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Exercise on Section 4

The following exercise provides extra practice on the Section 4 material.

Exercise 9 Gradgrind’s energy price index for 2011

Use the data in Table 11, and the fact that Gradgrind’s energy price index for 2010 was 117.4 (as found in Activity 18), to calculate the value of Gradgrind’s energy price index for 2011.

Table 11 Gradgrind’s energy prices and expenditures for 2010 and 2011

Energy type: price and expenditure	2010	2011
Gas price (£/MWh)	28	30
Gas expenditure (£)	23 969	24 282
Electricity price (£/MWh)	88	86
Electricity expenditure (£)	2 920	3 117

Discussion

The gas price ratio for 2011 relative to 2010 is

$fraction 30 over 28 end simeq 1.071.$

The electricity price ratio for 2011 relative to 2010 is

$fraction 86 over 88 end simeq 0.977.$

The overall energy price ratio for 2011 relative to 2010 is

$fraction open bracket 1 .071 times 23969 close bracket + open bracket 0 .977 times 2920 close bracket over 23969 +2920 end = fraction 28523 .639 over 26889 end simeq 1.061.$

Then the value of the index for 2011 is found by multiplying the 2010 value of the index by this overall price ratio, giving

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