Simple Aggregative Method
This is the simplest technique for constructing an index numbers. When the technique is used to construct a price index, the total of present year prices for the different commodities in question is divided by the total of base year prices and the quotient is multiplied by 100. Symbolically:
p01 = Σ p1 / Σ p0 x 100
Σ p1 = total of present year prices for various commodities.
Σ p0 = total of base year prices for different commodities.
This technique of constructing the index is the simplest of all the methods. The steps needed in computation are as follows:
(i) Add the present year prices for various commodities obtain Σ p1.
(ii) Add the base year price for the same commodities obtain Σ p0.
(iii) Divide Σ p1 by Σ p0 and then multiply the quotient by 100.
Illustration:
From the following data construct an index for 2009 taking 2008 as base:
|
Commodity
|
Price in 2008 ($)
|
Price in 2009 ($)
|
|
A
|
50
|
70
|
|
B
|
40
|
60
|
|
C
|
80
|
90
|
|
D
|
110
|
120
|
|
E
|
20
|
20
|
Solution:
Construction of price index
|
Commodity
|
Price in 2008 ($)
|
Price in 2009 ($)
|
|
A
|
50
|
70
|
|
B
|
40
|
60
|
|
C
|
80
|
90
|
|
D
|
110
|
120
|
|
E
|
20
|
20
|
|
|
Σ p0 = 300
|
Σ p1 = 360
|
p01 = Σp1 / Σ p0 x 100 360/300 x 100 = 120
This means that in comparison to 2008, there is a net increase in the prices of commodities included in the index to the extent of 20%.