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CMA Foundation · Fundamentals of Business Mathematics and Statistics · Index Numbers and Time Series

Price relatives of four commodities (base year = 100) in the current year are 120, 150, 90 and 140. Using the simple average of price relatives (arithmetic mean), the price index is:

The index is 125. Under the simple average of price relatives method, the relatives 120, 150, 90 and 140 add up to 500, and dividing by the four commodities gives 125, meaning average prices rose 25 percent over the base year.

  1. A125Correct
  2. B120
  3. C130
  4. D135

Explanation

Sum of relatives = 120+150+90+140 = 500. Mean = 500/4 = 125. A value of 130 would arise from wrongly dropping the 90, which is an error since all relatives must be included.

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