If the price of all commodities in a place have decreased 35%over the ...
Explanation of Price Index Calculation
Introduction
Price index is a measure of the average level of prices of goods and services in an economy. It is used to track inflation or deflation in an economy.
Calculation of Price Index
Price index is calculated using the following formula:
Price index = (Price in current period / Price in base period) x 100
Where,
- Price in current period is the current price of a commodity
- Price in base period is the price of the same commodity in a selected base period
Calculation of Index Number
To calculate the index number of a place where the price of all commodities has decreased 35% over the base period price, we need to follow these steps:
1. Assume that the base period index number is 100.
2. Calculate the current period index number using the formula:
Current period index number = (100 - 35) = 65
This means that the current period price index is 65% of the base period price index.
Conclusion
In conclusion, the index number of a place where the price of all commodities has decreased 35% over the base period price is 65. The calculation of the price index is essential to monitor the changes in the price level of goods and services in the economy.