INTRODUCTION

No clear consensus has emerged on who created the first price index. The earliest reported research in this area came from Welsh poet Henry Rice Vaughan who examined price level change in his 1675 book A Discourse of Coin and Coinage. Vaughan wanted to separate the inflationary impact of the influx of precious metals brought by Spain from the New World from the effect due to currency debasement. Vaughan compared labor statutes from his own time to similar statutes dating back to Edward III. These statutes set wages for certain tasks and provided a good record of the change in wage levels. Vaughan reasoned that the market for basic labor did not fluctuate much with time and that a basic laborers salary would probably buy the same amount of goods in different time periods, so that a laborer's salary acted as a basket of goods. Vaughan's analysis indicated that price levels in England had risen six to eightfold over the preceding century.

While Vaughan can be considered a forerunner of price index research, his analysis did not actually involve calculating an index. In 1707 Englishman William Fleetwood created perhaps the first true price index. An Oxford student asked Fleetwood to help show how prices had changed. The student stood to lose his fellowship since a fifteenth century stipulation barred students with annual incomes over five pounds from receiving a fellowship. Fleetwood, who already had an interest in price change, had collected a large amount of price data going back hundreds of years. Fleetwood proposed an index consisting of averaged price relatives and used his methods to show that the value of five pounds had changed greatly over the course of 260 years. He argued on behalf of the Oxford students and published his findings anonymously in a volume entitled Chronicon Preciosum.

Usually, a composite index has a large number of factors which are averaged together to form a product representative of an overall market or sector. For example, the Nasdaq Composite index is a market capitalization-weighted grouping of approximately 5,000 stocks listed on the Nasdaq market. These indexes are useful tools for measuring and tracking price level changes to an entire stock market or sector. Therefore, they provide a useful benchmark against which to measure an investor's portfolio. The goal of a well diversified portfolio is usually to outperform the main composite indexes

TASK SPECIFICATION
Give a description for price index, weightage and composite index State four ways of weightage representations Compare my familys average monthly expenditure for the year 2013 and the selected year Calculate the percentage of each item of my familys expenditure Calculate the composite index for my familys average monthly expenditure in the year 2013 based on the selected year Make a conclusion about my familys expenditure based on information gathered Find information on the price of television if payment is by cash and by installment for two different brands in three different shops Choose a brand and a size television that I want to buy based on the information collected and give reasons for my decision Determine the shop that deserves to win the award for fair price by considering the value of the mean and the value of standard deviation in the decision making Show my familys modified average monthly expenditure in order to buy a television Show the planning of my expenditure if my salary was RM 2500 monthly Reflect on what I have learned while conducting the project

CONJECTURE
Based on my early stage investigation, I would say that my familys average monthly expenditure is increasing by the year. This could be seen as the difference between this years average monthly expenditure and the past years are very big. It is big as the years come as the prices of items are increasing gradually. When the prices of items increases, the average monthly average expenditure also increases. For example when the price of petroleum increases, the expenditure will also increases. This phenomena of price hiking will be continuing as time goes by.

PART 1
(a) Describe in brief (i) Price index (ii) Weightage (iii) Composite index (b) State four ways of weightage representations.

ANSWER : (a) A price index is actually an index used to trace the relative changes in a price of a good in a certain time. It can be used to trace the increase or decrease of the price of an item. For example, the price of cooking oil in making roti canai in the year 2013 based on the year 2010.

A weightage is a weighting factor of something when compared to another thing. For example, the weightage of flour, eggs and cooking oil in making a roti canai is 80%, 5% and 15% respectively.

Composite index is a group of indices combined to measure the overall price of an item over a period of time. For instance, the price of roti canai in the year 2013 based on the year 2010.

(b)

Cooking oil Rice Sugar Salt Flour

1) Using the pie chart

2) Using the bar graph

3) Using a table

(4) Using a line graph

PART 2
(a) Complete the Table 1 of your familys monthly expenditure for the year 2013 (b)(i) In order to calculate the price index of all the items above, we have to consider the average monthly expenses of any previous years as the base year. Select the appropriate year as the base year. (ii) Hence, complete the Table 2 below. (c)(i) Complete Table 3 based on the above information. (ii) Hence, calculate the composite index for the average monthly expenditure in the year 2013 based on the selected base year. (d) Make a conclusion about your familys expenditure based on your findings.

