What is the price index?
The price index shows the average price of a group of goods or services in a particular area over a specified period of time. The price index provides information on price movement over time and price changes in different locations. Price indices can help people measure economics and industries and plan investments.
The economist who wants to calculate the price index first chooses the basic year, then chooses a group of goods and services whose price movements want to track. The economist must collect the prices of these goods and services in the basic year and currently. It then calculates the price ratio currently to prices in the basic year. The simple formula is as follows: (current prices / price of the basic year) x 100. The value of the price index above 100 shows the movement of ascending prices, while the value below 100 indicates the movement down.
For example, consider an economist who only wants to find price movements of shirts, pants and bread from 2009 to 2010. During the considered period, the price of each shirt increased from $ 20 (USD) to $ 25, the price of each pair of pants increased from $ 10 to $ 12 and the price of each Loaf to $ 0.50 to $ 0.55. If an economist wants a group of goods to consist of 10 shirts, five pairs of pants and 100 loaves of bread, the price of the group is $ 250 - ((10 x 10 USD) + ($ 5 x 20) + ($ 100 x $ 0.50) in 2009 and $ 300) ($ 10) + ($ 100 x $ 0.55)). Therefore, the price index shows the overall movement of ascending prices of considered goods.
In fact, the price index often represents a basket of hundreds of goods and services to create a comprehensive depiction of the economy or industry. Thje it several types of common price indices that include industry or the whole economy. The consumer price index covers the retail prices of large group of goods and services, including food, housing, clothing and transport to quantify the cost of living in a particular geographical area. EkonoThe MOs also use the consumer price index to calculate inflation. The Price Index of the Price or the Index of wholesale prices measures the prices that manufacturers charge for their products, while the domestic price index shows the movements of residential real estate prices.