Unweighted Index Numbers: Simple Aggregate and Simple Average of Price Relatives

The simplest way to combine several commodities into one index number ignores how important each commodity is (how much of it is actually bought) and treats every commodity equally. Two such unweighted (simple) methods are used.

1. Simple Aggregate Method — add up the current-year prices of all commodities and divide by the sum of their base-year prices:

   $P_{01} = \dfrac{\sum p_1}{\sum p_0} \times 100$

2. Simple Average of Price Relatives Method — compute each commodity's own price relative $(p_1/p_0)\times 100$ first, and then average those relatives:

   $P_{01} = \dfrac{\sum \left(\dfrac{p_1}{p_0}\times 100\right)}{n}$

   where $n$ is the number of commodities. Worked Example. Prices (₹ per unit) of four commodities:

Simple Aggregate Index:

Simple Average of Price Relatives:

$P_{01} = \dfrac{465}{4} = 116.25$ …