Mathematics for Business GS 1121

Tutorial 13 – Index Numbers

1. The price of gasoline in 1965 was 31.2 cents. Suppose the current price of gasoline is $3.20 per
gallon. Using the 1975 price (= 56.7 cents) as the base period, find the price index number for
gasoline today and in 1965.

2. Using the information in the table construct index numbers for

Prices in pence
Item 1998 1999 2000
White bread 51 51 52
Carrots 24 22 19
Cod fillets/lb 277 324 374

a. Bread for the 3 years with 1998 as base.

b. Carrots for the 3 years with base year 1999.
c. Cod fillets for the 3 years with base year 2000.

3. The Trade Union Association maintains indexes on the hourly wages for a number of the
trades. Unfortunately, the indexes do not all have the same base periods. Listed below is
information on plumbers and electricians. Shift the base periods to 1995 and compare the
hourly wage increases.

Year Plumbers (1990 = 100) Electricians (1992 = 100)

1995 133.8 126.0
2000 159.4 158.7

4. An index of clothing prices for 2005 based on 1998 is to be constructed. The clothing items considered
are shoes and dresses. The information for prices and quantities for both years is given below. Use
1998 as the base period and 100 as the base value.

1998 2005
Item Price($) Quantity Price($) Quantity
Dress (each) 75 500 85 520
Shoes (pair) 40 1200 45 1300

Determine Laspeyres’ price index and Paasche price index.

5. The table below shows the Consumer Price Index (CPI) of country A. The base year is 2000.

Year 1999 2000 2001 2002 2003

CPI 98 100 102 103 105

Shift the base year from 2000 to 2001 and calculate all the CPI of other years using the 2001 as
the new base year. Give the answers to 2 decimal places.
6. The table below shows the Consumer Price Index data for Brunei Darussalam. 1990 is the base
year.

Year Index for all items Index for food

1991 101.6 102.5
1992 102.9 103.3
1993 107.4 106.0
1994 109.9 107.4
1995 116.5 110.1
1996 118.6 113.4
1997 120.8 117.6
1998 120.3 118.0
1999 119.8 117.3
2000 121.7 117.8
Calculate the CPI of each year if the base year is changed to 1995. Give your answers to 2
decimal places.

7. Mr Kawakibi, owner of Kawakibi Agricultural Trading, has collected the following information
describing the prices and quantities of harvested crops for the years 1999 – 2002.
Type of Price per ton ($) Quantity Harvested (tons)
fruits 1999 2000 2001 2002 1999 2000 2001 2002
Langsat 108 109 113 111 1280 1150 1330 1360
Rambutan 93 96 96 101 830 860 850 890
Durian 97 99 106 107 1640 1760 1630 1660
Construct a Laspeyres and Paasche Index for each of these 4 years using 1999 as the base
period. Give your answers to 2 decimal places.

8. Dyg Hjh Morniah, the marketing manager of Kawakibi Agricultural Trading needs help. She
wants to calculate a Laspeyres Price Index and Paasche Price Index for each year using 2000 as
the base period (use data from qn 3). You are required to calculate for her (2 decimal places).

9. Government survey takers determine that typical family expenditures each month in the year
designated as the base year are as follows:
 20 pizzas, $10 each
 Rent of apartment $600 per month
 Gasoline and car maintenance $100 per month
 Phone service (basic service plus 10 long-distance $50 per month.
In the year following the base year, the survey takers determine that pizzas have risen to $11
each, apartment rent is $640, gasoline and maintenance have risen to $120 and phone service
has dropped in price to $40.
Find the CPI in the subsequent year and the ratio of inflation between the base year and the
subsequent year.
Answers

1. Current Price Index = 564; Price Index (1965) = 55.0

2. a) 100 , 100 , 102
b) 109.1, 100, 86.4
c) 74.1, 86.6, 100
3. The hourly wage increases in electricians is more than in plumbers by the difference of 7.
4. Laspeyres′ price index = 112.9
Paasche price index = 112.9

5. Year CPI (old base period 2000) CPI (New base period 2001)
1999 98 96.08
2000 100 98.04
2001 102 100
2002 103 100.98
2003 105 102.94

6.
CPI (old base year 1990) CPI (new base year 1995)
Year Index for all items Index for food Index for all items Index for food
1991 101.6 102.5 87.21 93.10
1992 102.9 103.3 88.33 93.82
1993 107.4 106.0 92.19 96.28
1994 109.9 107.4 94.33 97.55
1995 116.5 110.1 100 100
1996 118.6 113.4 101.8 103
1997 120.8 117.6 103.69 106.81
1998 120.3 118.0 103.26 107.18
1999 119.8 117.3 102.83 106.54
2000 121.7 117.8 104.46 106.99

∑𝑃 𝑄
7. Lapeyres Price Index= ∑ 𝑃𝑐 𝑄𝑏 × 100, base year =1999
𝑏 𝑏

LPI 1999= 100

LPI 2000 ≈ 101.88
LPI 2001 ≈ 106.31
LPI 2002 ≈ 107.18

∑𝑃 𝑄
Paasche Price Index= ∑ 𝑃𝑐 𝑄𝑐 × 100, base year =1999
𝑏 𝑐

PPI 1999= 100

PPI 2000≈ 101.93
PPI 2001 ≈ 106.27
PPI 2002 ≈ 107.12
 ∑𝑃 𝑄
Lapeyres Quantity Index= ∑ 𝑃 𝑏𝑄𝑐 × 100, base year =1999
𝑏 𝑏

LQI 1999= 100

LQI 2000= ≈ 100.10
LQI 2001 ≈ 101.68
LQI 2002 ≈ 104.31

∑𝑃 𝑄
Paasche Quantity Index= ∑ 𝑃𝑐𝑄𝑐 × 100, base year =1999
𝑐 𝑏

PQI 1999= 100

PQI 2000 ≈ 100.15
PQI 2001 ≈ 101.64
PQI 2002 ≈ 104.26

∑𝑃 𝑄
8. Lapeyres Price Index= ∑ 𝑃𝑐 𝑄𝑏 × 100, base year =2000
𝑏 𝑏

LPI 1999≈ 98.10

LPI 2000= 100
LPI 2001 ≈ 104.43
LPI 2002 ≈ 105.41

∑𝑃 𝑄
Paasche Price Index= ∑ 𝑃𝑐 𝑄𝑐 × 100, base year =2000
𝑏 𝑐

PPI 1999≈ 98.15

PPI 2000= 100
PPI 2001 ≈ 104.31
PPI 2002 ≈ 105.14

9. Cost of basket in base year = $950

Cost of basket in subsequent year = $1,020
CPI = 107.37
Rate of inflation which is 7.37%.