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Applied Mathematics · Ch 8 — Index Numbers and Time-based Data

Weighted Aggregative Method

8.4.4

Weighted Aggregative Method

The simple methods above treat every commodity as equally significant, which rarely reflects reality — a household spends far more on staple food than on stationery, for example. The weighted aggregative method corrects this by attaching a weight (typically the quantity consumed or sold, QQ) to each commodity's price before aggregating, so items of greater economic importance influence the index more strongly.

In=∑pniQi∑p0iQi×100I_n = \dfrac{\sum p_{ni}Q_i}{\sum p_{0i}Q_i} \times 100 …