√ Definition of Price Index, Use, Characteristics, Types, Role of Price Index
Definition of Price Index, Usefulness, Characteristics, Types, Role of Complete Price Index – On this occasion we will discuss the Price Index. The discussion includes the meaning, use, characteristics, types of price indexes and the role of price indexes. For more details, see the review below carefully.
Definition of Price Index, Use, Characteristics, Types, Role of Price Index
Let's discuss the meaning of the price index first carefully.
Definition of Price Index
Price index is the ratio of changes in a price from a certain year (given year) to the base year (based year). Or it could also be interpreted as a percentage that measures one variable at a certain time or location relative to the magnitude of the same variable at another time and location. It could also be that the price index is a measure that provides information about changes that occur in prices from time to time.
The Use of Price Indices
The use of the price index is:
- As a basis for making economic policy
- As a basis in determining the price policy
- As a tool to measure the level of economic progress
- As a tool to investigate the driving factors
- As a tool in determining prices for traders
Price Index Features
The characteristics of the price index are as follows
- The price index is used as a standard for price comparison from time to time.
- When setting a price index should be based on the relevant prices
- The price index is determined based on the sample, not the population
- The price index is calculated based on a time that has a stable economy
- Calculation of the price index by using the right and appropriate method
- The way to calculate the price index can be by dividing the year's price, the index will be calculated by the last year's base price multiplied by 100.
Types of Price Index
The price index consists of several types, namely:
-
Consumer Price Index (CPI)
The consumer price index is a description of changes in the price of goods and/or services purchased by consumers. The consumer price index displays data on the prices of goods and/or services collected from different regions or cities. This data will illustrate consumer behavior in spending the income they earn. In collecting data, it is divided into four groups consisting of food, clothing, housing and various goods and services. Based on the consumer price index (CPI), this can be used to measure the economic level of a country. It can also be the basis for determining salaries, wages, pensions and other contracts.
-
Producer Price Index (IHP)
The producer price index or what is also known as the wholesaler price index is a comparison between the prices of goods and/or services purchased by producers at a certain time. The producer price index includes raw materials and semi-finished materials and the types of goods being compared are grouped into several sectors and each sector has subsectors.
-
Price Index To Be Paid And Received By Farmers
The price index paid by farmers is a price index that illustrates the price development of household needs farmers, be it household consumption needs or agricultural production processes consisting of fertilizers, seeds, and drugs. The price index paid by farmers is influenced by government policies, the prices of food, clothing, housing, various goods and exchange rates.
-
Implicit Price Index (GNP Deflator)
The implicit price index is used to determine the inflation rate from time to time by comparing the nominal GNP (Gross National Product) in a certain year with the real GNP.
The Role of Price Index
- The price index is a guide or barometer of general economic conditions. This means the following:
-The price index can show precisely about the trading trend
-The price index accepted by farmers can describe prosperity in the agrarian sector - The general price index is a guide for various administrations and company policies.
- The price index can be used as a deflator. The effect of price changes can be removed by dividing a certain value by a more appropriate price index.
- The price index can be used as a guide when purchasing various types of goods.
- The consumer goods price index is a guideline in setting workers' salaries or to adjust workers' wage increases when inflation occurs.
Thus has been explained about Definition of Price Index, Use, Characteristics, Types, Role of Price IndexI hope that this discussion will add to your insight and knowledge. Thank you for visiting
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