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 labour 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 labour did not fluctuate much with time and that a basic labourer’s salary would probably buy the same amount of goods in different time periods, so that a labourer’s salary acted as a basket of goods. Vaughan's analysis indicated that price levels in England had raised 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* Give a description for price index, weightage and composite index * State four ways of weightage representations * Compare my family’s average monthly expenditure for the year 2013 and the selected year * Calculate the percentage of each item of my family’s expenditure * Calculate the composite index for my family’s average monthly expenditure in the year 2013 based on the selected year * Make a conclusion about my family’s 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 family’s 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 projectBased on my early stage investigation, I would say that my family’s average monthly expenditure is increasing by the year. This could be seen as the difference between this year’s 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 phenomenon of price hiking will be continuing as time goes by.
