Question

Describe how price indexes are calculated and define the key types of price indexes

Short answer

$priceindex=\frac{\text{Cost ofmarketbasketofinterestyear}}{\text{Cost ofmarketbasketofbaseyear}}\times 100$

Step-by-step solution

introduction

The price index is calculated by taking the price of the market basket of the interest year and then dividing it by the price of the market basket of the base year and then multiplying by $100$.

$\text{price index}=\frac{\text{Cost of market basket of interest year}}{\text{Cost of market basket of base year}}\times 100$

explanation part (1)

Types of price index-

The Wholesale Price Index incorporates prices of the merchandise sold in the wholesale market, for example, the market where mass exchanges are made for additional deals subsequently.

part (2)

The Consumer Price Index incorporates prices of labour and products sold in the retail market, for example, the last prices which the end consumers need to pay. It is thus additionally called the cost for most everyday items index. It is likewise utilized for indexing dearness stipend to representatives at expansion in costs.

part (3)

The Producer Price Index incorporates producer or result prices which are the prices of the main business exchanges of labour and products or the exchanges at the place of the first sale. The Producer Price Index ordinarily covers the modern (fabricating) area as well as open utilities.