1. Price and Volume Measures

2. Money and prices
In the system of national accounts, all the flows and stocks are expressed in monetary units
The monetary unit is the only common denominator which can be used to value the extremely diverse transactions
In the system of accounts, there are different types of stocks and flows, for example:
Transactions in products (P)
Distributive transactions (D)
Financial transactions (F)
Flows and stocks of the products have a special feature: their valuation is based on the concept of price.

3. Different categories of prices
The system of accounts uses two categories of prices:
Basic price for output
Purchaser’s price for uses
The basic price is the price receivable by the producer minus taxes on the product plus subsidies on the product, it excludes any transport charges invoiced separately by the producer.
The purchaser’s price is the price the purchaser pays for the product. It includes taxes less subsidies on the products and transport charges paid separately by the purchaser.

4. Valuation of transactions in products
Output is to be recorded and valued when it is generated by the production process
Output of finished goods transferred into the producer’s inventories is valued as if they were sold at that time
The important point here is that the output is not valued at the prices at which goods and services are actually sold but the prices which are current at the time they are produced
For services, there is no problem because they are sold as they are products
For goods, there may be a significant difference between the selling price and the price is valued production

5. Quantity
The production of a good therefore can not be measured by actual monetary flows, but valuing the quantities produced to the base price
Value, price and quantity are linked by the fundamental equation:
This equation is very simple but it is valid only for homogeneous products

6. Homogeneous products (1)
Homogeneous products are products for which it is possible to define units which are all considered equivalent and which can thus be exchanged for the same monetary value
It is thus possible to define the price of a homogeneous product as the amount of money for which each product unit can be exchanged
A homogeneous product consists of units of the same quality
To Value the production of a good, it is necessary to find equivalent goods are actually sold at the time it is produced, this is only possible for homogeneous goods

7. Homogeneous products (2)
In practice, two units of a product with identical physical characteristics may be sold at different prices for two types of reasons:
They are sold in different places, at different periods or according to different conditions. In this case the units have to be corresponding to different homogeneous products.
They are sold at different prices due to lack of information, or to restrictions brought to purchase freedom, or to the existence of parallel markets. In this case, the units have to regarded as belonging to the same homogeneous product.
A homogeneous product can thus also be defined as a product of which all units would be sold at the same price in perfect competition

8. Quality
In national accounts the concept of quality does not refer to a hierarchy of products, it refers to the characteristics of a product
We cannot say that a product is better than another, we only say that products are of same quality or of different quality depending on whether they correspond to the same homogeneous product
Differences in quality are reflected in the following factors:
Physical characteristics;
Deliveries in different locations;
Deliveries at different times;
Differences in conditions, circumstances, environment of sale

9. Volume
The problem when using the monetary unit is that unit is neither a stable nor an international standard
A major concern in economic analysis is to measure economic growth in volume terms between different periods
It is then necessary to distinguish, in the value changes for certain aggregates like GDP, the changes arising solely from price changes from the reminder which is called the change in ‘volume’
The notion of volume appears as an extended use of the notion of quantity for groups of products

10. Volume and constant prices
For a given homogeneous product the equation v =p x q allows the change of value over time to broken down into change of price and change of quantity
At an aggregated level, this equation is no longer useful since it is not possible to aggregate quantities of different products
There is however a simple way of breaking down the change in value of a set of products between two periods
The effect of change in price can be offset by calculating what the value of the set of products would have been if there had been no changes in prices

11. Comparing base and current periods
The value of a set of products in the current period is:
Where exponent 1 refers to the current period and index i to a specific product
The volume can be defined as:
The volume index is:

12. Price index and volume index
It is possible to define a price index by analogy with the equation v = p x q
Value index = price index x volume index
Price index = value index / volume index
In theory, the volume indices are Laspeyres indices and price indices are Paasche.
In practice, however, national accountants have price indices calculated by statisticians and they deduce volume indices: Volume index = value index / price index

13. Volume indices The Laspeyres philosophy
time periods 0 and t
quantity (volume) relatives qt/q0
weights : share in total value of period 0
Laspeyres volume index
(arithmetic mean of quantity relatives)

14. Price indices The Laspeyres philosophy
time periods 0 and t
price relatives pt/p0
weights of period 0
Laspeyres price index

15. Chaining
No fixed base year but moving base year: always use weights of previous year to calculate growth rates
Chain year-on-year growth rates together to obtain “constant price” data
Commission Decision requires chaining using Laspeyres method
Non-additivity will occur in “constant price” series

16. Chaining: example

17. Base and reference period
Base period
the period that provides the weights for the index
Reference period
the period for which the index has the value 100

18. Price indices in practice
CPIs (HICP), PPIs: all Laspeyres price indices
Define precise bundle of goods and services & obtain their value shares in base year (for weighting)
Observe monthly prices, by going to shops, magazines, internet, etc.
Calculate index

19. New products (1)
The method of calculating price and volume indices assumes that the products exist in both successive years
However, many products appear and disappear from one year to the next
There is no difficulty in the case of products which existed in the previous year but which no longer exist in the current year
The problem appears in the case of new products, since for the previous year it is not possible to measure the price of a product which does not exist

20. New products (2)
There are to types of approaches for estimating the price of the previous year:
The first supposes that the price of the new product changes like the price of similar products
The second attempts to calculate directly what the price of the new product would have been if it had existed in the base period
The first approach amounts simply to using a price index calculated on the basis of a sample of homogeneous products existing in both successive years
Which the second approach, the methods which are more commonly used are the hedonic method and the input method

21. Volume of value added Best method: double deflation
Alternative method: single deflation

22. Non-market services (1)
Non-market services are not sold at a market price and their value at current prices is calculated as the sum of the costs incurred
Those costs are: intermediate consumption, compensation of employees, other taxes less subsidies on production and consumption of fixed capital
The unit cost of a non-market service can be considered as the equivalent of the price

23. Non-market services (2)
In fact, the price of a market product corresponds to the expenditure which the purchaser must incur in order to take possession of it, while the unit cost of a non-market product corresponds to the expenditure which society must incur in order to use it
Thus, where it is possible to define units of quantity for non-market services, it is also possible to apply the general principles for calculating volume and price indices
But is generally not obvious to define units of quantity for non-market services

24. Non-market services (3)
Difference between “individual” and “collective” services
Collective services are services for collective consumption that are provided simultaneously to all members of the community or to all members of a particular section of the community , such as households living in a particular region. Examples: police, defense
Services provided to households are described as individual services. They mainly consist of education and health services
For individual services it is possible to define quantity units and to apply the general method for calculating price and volume indices

25. Education
Definition: education output is the amount of teaching received by the students for each type of education.
The quantity of teaching received by students can be measured by the number of hours they spent at being taught (the number of 'student-hours' or 'pupil-hours').
Where this measure is not available, the simple number of students or pupils can be an alternative
For some levels of education (for example tertiary education and distance-learning) the number of students may in fact be a better indicator of the education service delivered

26. Health
Health output is the quantity of health care received by patients, for each type of health care
The quantities should be weighted together using data on the costs or prices of the health care provided.
The quantity of health care received by patients should be measured in terms of complete treatments.

27. Collective services
For collective services it is impossible to define quantity units
In this case, since the value of a non-market service is determined by the cost involved, it is thus possible to calculate the volume by the value of the costs at base period prices, that is by the value at base period prices of intermediate consumption, compensation of employees, other taxes net subsidies on production and consumption of fixed capital
This method is known as the input method

28. Thank you for your attention
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