Question

Explain the steps in constructing Paasche's Index Number.

Answer 1

1. ∑p₁q₁ = Adding the products of the current year's commodity prices and quantities.
2. ∑p₀q₁ = Adding the products of various commodity prices in the base year and commodity quantities in the current year.
3. P₀₁ = `(sum"p"_1"q"_1)/(sum"p"_0"q"_1) xx 100` = Multiplying by 100 the ratio of the sum of the products of prices and quantities of various commodities in the current year and the sum of the products of prices and quantities of various commodities in the base year.