Consumer Price Index Numbers are computed with a view of study the effect of changes in prices on the people as consumers.

**CONSUMER PRICE INDEX NUMBERS**

Consumer Price Index Numbers are computed with a view of study the
effect of changes in prices on the people as consumers. These indices give the
average increase in the expenses if it is designed to maintain the standard of
living of base year. General index numbers fail to give an indea about the
effect of the change in the general price level on the cost of living of different
classes of people since a given change in the price level affects different
classes of people differently.

The consumer price indices are of great significance and is given
below

1. This is very useful in wage negotiations,
wage contracts and dearness allowance adjustments in many countries.

2. At Government level the index numbers are
used for wage policy, price policy, rent control, taxation and general economic
policies.

3. Change in the purchasing power of money and
real income can be measured.

4. Index numbers are also used for analyzing
market price for particular kind of goods and services.

**Note: ***Consumer price index numbers are also called as cost of living
index numbers.*

There are two methods of constructing consumer price index. They
are:

1. Aggregate Expenditure method (or) Aggregate
method

2. Family Budget method or method of weighted
relative method.

This method is based upon the Laspeyre’s method. It is widely used.
The quantities of commodities consumed by a particular group in the base year
are the weight.

Thus, consumer price index number =

This method estimates an aggregate expenditure of an average
family on various items and it is weighted. It is given by

consumer price index =

where

p = p_{1}/ p_{0} × 100 for each item and w = p_{0}q_{0}

The family budget method is the same as “weighted average
price relative method” which
we have studied earlier.

Calculate the consumer price index number for 2015 on the basis of
2000 from the following data by using (i) the Aggregate expenditure method (ii)
the family budget (or) weighted relatives method.

(i) Calculation of cost of living index number on the basis of
Aggregate expenditure method.

Consumer price index number for 2015

(ii)
Calculation of consumer price index number according
to family budget method or weighted relative method

Consumer price index number for 2015

≈ 122.6

Tags : Methods of constructing, Example Solved Problems , 12th Statistics : Chapter 6 : Index Numbers

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12th Statistics : Chapter 6 : Index Numbers : Consumer Price Index Numbers | Methods of constructing, Example Solved Problems

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