14. Statistical Techniques in Business & Economics (17)

17 ­ © 2004 by The McGraw­Hill Companies, Inc. All rights reserved. 17 ­ 2 When you have completed this chapter, you will be able to:. 1. Describe the term index 2. Understand the difference between a weighted and . an unweighted index. 3. Construct and interpret a Laspeyres’ price index 4. Construct and interpret a Paasche’s price index 5. Construct and interpret a value index 6. Explain how the Consumer Price Index . is constructed and interpretedCopyright © 2004 by The McGraw­Hill Companies, Inc. All rights reserved. Terminology. 17 ­ 3. Index Number. 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 © 2004 by The McGraw­Hill Companies, Inc. All rights reserved. 17 ­ 4. Mr. Wagner owns stock in three companies. . Shown . below is the price per share at the end of 1996 . and 2001 for the three stocks . and the quantities . he owned in 1996 and 2001. 1996 1996 2001 2001. Stock Price Shares Price Shares NWS $1 30 $2 50 NPC $5 15 $4 30 GAC $6 40 $6 20. .Copyright © 2004 by The McGraw­Hill Companies, Inc. All rights reserved. 17 ­ 5. continued . Compute a simple price index for each stock Use 1996 as the base year (1996=100). 1996 1996 2001 2001. Stock Price Shares Price Shares. NWS $1 30 $2 50. NPC $5 15 $4 30. GAC $6 40 $6 20. NWS ($2/$1)(100) = 200 Simple Price Indexes are: NPC ($4/$5)(100) = 80. GAC ($6/$6)(100) = © 2004 by The McGraw­Hil