Question

Below is data from the Lazy R Ranch on its production and price of meats and poultry. For the years 2014 1nd 2015.

                      Quantities 2014          Price per lb 2014           Price per lb 2015

Beef                      235,000                       3.49                              3.79

Lamb                     125,000                      3.89                              4.00

Chicken               1,000,500                      2.49                              2.89

a. Compute the price relatives for each type of meat and poultry.

b. Computed a weighted aggregate price index for the Murray Company. Comment on the change in prices.

Answer 1

(a) Price Relatives :

The definition of Price Relatives is: %

Hence the Price Relative for Beef will be (3.79/3.49)*100 = 108.59%

Similarly, the Price Relative for Lamb will be (4.00/3.89)*100 = 102.83%

And for Chicken = (2.89/2.49)*100 = 116.06%

Hence the answer to Part A.

(b) Weighted Aggregated Index:

The ratio of the sum of weighted prices of current and base time periods multiplied by 100 is called a weighted aggregate price index. This index is calculated after allocating weights to each commodity on the basis of their relative importance.

Now we will calculate the Weighted Aggregated Price Index:

Current weighted price: 235000*3.79 + 125000*4 + 1000500*2.89 = 4,282,095

Previous weighted price: 235000*3.49 + 125000*3.89 + 1000500*2.49 = 3,797,645

Hence the ratio will be: 1.1276

Hence the index will be: 112.76

Comment: Overall in an aggregated way, the price has been increased by 12% in the last 1 year (from 2014 to 2015)

Thanks !!