Question

Calculate the simple aggregative price index and interpret it for the following:

$\begin{array}{ccc}\text{Commodities}& \text{1975 Prices (Rs)}& \text{2017 Prices (Rs)}\\ \text{Rice}& 0.05& 1\\ \text{Wheat}& 0.60& 3.2\\ \text{Maize}& 0.44& 5.62\\ \text{Sugar}& 0.8& 2.3\\ \text{Vegetables}& 2.63& 8\end{array}$

• A. The value of 445.13 suggests that the prices of the given commodities in 2017 have become 4.4513 times the prices in 1975
• B. The value of 345.68 suggests that the prices of the given commodities in 2017 have become 3.4568 times the prices in 1975
• C. The value of 345.68 suggests that the prices of the given commodities in 2017 have increased by 245.68% since 1975
• D. The value of 445.13 suggests that the prices of the given commodities in 2017 have increased by 345.13% since 1975

Answer 1

Answer: (A), (D)

The correct options are
A

The value of 445.13 suggests that the prices of the given commodities in 2017 have become 4.4513 times the prices in 1975

D

The value of 445.13 suggests that the prices of the given commodities in 2017 have increased by 345.13% since 1975

Look at the table below:

$\begin{array}{ccc}\text{Commodities}& \text{1975 Prices (Rs)}& \text{2017 Prices (Rs)}\\ \text{Rice}& 0.05& 1\\ \text{Wheat}& 0.60& 3.2\\ \text{Maize}& 0.44& 5.62\\ \text{Sugar}& 0.8& 2.3\\ \text{Vegetables}& 2.63& 8\\ \text{Total}& 4.52& 20.12\end{array}$

$\sum P_0=4.52,\sum P_1=20.12$
Simple aggregative price index $=\frac{\sum P1}{\sum P0}\times 100=\frac{20.12}{4.52}\times 100=445.13$