price index

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Index

A statistical measure of the value of a certain portfolio of securities. The portfolio may be for a certain class of security, a certain industry, or may include the most important securities in a given market, among other options. The value of an index increases when the aggregate value of the underlying securities increases, and decreases when the aggregate value decreases. An index may track stocks, bonds, mutual funds, and any other security or investment vehicle, including other indices. An index's value may be weighted; for example, securities with higher prices or greater market capitalization may affect the index's value more than others. One of the most prominent examples of an index is the Dow Jones Industrial Average, which is weighted for price and tracks 30 stocks important in American markets.

price index

price index

  1. a weighted average of the prices of a general ‘basket’ of goods and services produced in an economy over time, which is used in particular to indicate the rate of INFLATION. The RETAIL PRICE INDEX (RPI) is one commonly-used index, measuring the average level of the prices of final goods and services purchased by consumers. Each product in the index is weighted according to its relative importance in total consumer expenditure. A suitable base year is selected to commence the series (for example, index value 1990 = 100) and subsequent price changes are then reflected in changes in the index value over time (for example, 1999 = 200, indicating an annual rate of inflation of 10%). See INDEX-LINKED, PURCHASING POWER.
  2. a weighted average of the prices of particular classes of financial securities or commodities, for example the Financial Times 100 share index or all-share index. See SHARE PRICE INDEX.

price index

a weighted average of the PRICES of selected goods, services, commodities or financial assets measured over time. One commonly used price index is the CONSUMER PRICE INDEX (CPI), which measures the average level of the price of a general ‘basket’ of goods and services bought by final consumers. Each item in the index is weighted according to its relative importance in total consumers’ expenditure. Starting from a selected BASE YEAR (index value = 100), price changes thereafter are reflected in changes in the index value over time. Thus, taking the example of the UK Consumer Price Index (CPI), the current CPI base year is 1996 = 100; in 2004 the index value stood at 111, indicating that retail prices, on average, had risen 11% between the two dates. Such price indices can be used to measure the rate of INFLATION and as a GNP DEFLATOR. Another commonly used index of price is the Wholesale Price Index, which records the price of a ‘basket’ of goods measured in terms of wholesale prices.

In similar fashion, a SHARE PRICE INDEX such as the Financial Times Stock Exchange ( FTSE) - 100 share index is used to measure change in the price of STOCKS and SHARES over time. The TERMS OF TRADE index is used to measure the average prices of EXPORTS relative to IMPORTS over time. See PURCHASING POWER, FAMILY EXPENDITURE SURVEY, TRADE WEIGHTED INDEX.

References in periodicals archive ?
In addition, we also use the Laspeyres price index to measure Taiwan consumers' cost of living and investigate the level and composition of substitution bias over this period through comparison with the estimates from the Tornqvist price index.
We will also use the following Laspeyres price index formula to measure Taiwan consumers' cost of living over this period.
The fundamental difference between the fixed-weight Laspeyres price index and the Fisher-Ideal chain-type price index involves the extent to which the two indexes reflect consumer substitution among detailed items as the relative prices of those items change.
Given that a cost-of-living raise based on the Laspeyres price index makes the consumer better-off, a natural follow-up question is, "How much of an increase in income would be needed to leave the consumer with the same level of utility as in the original scenario?
The Laspeyres price index is often thought of as a pessimistic measure of inflation.
To illustrate this formally, one would first define the Laspeyres price index for each individual household, h, as:
where [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII] is the Laspeyres price index for GDP in year t.
In general, if homotheticity is violated, the Paasche price index may actually exceed the Laspeyres price index (see Deaton and Muellbauer, 1980).
That is, the Laspeyres price index is an upper bound to the CLI.
As a Laspeyres price index of consumption, its properties with respect to other theoretical indexes of welfare change are well understood.