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Marshall-Edgeworth Price Index Equation:
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The Marshall-Edgeworth Price Index is a method used to calculate the average change in the price of a basket of goods and services over time. It combines elements from both Laspeyres and Paasche indices to provide a more balanced measure of price changes.
The calculator uses the Marshall-Edgeworth Price Index equation:
Where:
Explanation: The Marshall-Edgeworth Price Index is calculated as the arithmetic mean of the Laspeyres and Paasche Price Indices, providing a compromise between these two commonly used measures.
Details: The Marshall-Edgeworth Price Index is important in economics for measuring inflation and price level changes. It offers a balanced approach that mitigates some of the biases inherent in both Laspeyres and Paasche indices when used individually.
Tips: Enter valid Laspeyres Price Index and Paasche Price Index values. Both values must be positive numbers representing valid price indices.
Q1: What is the advantage of using Marshall-Edgeworth Price Index?
A: It provides a compromise between Laspeyres and Paasche indices, reducing the upward bias of Laspeyres and the downward bias of Paasche.
Q2: When should Marshall-Edgeworth Price Index be used?
A: It's particularly useful when you want a balanced measure of price changes that accounts for both base period and current period consumption patterns.
Q3: How does Marshall-Edgeworth compare to Fisher's Ideal Index?
A: While Fisher's Ideal Index uses geometric mean, Marshall-Edgeworth uses arithmetic mean. Fisher's index is considered superior as it satisfies more index number tests.
Q4: What are the limitations of Marshall-Edgeworth Price Index?
A: It may not fully eliminate the biases of the individual indices and doesn't satisfy all the desirable properties of an ideal index number.
Q5: In what economic applications is this index commonly used?
A: It's used in inflation measurement, cost of living adjustments, and economic analysis where a balanced price measure is preferred.