A-level math paper 2: Index numbers

This the percentage ratio of one quantity to the other, e.g. price index

Index number is a technique of measuring changes in a variable or group of variables with respect to
time, geographical location or other characteristics. It is a statistical measure of change in a
representative group of individual data points.

For example, if the price of a certain commodity rises from shs. 100 in the year 2007 to shs. 150 in
the year 2017, the price index number will be 150 showing that there is a 50% increase in the prices
over this period

Simple index numbers

The simple index numbers include;
(i) Price index or price relative
𝑃1
Price relative = 𝑥 100 where P1= price the current year and P0 – price in the base year
𝑃𝑜
(ii) Wage index
𝑊1
Wage index = 𝑥 100
𝑊𝑜
(iii) Quantity index (quantum) index
𝑄1
Quantum index = 𝑥 100
𝑄𝑜
Example 1
A loaf of bread costed shs. 1200/= in 2008 and shs. 1800/= in 2014. Taking 2008 as the base year,
find the price relative in 2014
Solution
𝑃1 1800
Price relative = 𝑥 100 = 𝑥 100 = 150
𝑃𝑜 1200
Example 2
In 2020, the price index of a commodity using 2019 as the base was 180. In 2021, the price index
using 2020 as the base year was 150. What is the price index in 2021 using 2019 as the base year?
Solution
𝑃2020
𝑥 100 = 180
𝑃2019
𝑃2020
= 1.80 ……….. (i)
𝑃2019
𝑃2021
𝑥 100 = 150
𝑃2020
𝑃2021
= 1.50 ………. (ii)
𝑃2020
Eqn. (i) x Eqn. (ii)
𝑃2020 𝑃2021
. = 1.8 x 1.5
𝑃2019 𝑃2020
𝑃2021
= 2.7
𝑃2019
𝑃2021
𝑥 100 = 2.7𝑥 100 = 270
𝑃2019
∴ the price index in 2021 using 2019 as the base year = 270

Example 3
The wage of a nurse in Uganda in 2010 was 350,000/=, the wage of the nurse in 2015 was increase
by shs. 150,000/=. Using 2010 as the a base year calculate the nurses wage index in 2015.
𝑊1 500,000
Wage index = 𝑥 100 = 𝑥 100 = 142.9
𝑊𝑜 350,000

Price indices
Price indices are divided into
(a) Simple price index
(b) Simple Aggregate price index
(c) Weighed price index

(a) Simple price index

This is the average of the price relative
𝑃
∑ 1
𝑃0
It is given by simple price index = x100
𝑛
Where n = number of items.
(b) Simple aggregate price index
∑ 𝑃1
It is given by simple aggregate price index = (∑ 𝑥 100)
𝑃0
Example 4
The table shows the prices 0f bread and meat per kg in 2000 and 2008
Year
item 2000 2008
Beans 700 1200
Meat 2500 4500
Using 2000 as the base year, find
(a) Price relatives of each commodity
(b) Simple price index
(c) Simple aggregate price index
Solution
𝑃1
(a) Price index = 𝑥 100
𝑃𝑜
1200
For beans: P.R = 𝑥 100 = 171.43
700
4500
For meat: P.R = 𝑥 100 = 180
2500

171.43+180
(b) Simple price index (S.P.I) = = 175.72
2
1200+450
(c) Simple aggregate price index (S.A.P.I) = 𝑥 100 = 178.13
700+2500
Example 5
In 2014 the price of a shirt, a dress and a pair of shoes were shs. 20,000; shs. 35,000 and shs. 45,
000 respectively. Given that in 2017 the prices were shs. 25,000, shs. 50,000 and shs. y
respectively. Find the value of y if the aggregate price index was 130 while taking 2014 as the
base year.

Solution
∑ 𝑃1
Simple aggregate price index = (∑ 𝑥 100)
𝑃0
25,000+50,000+𝑦
( ) 𝑥 100 = 130
20,000+35,000+45,000

75.000+𝑦
( ) = 130
1000
𝑦 = 𝑠ℎ𝑠. 55,000

Weighted price index (composite index)

