Weighted Average of Price Relatives

The Weighted Average of Price Relatives is a method used to calculate the index number. It is calculated by taking the weighted average of the price relatives of commodities, where the weight is equal to the value of commodities in the base year.

Types of Index Numbers

There are various types of index numbers, including:

1. Fisher’s Ideal Index Number: This method takes the geometric mean of the Laspeyres and Paasche index numbers. It is considered the best method as it overcomes the shortcomings of both methods.

2. Laspeyres Index Number: This method takes the base year quantities as weights and the current year prices as the price relatives.

3. Paasches Index Number: This method takes the current year quantities as weights and the current year prices as the price relatives.

4. Marshall-Edgeworth Index Number: This method takes the arithmetic mean of the Laspeyres and Paasche index numbers.

Index Number using Weighted Average of Price Relatives

When the Weighted Average of Price Relatives is used with weights equal to the value of commodities in the base year, it yields the Laspeyres index number. Therefore, the answer to the question is (b) Laspeyres.

Explanation

The Weighted Average of Price Relatives method is used to calculate index numbers, where the weight is equal to the value of commodities in the base year. This method is used to account for the changes in the prices and quantities of commodities over time. Using this method with different weights yields different types of index numbers, including Fisher’s Ideal, Laspeyres, Paasches, and Marshall-Edgeworth. When the weight is equal to the value of commodities in the base year, it yields the Laspeyres index number.

Laspyres