A simple index number :: Economics

A fair superpower numberIndex numbers is a number that expresses the intercourse vary in price,quantity, or value from one issue to other (1). expense index number = cost of basket in present-day(prenominal) period x 100cost of basket in stall periodAn index number provides a quantitative description of change overtime - how much increase? How much decrease? food market researchers are as well as using index numbers are also using indexnumbers to compare a research declaration with an overall norm, to measurehow the investment, specially in advertising industry, are working.How changes in these figures are related to the certain economy asadvertising is promoted as an engine that drives the economy ratherthan a supplement?2. A intricate index2.1 Laspeyres Price IndexThe most commonly used heavy price index is the Laspeyres PriceIndex named after its inventor. It is a weighted aggregate price indexthat uses the quantities in the pedestal period/ course of study as weig hts (Harper,1991,p215). In essence, Laspeyres price index for the division measuredshows the termination of price changes since base year on the assumptionthat the expenditure signifier was the same in the year measured as inbase year. Thus, only price is allowed to change and the index for the new period reflects this price.2.2 Paasche Price IndexAnother weighted price index is the Paasche Price Index, which usesthe current quantity weights and adjusts the base each time a newperiod is considered. It is a weighted aggregate price index that usesthe quantities in the current year as the weights (Harper, 1991,p215).Paasche price index shows the changes assuming the expenditure purposewas the same in base year as in the year measured.2.3 Advantages and LimitationsBoth the Laspeyres index and the Paasche index have advantages andlimitations, as indicated following2.3.1 AdvantagesLaspeyres index Easy to calculate. The Laspeyres index is the more convenient to use on a continuing ba sis, because the weights of base year remain fixed. It rear be easier and cheaper to release since the only quantities required are for the base period. Laspeyres where the same base weights can be used for a number of periods making it less demanding of data. As the weights dont change period to period (fixed basket) it can be considered to show but price (or quantity) change (1).Paasche index------------- Uses quantities from the current period, thus reflects current buy habits2.3.2 LimitationsLaspeyres index It cannot be used if quantities are unobtainable. Laspeyres, as time moves on the fixed basket becomes less relevant.Paasche index There can be a mass of statistical data requirement, as Paasche