Instruction
1
Before proceeding to the calculation of a price index, you must understand the principle of its construction. If you need to identify the extent to which the price of certain goods or services or a quantity of goods or services, it is necessary to bring certain quantity of goods at a specified price to the total cost. For this you need to measure the weight of each item (prices or quantities). If you need to reflect the change in the price of goods, the weights need to take a number of goods. If you need to find the change in the number of goods, the weights will be the price. It is only necessary to decide on the level of some period (baseline or reporting) to fix them.
2
To find the price index, you can use the Laspeyres formula. It is the number of items q is fixed at the base period:
Ip = ΣP1хQ0/ΣP0хQ0 where ΣP1хQ0 cost of products sold in the previous period (base) prices of the reporting period; ΣP0хQ0 – the cost of production in the base period.
This index shows price changes in the reporting period compared with baseline on products made in the base period. In other words, the Laspeyres price index shows the cost of goods in the base period has increased or decreased due to price changes during the reporting period.
Ip = ΣP1хQ0/ΣP0хQ0 where ΣP1хQ0 cost of products sold in the previous period (base) prices of the reporting period; ΣP0хQ0 – the cost of production in the base period.
This index shows price changes in the reporting period compared with baseline on products made in the base period. In other words, the Laspeyres price index shows the cost of goods in the base period has increased or decreased due to price changes during the reporting period.
3
Price index you can also calculate the Paasche formula. In it, the volume of traded goods is set at the reporting period:
Ip = ΣP1хQ1/ΣP0хQ1 where ΣP1хQ1 – the cost of production in the reporting period; ΣP0хQ1 – cost of goods sold in the reporting period at prices of the previous one.
This index characterizes the change of prices for the reporting period compared with baseline on goods sold in the reporting period. In other words, it shows how much did the cost of goods sold. The Paasche price index is actively used in the national statistics until the country's transition to a market economy. After 1991, the calculation of price indices began to produce according to Laspeyres.
Ip = ΣP1хQ1/ΣP0хQ1 where ΣP1хQ1 – the cost of production in the reporting period; ΣP0хQ1 – cost of goods sold in the reporting period at prices of the previous one.
This index characterizes the change of prices for the reporting period compared with baseline on goods sold in the reporting period. In other words, it shows how much did the cost of goods sold. The Paasche price index is actively used in the national statistics until the country's transition to a market economy. After 1991, the calculation of price indices began to produce according to Laspeyres.
