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No. 1 1.2 1.3 1.4 1.5 2 3 4 5 6 7 Introduction to Index Number Meaning of Index Number Types of Index Number Importance of Index Number Examples of Index Number Part I Part II Part III Further Explaination Conclusion Reflection

Title

Page 3 4 5 5 6 8 15 20 22 27 29

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What is meant by INDEX NUMBER? Index numbers are meant to study the change in the effects of such factors which cannot be measured directly. According to Bowley, Index numbers are used to measure the changes in some quantity which we cannot observe directly. For example, changes in business activity in a country are not capable of direct measurement but it is possible to study relative changes in business activity by studying the variations in the values of some such factors which affect business activity, and which are capable of direct measurement. Index numbers are commonly used statistical device for measuring the combined fluctuations in a group related variables. If we wish to compare the price level of consumer items today with that prevalent ten years ago, we are not interested in comparing the prices of only one item, but in comparing some sort of average price levels. We may wish to compare the present agricultural production or industrial production with that at the time of independence. Here again, we have to consider all items of production and each item may have undergone a different fractional increase (or even a decrease). How do we obtain a composite measure? This composite measure is provided by index numbers which may be defined as a device for combining the variations that have come in group of related variables over a period of time, with a view to obtain a figure that represents the net result of the change in the constitute variables. Index numbers may be classified in terms of the variables that they are intended to measure. In business, different groups of variables in the measurement of which index number techniques are commonly used are: (i) price (ii) quantity (iii) value (iv) business activity

Thus, we have index of wholesale prices, index of consumer prices, index of industrial output, index of value of exports and index of business activity, etc. Here we shall be mainly interested in index numbers of prices showing changes with respect to time, although methods described can be applied to other cases. In general, the present level of prices is compared with the level of prices in the past. The present period is called the current period and some period in the past is called the base period. Basically, index numbers are statistical measures designed to show changes in a variable or group of related variables with respect to time, geographic location or other characteristics such as income, profession, etc. A collection of index numbers for different years, locations, etc., is sometimes called an index series.

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Simple Index Number: A simple index number is a number that measures a relative change in a single variable with respect to a base. Composite Index Number: A composite index number is a number that measures an average relative changes in a group of relative variables with respect to a base. Types of INDEX NUMBERS Price index Numbers: Price index numbers measure the relative changes in prices of a commodities between two periods. Prices can be either retail or wholesale. Quantity Index Numbers: These index numbers are considered to measure changes in the physical quantity of goods produced, consumed or sold of an item or a group of items.

The Importance of INDEX NUMBERS

1. A Barometer :Index numbers serve as a barometer for measuring the value of money. With the help of index number we can easily make a comparison in the value of money in different years. 2. Importance For The Government :The change in the value of money has a direct effect on the public. So government adopts the fiscal and monetary policy according the results of index numbers. 3. Throws Light On Economic Condition :Index numbers are very helpful in comparing the economic conditions of a particular group at two different periods. 4. Consumption Standard :If we want to know the true consumption standard of a class in a locality we can compute the consumption index number. 5. Fixation Of Wages :The money wages can be revised according the proportionate change in the cost of living. The cost of living index number guides the Govt. and the executives for the fixation and revision of wages. 6. Importance For The Producer :Price index number indicates the producer that he should expand the production or he should reduce the production. If price level is rising it means profit rate is high. 7. Analysis Of Industry :If we want to judge the prospects of manufacturing concern the investment index number can be constructed, to know the net yield of the industrial sector. Page 28

8. Comparison Of Developed and Under Developed Countries :International price index number can be used for comparing the general level of prices in the developed and under developed countries. 9. Efficiency Of Labour :To check the efficiency and per capita out put of the labour can be shown by index number. Promotion and salary can be also considered keeping in view the index number. 10. Measures To Remove Inequality Of Income :Index number of whole sale prices also indicate about the regional disparity. So different measures can be taken for the proper distribution of wealth and stabilizing of prices.

Figure 1: Example of index numbers

Figure 2: SmartArt Graphic Index Numbers in MS Word 2010 Page 28

Figure 3: Compilation of Index Numbers and Graphs

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The price of goods sold in shops vary from one shop to another. Shoppers tend to buy goods which are not only reasonably price but also give value for their money. You are required to carry out a survey on four different items based on the following categories: food, detergent and stationery. The survey should be done in three different shops.

a) Collect picture, newspaper cuttings or photos on item that you have chosen. Design a collage to illustrate the chosen item.

Food:

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Detergent:

Stationary:

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(b) Record the items and their prices systematically as in Table 1(a), 1(b) and 1(c).Since items may be differently packed be sure to use consistent measurements for each item selected so that comparison can be done easily and accurately.

