A department store sells stereo systems, television sets and radios. The percentage distribution of the total sales volume (in Rs) is estimated as 30% stereos, 50% televisions and 20% radios. The price of one stereo, one television and one radio in 2009 was Rs. 20000, Rs. 15000 and Rs 500 respectively, while their respective price in 2012 were Rs 25000, Rs 20000 and Rs 800.

A weighted price index for 2012 with base 2009 is to be computed.

(i) Which index number formula is appropriate? Why?

(ii) Compute the index.

(i) Here, weighted average of price relative method is appropriate because the relative

importance or contribution of various products i.e. stereo systems, televisions and radios, to the totabsales volume is to considered.

(ii) Index number using weighted average of price relative.

Construction of Weighted Index Number