If the weight or quantity in the base year and current year are the same, we use
(i) Weighted aggregate price index
∑ 𝑃1 𝑤
Weighted aggregate price index = (∑ ) 𝑥 100
𝑃0 𝑤
Example 6
The table below shows the prices (shs.) and amounts of items bought for assembling a phone in
2012 and 2015
Prices (shs
Items 2012 2015 Quantity
Transistor 12,000 18,000 8
Resistor 16,500 21,000 22
Capacitor 15,000 17,000 9
Diode 16,000 18,000 2
Circuit 20,000 25,000 1
Calculate the composite price index for a phone taking 2012 as the base year
18,000 𝑥 8 +21,000 𝑥 22+17,000 𝑥 9 +18,000 𝑥 2+25,000 𝑥 1
W.A.P.I = ( ) 𝑥100 = 126.94
12,000 𝑥 8+16,500 𝑥 22+15,000 𝑥 9+16,000 𝑥 2+20,000 𝑥 1

Example 7
The table below shows the prices (shs) and amount of items bought for making a cake in 2008
and 2009.
Prices (shs
Items 2008 2009 Quantity
Flour per kg 6,000 7,800 3
Sugar per kg 5,000 4,000 1
Milk per litre 1,000 1,500 2
Eggs per egg 200 300 8
(a) Calculate the weighted aggregate price index taking 2008 as the base year
(b) In 2009, the cost of making a cake was shs. 80,000/=. Using the weighted aggregate price
index above, find the cost of the coke in 2008.
Solution
7800 𝑥 3+4000 𝑥 1+1500 𝑥 2+3 𝑥 8
(a) W.A.P.I = ( ) 𝑥 100 = 123.3083
6000 𝑥 3+5000 𝑥 1+1000 𝑥 2+200 𝑥 8
𝑃1
(b) 𝑥 100 = 123.3083
𝑃𝑜

80,000
𝑥 100 = 123.3083
𝑃𝑜
𝑃0 = 𝑠ℎ𝑠. 64,878.0333

(ii) Average weighted price index

𝑃1
∑ 𝑤
𝑃0
Average weighted price index =
∑𝑤
𝑥 100
When the price relative (P.R) is given then
∑(𝑃.𝑅 𝑥 𝑤)
Average weighted price index =
∑𝑤
Example 8
The table shows the expenditure (Ug. Shs.) of a student during the first and second terms
Expenditure (shs.)
Items 1st term 2nd term Amount
clothing 46,500 49,350 5
Pocket money 55,200 37,500 3
Books 80,000 97,500 8
Using the first term expenditure as the base, find the average weighted price index
𝑃1
∑ 𝑤
𝑃0
Average weighted price index =
∑𝑤
𝑥 100
49,350 37,500 97,500
𝑥 5+ 𝑥 3+ 𝑥 8
= (46,500 55,200 80,000
) 𝑥 100
5+3+8

= 106.841
Example 9
The table below shows the price relatives together with their weights for a certain family
Item Weight Price relative
Food 172 120
Water 160 124
Housing 170 125
Electricity 210 135
Clothing 140 104
Find the:
(i) simple price index
(ii) cost of living
Solution
𝑃
∑( 1 ) 120+124+125+135+104
𝑃0
(i) S.P.I = = = 121.6
𝑛 5
∑(𝑃.𝑅 𝑥 𝑤) 120 𝑥 172 +124𝑥 160 +125 𝑥 170 +135 𝑥 210+104 𝑥 140
(ii) Cost of living =
∑𝑤
= = 122.82
172+160+170+210+140
Weighted aggregate price indices/ Paache’s theory/value index
If the weight or quantity in the base year and current year are different, we use
∑ 𝑃1 𝑊1
Weighted aggregate price index = ∑ 𝑥 100
𝑃0 𝑊0
Example 10
The table below shows the prices of items per kg in the year 2001 and 2002
2001 = 100 2002
Item Price (shs.) Quantity (kg) Price (shs.) Quantity (kg)
Rice 2800 20 3200 30
Millet 1500 10 1900 10
Beans 2000 5 2500 70
Calculate for 2002
(i) Price index
(ii) Simple aggregate price index
(iii) Simple aggregate quantity index
(iv) Weighted aggregate price index

