Figuring out a price index.

Here is an example of how it is done:

Suppose 1995 is the base year (the base year always is given an index value of 100) and suppose you want to figure the index for 2002. In our “basket” we are going to include 10 apples and 2 shirts. If apples were 20 cents in 1995 and shirts were $9 then the basket price in1995 was $20. If apples were 40 cents in 2002 and shirts were $18 then the basket price in 2002 was $40. The index for 2002 is found by dividing $40 by $20 and mulitplying by 100= (200)

“Original document by Peter Turner licensed CC BY”