Question

Explain the steps in constructing a price index number.

Answer 1

Steps in Constructing Price Index Number:

1. ∑p₁ = Adding the prices of various commodities in the current year.
2. ∑p₀ = Adding the prices of various commodities in the base year.
3. p₀₁ = `(sum"p"_1)/(sum"p"_0) xx 100` = Multiplying by 100 the ratio of the sum of various commodity prices in the current year and the sum of various commodity prices in the base year.