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SAI INTERNATIONAL SCHOOL

Statistics for Economics

Class-XI

MODULE-69

Construction of Weighted Index Numbers

(i) Weighted Average of Price Relative Method
According to this method, weighted sum of the price relatives is divided by the
sum total of the weight. In this method, goods are given weight according to
their quantity, thus
[latex]P_{01}=\frac{\Sigma R W}{\Sigma W}[/latex]
Here, P 01 = Index number for the current year in relation to the base year
W = weight
R = price relative

(ii) (ii) Weighted Aggregative Method Under this method, different goods are
accorded weight according to the quantity bought therefore, suggested
different techniques of weighting some of well known methods are as under

Fisher’s Method is considered as ‘Ideal’ because

 It is based on variable weights.
 It takes into consideration the price and quantities of both the base year and
current year.
 It is based on Geometric Mean (GM) which is regarded as the best mean for
calculating index number.
 Fisher’s index number satisfies both the Time Reversal Test and Factor Reversal
Test.