CHAPTER 11: INDEX NUMBER

11.1 Index Number

Price index
I=

P1
100
P0

where P0 = price at the base time

P1 = price at a specific time
Example 1
The price of the house Sulaiman bought in the year 1998 was RM 110 000. In the year
2000, the price of the house went up to RM 130 000. Calculate the price index of the
house for the year 2000 based on the year 1998.

Finding P0 or P1 given relevant information

Example 2
The price of a bottle of cooking oil in the year 1999 was RM 15.00. Given that the
price index for the year 2000 based on the year 1999 is 105, calculate the price of the
cooking oil in the year 2000.
Example 3
Based on the year 1995, the index number of an oven for the years 1998 and 2001 are
110 and 130 respectively. Find the index number for the year 2001 based on the year
1998.

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11.2 Composite Index

Composite index
I = IW
W
where I = price index
W = weightage
Example 4
Noodle
Fried noodle
Tomyam noodle
Seafood noodle
Wantan noodle

Price Index, I
112
104
109
111

Weightage, W
4
3
2
1

The above table shows the price indices of a few types of noodles sold at a shop for
the year 2000 based on the year 1996 and their respective weightages. Calculate the
composite index for the year 2000 based on the year 1996.

Finding index number or weightage given relevant information

Example 5
Item
P
Q
R
S

Price Index, I
110
x
120
115

Weightage, W
4
2
1
3

The above table shows the price indices of a few types of items, P, Q, R and S for the
year 2002 based on the year 1997 and their respective weightages. If the composite
index for the year 2002 based on the year 1997 is 116.5, find the value of x.

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Example 6
An electrical item consists of four major components P, Q, R and S. The following
table shows the price indices and the respective weightages of these components in
the year 2007 based on the year 2006.
Component
P
Q
R
S

Price Index, I
110
105
150
119

Weightage, W
5
x
5
1

The composite index representing the cost of production of the electrical item is 127
in the year 2007 with respect to the year 2006. Find the value of x.

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