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The Marshall-Edgeworth index, credited to Marshall (1887) and Edgeworth (1925), [11] is a weighted relative of current period to base period sets of prices. This index uses the arithmetic average of the current and based period quantities for weighting. It is considered a pseudo-superlative formula and is symmetric. [12]
Since, at any given time, the number of chemical plants is insufficient to use in a preliminary or predesign estimate, cost indexes are handy for a series of management purposes, like long-range planning, budgeting and escalating or de-escalating contract costs. [1] A cost index is the ratio of the actual price in a time period compared to that ...
[5] [6] The base usually equals 100 and the index number is usually expressed as 100 times the ratio to the base value. For example, if a commodity costs twice as much in 1970 as it did in 1960, its index number would be 200 relative to 1960. Index numbers are used especially to compare business activity, the cost of living, and employment ...
In simpler terms, the true cost-of-living index is the cost of achieving a certain level of utility (or standard of living) in one year relative to the cost of achieving the same level the next year. Utility is not directly measurable, so the true cost of living index only serves as a theoretical ideal, not a practical price index formula.
Hence, one may think of the Paasche index as one where the numeraire is the bundle of goods using current year prices and current year quantities. Similarly, the Laspeyres index can be thought of as a price index taking the bundle of goods using current prices and base period quantities as the numeraire.
The Consumer Price Index was initiated during World War I, when rapid increases in prices, particularly in shipbuilding centers, made an index essential for calculating cost-of-living adjustments in wages. To provide appropriate weighting patterns for the index, it reflected the relative importance of goods and services purchased in 92 ...
A CPI is a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically. Sub-indices and sub-sub-indices can be computed for different categories and sub-categories of goods and services, which are combined to produce the overall index with weights reflecting their shares in the total of the consumer expenditures covered by the ...
From a macroeconomics standpoint there are four main categories of indexation: wage indexation, [1] financial instruments rate indexation, [2] tax rate indexation, [3] and; exchange rate indexation. [4] The first three are indexed to inflation. The last one is typically indexed to a foreign currency, mainly the US dollar. Any of these different ...