SOLUTION: An enquiry into the budgets of middle class family gave the following information:
Expenses on Food 30% Rent 15% Clothing 20% Fuel 10% Others 25%
Prices in Kwacha (K) in 2004 10
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Question 1193800: An enquiry into the budgets of middle class family gave the following information:
Expenses on Food 30% Rent 15% Clothing 20% Fuel 10% Others 25%
Prices in Kwacha (K) in 2004 100 20 70 20 40
90 20 60 15 55
respectively.
Compute the price index number using weighted arithmetic maen of price relatives.
Answer by proyaop(69) (Show Source): You can put this solution on YOUR website!
**1. Calculate Price Relatives**
| Item | Base Year Price (K) | Current Year Price (K) | Weight (%) | Price Relative |
|-------------|---------------------|----------------------|-------------|----------------|
| Food | 100 | 90 | 30 | 90 |
| Rent | 20 | 20 | 15 | 100 |
| Clothing | 70 | 60 | 20 | 85.71 |
| Fuel | 20 | 15 | 10 | 75 |
| Others | 40 | 55 | 25 | 137.50 |
**2. Calculate Weighted Price Relatives**
| Item | Weight (%) | Price Relative | Weighted Price Relative |
|-------------|-------------|----------------|------------------------|
| Food | 30 | 90 | 2700 |
| Rent | 15 | 100 | 1500 |
| Clothing | 20 | 85.71 | 1714.20 |
| Fuel | 10 | 75 | 750 |
| Others | 25 | 137.50 | 3437.50 |
| **Total** | 100 | | **10101.70** |
**3. Calculate the Weighted Arithmetic Mean of Price Relatives**
* Weighted Arithmetic Mean = (Σ (Weight * Price Relative)) / Σ Weight
* Weighted Arithmetic Mean = 10101.70 / 100
* Weighted Arithmetic Mean = 101.017
**Therefore, the price index number using the weighted arithmetic mean of price relatives is 101.017.**
This indicates that the overall price level for the middle-class family has increased by approximately 1.017% compared to the base year.
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