Statistical Reasoningfor everyday life

Intro to Probability and Statistics

Mr. Spering – Room 113

2.4 Index Numbers Inflation – an increase in credit relative to available goods

resulting in substantial and continual rise in prices. Index Number – simple way to compare measurements made at

different times or in different places. The value at one particular time (or place) must be chosen as the reference value (or base value). The index number for any other time (or place) is:

index number =

--Everything in this journey of life depends on your reference point.--

100

value

reference value

2.4 Index Numbers

Example:COMPARING GASOLINE PRICES ( PER

GALLON)

year price Price as a % of 1975

Price Index (1975=100)

1955

1965

1975

1985

1995

$ 0.291

$ 0.312

$ 0.567

$ 1.196

$ 1.205

51.3%

55.0%

100.0%

210.9%

212.5%

51.3

55.0

100

210.9

212.5

2.4 Index Numbers

CONSUMER PRICE INDEX (CPI) – computed and reported monthly, represents an average of prices in a sample of more than 60,000 goods, services, and housing costs

http://www.bls.gov/cpi/

http://data.bls.gov/cgi-bin/surveymost?cu

2.4 Index Numbers

GOOD LUCK!!!!

2.4 Index Numbers

Suppose the cost of gasoline today is $ 2.60 per gallon. What is the price index number for gasoline today, with 1975 price ($ 0.567) as the reference value?

Suppose that it cost $10 to fill your gas tank in 1975. How much will it cost now?

2.604.58553 100% 458.55% 458.55

0.567

$10.00(4.5855) $45.86

2.4 Index Numbers

Suppose it would have cost you $15 to fill your gas tank in 1985 (index # 210.9). How much will it cost you now?

now 458.552.17 217%

1985 210.9

cost now 2.17($15) $32.55

index

index

2.4 Index Numbers

The average cost of tuition, fees, and room and board at a four-year public universities rose from $2,490 in 1980 to $7,800 in 1997. Calculate the percentage rise in cost from 1980 to 1997, and compare it to the overall rate of inflation as measured by the CPI.

***Therefore, the tuition rate increased more than twice as much as the inflation rate for the same time period.

(7800 2490)% 100% 213.3% increase

2490Change

#1997 #1980 160.5 82.4CPI 100% 95% increase

#1980 82.4

index indexchange

index

2.4 Index Numbers

Remember:----Failing to prepare is preparing to

fail----

---GIVING your best EFFORT based on the KNOWLEDGE you have attained is not GOOD enough if the amount of KNOWLEDGE you possess reflects a LACK of effort to LEARN--- Lawrence W. Schott