Statistics: An Introduction to Quantitative Economic Research

By Daniel B. Suits | Go to book overview

CHAPTER X
Aggregation and Index Numbers

The economy is a system for the production, exchange, and consumption of millions of individual commodities. We have neither time nor resources to study the operation of millions of individual markets; some kind of simplifying approximation is needed. Aggregation and index number compilation are part of the process of classifying individual economic variables into groups and measuring their behavior as a whole.


10.1 HOMOGENEITY AND AGGREGATION

Aggregation means adding up the total quantity of a homogeneous commodity. A commodity is homogeneous when any one unit of it can be substituted for any other unit. Clearly, the property of homogeneity is not absolute but varies with the use being made of the commodity. Sacks of wheat grown on different soil types are perfect substitutes as food but probably differ in certain chemical properties. Pig iron from different ores may be identical for the manufacture of steel rails but can have different magnetic properties. A Number 10 can of spinach hardly substitutes for a Number 10 can of cherries in making a pie but is a perfect substitute in occupying space on a grocery shelf. The difference in utility and prestige of ownership between a new and a ten-year-old automobile is substantial, but both cars make the same contribution to traffic congestion and parking problems. Kilowatt hours of electricity, tons of coal, cubic feet of natural gas, and barrels of oil are broadly substitutable when measured in B.T.U. or other common energy units. In short, commodities that are widely different from one point of view are often

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