Price Indexing

Price Indexing

Inspired by Walmart, the world’s largest retailer and retailers in India such as Food World, Spencers, More, etc., Kris Menon (Kris), after completing his graduation, in mid-2012, setup a small neighborhood retail store in Bangalore, India. Kris started his retail store with a dream to own a retail chain by mid-2019. Although he did not have a business background, he was prepared to work hard to achieve his dream. After a detailed analysis he found that one of the most sought-after and fast moving items was pulses. He procured pulses at 3-4 months’ inventory levels, i.e., stock that could last for 3-4 months.................

Exhibit

Exhibit I: Wholesale Prices of Pulses (in ₹/Quintal)

Price Indexing

Prerequisite Conceptual Understanding

• • Richard I. Levin and David S. Rubin, “Chapter 16: Index Numbers”, Statistics for Management, 7^th Edition, Pearson Education, 2008

Synopsis

This caselet enables an understanding of the concept of Index Numbers and gives scope to understand the computation of price index. Kris Menon (Kris), the owner of a small neighborhood retail store, who was the first in his family to start a business, had seen frequent price volatility in pulses’ prices. It hurt his top-line as well as bottom-line of business. When he approached Rajiv Sumen (Sumen), an agricultural economist for consultation, he was told that price changes from past trend have to be estimated. Can index numbers abet to estimate the changes in economic variables over time?

Expected Learning Outcomes

At the end of this caselet discussion, the participants would/are expected to know:

• • How the index numbers are used to estimate the changes in economic variable over time
• • How to compute price index numbers and its applications
• • The difference between various methods of computing price index numbers

Assignment Questions

• I. Can index numbers abet to estimate the changes in economic variables over time? elaborate.
• II. If you are the consultant, what advice would you give to Kris Menon?

Teaching Plan

The Teaching Note follows a defined Teaching Plan [Annexure (TN)-I], which guides in conducting the classroom discussion....................

Exhibits

Exhibit (TN)-I: Computation of Unweighted Aggregates Index

Exhibit (TN)-II: Computation of Weighted Aggregates Index: Laspeyres Method

Exhibit (TN)-III: Computation of Weighted Aggregates Index: Paasche Method