Category Food

Item Self-raising flour Sugar(1kg) Butter (250g) Eggs (Omega-3 - 30 eggs) Total Price Kuat Harimau Trojan Daia Top Total Price Sharpener (a set of 5 pcs) Pencil (6 pcs) Ruler (15 cm) Pencil Case Total Price Grand Total Tesco 4.19 3.50 3.59 11.52 22.80 8.90 9.70 14.60 13.90 47.10 2.50 7.20 1.20 4.80 15.70 85.60 Table 1

Detergent

Stationary

Price(RM) The Store 4.20 2.30 4.60 12.17 23.27 8.80 9.70 14.50 13.80 46.80 3.00 9.00 1.49 4.90 18.39 88.46

Giant 4.00 2.10 4.40 12.08 23.27 9.00 9.55 14.55 14.10 47.20 2.75 10.20 1.30 4.50 18.75 88.53 Page 28

(c) Create at least two suitable graphical representations (the use of ICT is encouraged) to compare contrast the price of the item chosen.

Graph of Food
14 12 10 Prices 8 6 4 2 0 Self-Raising Flour Sugar Items - Food Butter Eggs Tesco The Store Giant

Graph 1: A graph of food

Graph of Stationary
12 10 8 Prices 6 4 2 0 Sharpener Pencil Ruler Pencil Case Items - Stationary Tesco The Store Giant

Graph 1: Graph of stationary

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(d) Based on the graphical representations that you have constructed in Part 1(c), interpret, discuss and draw conclusion. Comments your findings.

Based on the graphical representations that I have constructed in Part 1(c), it is shown that there are large and small differences among the prices of items in each category between the shops. In the food category, the smallest price difference is sugar, while the highest is eggs. Besides food, detergent also shows a large price difference between its items. Among them is the price of Kuat Harimau which has the lowest price and Daia, which has the highest price. On the other hand, stationery items dont have any obvious price difference. The graph also show that most of the items that are high priced comes from The Store, while the lowest price items come from Tesco. The graph will show the conclusion of the difference among the shops based upon the shops grand total.

Graph of Grand Title

100 90 80 70 Prices 60 50 40 30 20 10 0 Tesco The Store Stores Giant Stationary Detergent Food

Graph 3: Graph of grand total

(e) Identify an item that has large price difference among the shops. Suggest and discuss possible reasons for the price difference.

Pencil:
Tesco

RM7.20 Page 28

 The Store Giant

RM9.00 RM10.20

= 7.20+9.00+10.20 3 = RM8.80

= RM5.52

Reason of difference in price: Bulk buying from the retailer gives the lower price. Tesco buys a large stock from the factory of the pen so they might have got a greater discount than the other stores like The Store and Giant. Tesco offers better discount and sale than the most hypermarket and supermarket stores.

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Every year, SMK Setia Berjaya organizes a carnival to raise funds for the school. This year the school plans to install air conditions in the school library. Last year, during the carnival, your class made and sold butter cakes. Because the popularity of the butter cakes, your class has decided to carry out the same project for this years carnival. a) Suggest a shop from Part 1 from which you would go to purchase the ingredients for the butter cakes. State and discuss your reasons for purchasing from the shop you suggested. I suggest getting the ingredients from Tesco. This is because it has the best prices for all the ingredients I need to make butter cakes. Tesco is also not very far from my house so I can easily get the ingredients without much trouble. Besides, it is opened until 11.00 a.m. during weekdays and until 1.00 a.m. during weekends and public holidays. This allows me to buy an extra during late at night if I did not get enough to make the cakes. b) Complete table 2 with the prices of the items found in the supermarket that you have chosen. Ingredients Quantity per cake Price in the year 2012 (RM) Self- raising flour Sugar Butter Eggs 250g 250g 250g 5 eggs (300g) 0.90 0.35 3.30 1.25 Price in the year 2013 (RM) 1.05 0.70 3.59 1.92

i) Calculate the price index for each of the ingredients in table 2 for the year 2013. Price in the year 2012 (RM) 0.90 0.35 Price in the year 2013 (RM) 1.05 0.70 Price Index 117 200

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3.30 1.25

3.59 1.92

109 154

ii) Calculate the composite index for making a butter cake in the year 2013 based on the year 2012. Discuss how you obtained your answers.

Ingredients

Price index for the year 2013 based on the year 2012

Weightage,

Self- raising flour Sugar Butter Eggs Total

117 200 109 154

0.25 0.20 0.25 0.30 1.00

29.25 40.00 27.25 46.20 142.70

iii) In the year 2012, the butter cake was sold at RM25.00 each. Suggest a suitable selling price for the butter cake in the year 2013. Give reasons for your answer. On 2012: RM25 On 2013:

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Thus, the suitable price of selling a butter cake in the year 2013 is RM33.30. The increase in price is also suitable because of the rise of price of ingredients.

c) i) Find out from reliable sources how to determine suitable capacity of air conditioner to be installed based on volume/ size of a room. The capacity of air conditioner depends on many factors like number of windows, doors, direction of room walls, sealing etc.. Experts do heat load calculation for determining capacity of ACs for commercial use. (Source: WikiAnswers.com)

ii) Work in groups to estimate the volume of your school library. Explain how you arrive at your answer. Hence, determine the number of air conditioners with the appropriate capacity for your library. The volume of the library is . This is calculated by finding the width, length and

height of the school library. The width of the library is 22m. Its length is 20m and the height is 4m. There are eight air- conditioners needed in the library. This is because one airconditioner will be able to cool in half an hour.