Solution
𝑃2002
(i) Price index = 𝑥 100
𝑃2001
3200
For rice, price index = 𝑥 100 = 114.29
2800
1900
For millet, price index = 𝑥 100 = 126.67
1500
2500
For beans, price index = 𝑥 100 = 125
2000
3200+1900+250
(ii) S.A.P.I = [ ] 𝑥 100 = 120.63
2800+1500+2000
∑ 𝑄2002
(iii) S.A.Q.I = ∑ 𝑄2001
𝑥 100
30+10+70
=[ ] 𝑥 100 = 314.29
20+20+5
∑ 𝑃1 𝑊1
(iv) W.A.P.I = ∑ 𝑃0 𝑊0
𝑥 100
3200 𝑥 30 +1900 𝑥 10+2500 𝑥 70
=[ ] 𝑥 100
2800 𝑥 20+1500 𝑥 10+2000 𝑥 5
= 358.02
Revision exercise
1. UNEB 2020/2/5
The table below shows the price indices of beans, maize, rice and meat with corresponding weights
Item Price index 2008 Weight
(2007 = 100%)
Beans 105 4
Maize x 7
Rice 104 2
Meat 113 5
Calculate the;
(a) Value of x given that the price indices of maize in 2007 and 2008 using 2006 as the base year are
112 and 130 respectively. (116.0714)
(b) Weighted price index for 2008 using 2007 as the base year (111.4167)

2. UNEB 2018/2/5
The price index of an article in 2000 based on 1998 was 130. The price index for the article in 2005
based on 2000 was 80. Calculate
(a) Price index of the article in 2005 based on 1998. (104)
(b) Price of the article in 1998 if the price of the article was 45,000 in 2005.
UNEB 2017/2/7
The table below shows the price (shs.) and amount of items bought weekly by a restaurant in 2002
and 2003.
Price (shs.)
Items 2002 2003 Amount
Mil k per litre 400 500 200
Eggs per tray 2500 3000 18
Cooking oil per litre 2400 2100 2
Flour per packet 2000 2200 15
Calculate
(a) the weighted aggregate price index taking 2002 as the base year. (119.63)
(b) In 2003, the restaurant spent shs. 450,000/=. Using the weighted aggregate price index, find how
the restaurant could have spent in 2002. (376,096.95)

3. The table below shows the prices (shs.) an amount of items bought in 2006 and 2007
Price (shs.)
Items 2006 2007 Amount
Mil k per litre 300 400 1
Eggs per tray 2500 3000 3
Cooking oil per litre 3000 8000 4
Flour per packet 1500 1800 15
Taking 2006 as the base year
(a) Calculate the simple aggregate price index (180.92)
(b) Calculate the weighted aggregate price index(161.702)
4. The table below shows the prices in US dollars and weights of five components of an engine, in
1998 and 2005
Prices (US D)
components weight 1998 2005
A 6 35 60
B 5 70 135
C 3 43 105
D 2 180 290
E 1 480 800
(a) Taking 1998 as the base year, calculate the
(i) Simple aggregate price index (172.03)
(ii) Price relative of each component (171.4, 192.9, 244.2, 161.1, 166.7)
(iii) Weighted price index (178.55)
 (b) Using the price index in (a)(i) estimate the cost of the engine in 1998 if the cost of the engine
in 2005 was 1600 USD (896.11)
5. The table below shows the prices and amounts of items bought in 2004 and 2005
Prices (shs)
Item 2004 2005 Amount
A 635 887.5 6
B 720 815 4
C 730 1045 3
D 362 503 7
(a) Calculate the simple aggregate price index (132.836)
(b) Calculate the weighted aggregate price index (133.52)
(c) Calculate the price of an item costing 500 in 2004 using weighted aggregate price index
above. (667.64)
6. The table below shows the prices of items per kg in the year 2005 and 2007
Item Posho Beans Rice Beef Chicken
Price in 2005 1200 2000 1200 4000 8000
Price in 2007 1600 2500 1600 6000 9500
Calculate for 2007 using 2005a as the base year
(a) Simple price index (132.0833)
(b) Simple aggregate price index (129.2683)
7. The table below shows the prices in the year 2010 and 2018
Item Price in 2010 Price in 2018
Flour per kg 3000 5400
Eggs per dozen 5,000 7800
Calculate for 2018 using 2010 as the base year
(i) Simple price index (168)
(ii) Simple aggregate price index (165)
8. The table below shows the prices and quantities of four items in the year 2020 and 2021
Item Price per unit Quantities
2020 2021 2020 2021
A 100 120 36 42
B 110 100 96 88
C 50 65 10 12
D 80 85 11 10
(a) Calculate the price index (120, 90.91, 130, 106.25)
(b) Simple aggregate price index (108.82)
(c) Weighted aggregate price index (99.55)
(d) Cost in 2021, A, B, C and Dare ingredients to make chapatti and in 2020a price of chapatti
costed shilling 600 using index in (iii) above. (shs. 597.3)
Thank You

Dr. Bbosa Science