099. Composite Price Indexes

Often we want to calculate a price index for several goods. This is called a composite price index. Firms that produce two or more products are usually interested in a composite index. So are many government agencies who chart consumer behavior. The U. S. Department of Labor compiles the consumer price index, which measures relative prices for a typical “market basket’’ of goods and services consumed by the general public.

The composite index is computed by adding the price of the individual commodities in the reference year and dividing by the summation of those prices in the base year. The result is then multiplied by 100.

(9.2)

Using the data for Nipp and Tuck, the 2003 composite index for all three products, retaining 2003 as the base period, is

The index for 2004 is

And 2005 produces

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