The cost of installing eight air conditioners: RM8000. Cost of eight air conditioners: RM7200 Service charge: RM800

iii) To sponsor the installation of one air conditioner, my class must spend at least RM1000.

Cost of making Page 28

one butter cake: RM15.00 Profit of selling one butter cake: RM18.30 Number of butter cakes to be sold = = 120.48 120 butter cakes

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As a comittee for the carnival, you are required to prepare an estimated budget to organize this years carnival. The comittee has to take into consideration the increase in expenditure from the previous year due to inflation. The price of food, transportation and tents has increased by 18%. The cost of games, prizes and decorations remains the same, whereas the cost of miscellenous items has increased by 36%. (a) Complete Table 3 based on the information given above. Expenditure Food Games Transportation Decorations Prizes Tents Miscellaneous Amount in 2012 (RM) 1500.00 600.00 400.00 200.00 600.00 900.00 400.00 Table 3 Amount in 2013 (RM) 1770.00 600.00 472.00 200.00 600.00 1062.00 544.00

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(b) Calculate the composite index for the estimated budget of the carnival in the year 2013 based on the year 2012. Comment on your answer. Price index for the Ingredients year 2013 based on the year 2012 Food Games Transportation Decorations Prizes Tents Miscellaneous Total 118 100 118 100 100 118 136 15 6 4 2 6 9 4 46 1770 600 472 200 600 1062 544 5248 Weightage,

= 114.0870 The composite index of the estimate budget of carnival in the year 2013 based on 2012 is 114.0870.

c) The change in the composite index for the estimated budget for the carnival from the year 2012 to the year 2013 is the same as the change from the year 2013 to year 2014. Determine the composite index of the budget for the year 2014 based on the year 2012. Composite index of the budget, = 130.1881 Page 28

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Index numbers are being used in many different daily situations, for example air pollution index, stock market index, gold index and property index. Obtain information from the internet or other reliable source on the importance of two different types of index numbers of your choice. Elaborate the use the importance of these index numbers in daily life situations.

Stock Market Index Although the stock market is much more dynamic than the indexes suggest, along with the fact that there are different ways to calculate the indexes, causing calculation bias, the stock market indexes are useful in a number of ways to stock investors. First, the market indexes provide an historical perspective of stock market performance, giving investors more insight into their investment decisions. Investors who do not know which individual stocks to invest in can use indexing as a method of choosing their stock investments. By wanting to match the performance of the market, investors can invest in index mutual funds or index exchangetraded funds (ETFs) that track the performance of the indexes with which they are aligned. This form of investing gives investors the opportunity to do as well as the markets and not significantly underperform the markets.

The second benefit of stock market indexes is that they provide a yardstick with which investors can compare the performance of their individual stock portfolios. Individual investors with professionally managed portfolios can use the indexes to determine how well their managers are doing in managing their money.

The third major use of stock market indexes is as a forecasting tool. Studying the historical performance of the stock market indexes, you can forecast trends in the market. The Internet bubble is a prime example, which in hindsight provides 20/20 vision. The price-to-earnings (P/E) ratio of the stock markets was in the high 20s to low 30s in 19992000, indicating that the markets could not sustain the rapid increase in stock prices. The P/E ratio for the market historically has ranged between the high single digits and the low 30s, with an average around 15. The P/E ratio for the S&P 500 was 17 on August 4, 2006, an indication that the stock Page 28

market was not particularly overvalued. Consequently, the market indexes provide investors with a useful tool for forecasting trends in the market. (Source: www.mistakesintrading.com)

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Air Pollution Index (API) The API is a simple and generalized way to describe the air quality in China, Hong Kong and Malaysia. It is calculated from several sets of air pollution data. In mainland China the API was replaced by an updated Air Quality Index in early 2012. Similar to Hong Kong, the air quality in Malaysia is reported as the API or Air Pollutant Index. Four of the index's pollutant components (i.e., carbon monoxide, ozone, nitrogen dioxide and sulfur dioxide) are reported in ppmv but PM10 particulate matter is reported in g/m3. This scale below shows the Health classifications used by the Malaysian government.

API

Air Pollution Level

0 - 50

Good

51 - 100

Moderate

101 - 200

Unhealthy

201 - 300

Very unhealthy

301+

Hazardous

If the API exceeds 500, a state of emergency is declared in the reporting area. Usually, this means that non-essential government services are suspended, and all ports in the affected area are closed. There may also be a prohibition on private sector commercial and industrial activities in the reporting area excluding the food sector.

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The highest API value ever recorded was 839 in Kuching on 23 September 1997 during the 1997 Southeast Asian haze. (Source: Wikipedia)

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While you were conducting the project, what have you learnt? What moral values did you practice? Represent your opinions or feelings creatively through usage of symbols, illustrations, drawings or even in a song.

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As a conclusion,
I realized that index number is very importance in our daily life after doing research, answering questions, drawing graphs and solving the problems Theories of additional mathematics is very important and useful in our life and will help in us in the future I am thankful to all who are involve helping me to make this project become successful

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