Chapter 15 - Index numbers. When you have completed this chapter, you will be able to: Describe the term index, understand the difference between a weighted and an unweighted index, construct and interpret a laspeyres price index, construct and interpret a paasche price index, construct and interpret a value index, explain how the consumer price Index is constructed and interpreted. | Index Numbers Chapter 15 GOALS Describe the term index. Understand the difference between a weighted and an unweighted index. Construct and interpret a Laspeyres price index. Construct and interpret a Paasche price index. Construct and interpret a value index. Explain how the Consumer Price Index is constructed and interpreted. Index Numbers INDEX NUMBER A number that measures the relative change in price, quantity, value, or some other item of interest from one time period to another. SIMPLE INDEX NUMBER measures the relative change in just one variable. EXAMPLE According to the Bureau of Labor Statistics, in January 2000 the average hourly earnings of production workers was $. In March 2008 it was $. What is the index of hourly earnings of production workers for March 2008 based on January 2000? An index can also compare one item with another. Example: The population of the Canadian province of British Columbia in 2007 was 4,352,798 and for Ontario it was . | Index Numbers Chapter 15 GOALS Describe the term index. Understand the difference between a weighted and an unweighted index. Construct and interpret a Laspeyres price index. Construct and interpret a Paasche price index. Construct and interpret a value index. Explain how the Consumer Price Index is constructed and interpreted. Index Numbers INDEX NUMBER A number that measures the relative change in price, quantity, value, or some other item of interest from one time period to another. SIMPLE INDEX NUMBER measures the relative change in just one variable. EXAMPLE According to the Bureau of Labor Statistics, in January 2000 the average hourly earnings of production workers was $. In March 2008 it was $. What is the index of hourly earnings of production workers for March 2008 based on January 2000? An index can also compare one item with another. Example: The population of the Canadian province of British Columbia in 2007 was 4,352,798 and for Ontario it was 12,753,702. What is the population index of British Columbia compared to Ontario? Why Convert Data to Indexes? An index is a convenient way to express a change in a diverse group of items. The Consumer Price Index (CPI), for example, encompasses about 400 items—including golf balls, lawn mowers, hamburgers, funeral services, and dentists’ fees. Converting the prices of these many diverse goods and services to one index number allows the federal government and others concerned with inflation keep informed of the overall movement of consumer prices. Converting data to indexes also makes it easier to assess the trend in a series composed of exceptionally large numbers. The estimate of . retail e-commerce sales for the fourth quarter of 2007, adjusted for seasonal variation, was $36,200,000 and $30,700,000 for the fourth quarter of 2006, an increase of $5,500,000. This increase is 18 percent, expressed as an index. In many situations we wish to combine several items and develop an index to .
