Unweighted Index Numbers

I. Simple Aggregative Method

This is the simplest method of constructing index numbers. When this method is used to construct a price index the total of current year prices for the various commodities in question is divided by the total of base year prices and the quotient is multiplied by 100. Symbolically:

∑p₁ = total of current year prices for various commodities.

∑p₀ = total of base year prices for various commodities.

This method of constructing the index is the simplest of all the methods. The steps required in computations are:

(i)    Add the current year prices of various commodities, i.e., obtain ∑p₁.

(ii)    Add the base year prices for the same commodities, i.e., obtain ∑p₀.

(iii)    Divide ∑p₁ by ∑p₀ and multiply the quotient by 100.

II. Simple Average of Price Relatives Method

When this method is used to construct a price index, first of all price relatives are obtained for the various items included in the index and then average of these relatives is obtained using any one of the measures of central value, i.e., arithmetic mean, median, mode, geometric mean or harmonic mean. When arithmetic mean is used for averaging the relatives, the formula for computing the index is


Where N refers to the number of items (commodities) whose price relatives are thus averaged.

Although any measure of central value can be used to obtain the overall index, price relatives are generally averaged either by the arithmetic or the geometric mean. When geometric mean is used for averaging the price relatives the formula for obtaining the index becomes





Other measures of central value are not in common use for averaging relatives.

For more help in Unweighted Index Numbers click the button below to submit your homework assignment