ANSWER : (a) Average Monthly Expenditure for the year 2013 (to the nearest RM) Percentage of monthly expenses (to the nearest %)

Item Food Accomodation Transportation (Petrol/Toll fees) Clothing Education (including school fees) Recreation Utilities (Water/Electricity/Telephone) Medication Miscellaneous (including maids salary and car installment) TOTAL

Table (b)(i)

(b)(i) I have chosen the year 2005 as the base year to calculate the price index

(ii) Average Monthly Expenditure for the year 2005 (to the nearest RM) Percentage of monthly expenses (to the nearest %)

Item Food Accomodation Transportation (Petrol/ Toll fees) Clothing Education (including school fees) Recreation Utilities (Water/Electricity/Telephone) Medication Miscellaneous (including maids salary and car installments) TOTAL

Table 2

(c)(i) Price indices for the year 2013 based on the year 2005

Item Food Accomodation Transportation (Petrol/ Toll fees) Clothing Education (including school fees) Recreation Utilities (Water/Electricity/Telephone) Medication Miscellaneous (including maids salary and car installment) TOTAL

Weightage

Table 3

(ii) Item Food Accomodation Transportation Clothing Education Recreation Utilities Medication Miscellaneous TOTAL I W WI

Composite index formula =

(d) I can conclude that my familys monthly expenditure increases as years come by. Almost all the items in the table had its prices increased in huge amount. This did not surprise me as it is compared over a long period of time. Nevertheless, this shows that my family needs a higher income as the years come or my family needs to be clever with the money being used. Based on the Table 2, the only item that decreased by the years is the education segment. This is because in the year 2005, my parents had 3 children to pay for while for this year there is only one child left to pay for.

PART 3
(a) Complete Table 4(a) which is the price of the televisions by cash payment and Table 4(b) which is the price of televisions by cash installment. (b) Determine the brand and size of the television that you have decided to buy. Give your reasons based on your findings. (c) The Ministry of Domestic Trade and Consumer Affairs wishes to present the Fair Price Shop Award for one of the above shops. If you are one of the panels for this award, determine the shop that deserves the award. Do you consider the value of mean and standard deviation in making your decision? Give your justifications.

ANSWER : (a) Size of televisions (inches) 24 32 40 24 32 40 Table 4(a) Prices for cash payment Price (RM) Harvey Sen Q Norman Standard deviation (RM)

Brands

Giant

Mean Price (RM)

Panasonic

Toshiba

Brands

Size of televisions (inches) 24 32 40 24 32 40

Price (RM) Harvey Giant Sen Q Norman

Mean Price (RM)

Standard deviation (RM)

Panasonic

Toshiba

Table 4(b) Prices for installment payment

(b) I would choose to buy the Panasonic brand and the size of 40 inches. This is because the price of this brand is for this particular size of television is very reasonable. Besides it is a wellknown brand with a good quality of products. The price of the products are very reasonable because its mean price and its standard deviation is equal to the other brands.

(c) If I was the panel, I would have chosen Giant as the shop that deserves the award. This is because the prices of the products are cheapest compared to the rest. I did not consider the mean and the standard deviation in making my decision because the mean and standard deviation involves all the three shops.

PART 4
(a) Your family has a fixed monthly income. In order to buy the television, your family needs to make some adjustments on various types of expenditure. Show the monthly average expenditure that you have modified in a table. (b) Assuming you just started working with a monthly salary of RM 2500. You intend to save 10 % of your salary every month. Plan your monthly expenditure as in Table 1 above and add other items such as savings and contributions to your parents.

ANSWER : (a) Modified average monthly expenditure (RM) Percentage of monthly expenses (%)

Item Food Acommodation Transportation (Petrol/Toll fees) Clothing Education Recreation Utilities (Water/Electricity/Telephone Medication Miscellaneous (including maid's salary and car installments) Television TOTAL

Modified table

(b) Average monthly expenditure (to the nearest RM) Percentage of average monthly expenditure (to the nearest %)

Item

Food Accomodation Transportation (Petrol/Toll fees) Clothing Recreation Utilities (Water/Electricity/Telephone) Medication Savings Parents Miscellaneous TOTAL

FURTHER EXPLANATION
For further investigation, I had chosen to investigate the prices of three cars between two wellknown brands, Honda and Toyota.

Brands

Product Accord Civic City Camry Corolla Altis Vios

Price RM142,815 RM115,980 RM85,980 RM149,915 RM106,617 RM72,417

Honda

Toyota

*Accord is compared to Camry as both are full sedan, Civic is compared to Corolla Altis because both are medium sedan and City is compared to Vios as both are small sedan.

Price comparisons between Honda and Toyota

160000 140000 120000 Price (RM) 100000 80000 60000 40000 20000 0 Small sedan Medium sedan Full sedan honda toyota

Graph of price comparisons of Honda and Toyota cars

CONCLUSION
I can conclude that index number are widely used in our daily lives. Price index, composite index, weightage, mean and standard deviation are important for all of us to calculate and compare prices when making a decision to buy something. This can also be a method to help us to be clever when using money from our salary and prevents overspending on items that are actually cheaper than first thought. If we are clever using index number, it will help us to choose the right item from the right brand at the right price