro market basket	2010	2011	2010	2011
Milk (litres)	7.29	7.89	117	98
Bread (loaves)	4.25	4.45	56	64
Sugar (kg)	2.19	2.45	28	20
Maize meal (kg)	5.59	5.25	58	64

Give all calculations correct to one decimal place.

(a) Find the price relative for each food item. Interpret the results. Which food item showed the largest price change (increase or decrease) from 2010 to 2011? Justify your answer.

(b) Calculate the Paasche composite price index for 2011 (2010 = base period). Use the weighted average of price relatives method. What is the average percentage change in 2011 prices over those in 2010?

(c) Find the quantity relative (or consumption relative) for each food item. Interpret the results. Which food item showed the largest consumption change (increase or decrease) from 2010 to 2011?

(d) Calculate the Paasche composite consumption index for 2011 (2010 = base period). Use the weighted average of quantity relatives method. What is the average percentage change in household consumption between 2010 and 2011?

Reference no: EM13990223

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