INDEX NUMBER

​Index Numbers

By Iti Dubey

Word Cloud

What comes to your mind when you hear the word Index?

​How do we know that the cost of living has gone up compared to the last year?.

​

Introduction

​Meaning

An Index number is a quantity which, by reference to a base period, shows by its variations, the changes in the magnitude over a period of time.
In general, index numbers are used to measure changes over time in magnitudes which are not capable of direct measurement.

Multiple Choice

If tomato was ₹40 in 2022 and ₹90 in 2025, by what % has the price increased?

• 125%

• 225%

• 150%

• 100

Spiegal

" An index number is a statistical measure designed to show changes in a variable or a group of realted variables with respect to time, geographical location or other characteristics" 

Multiple Choice

“An index number always takes the base year as 200.”

• TRUE

• FALSE

​​Example 1

​​Example 2

Open Ended

Why do you think it’s important to have a base year in an index number?

​​Specialized Averages

​​Expressed in Percentage

​​Measure changes not capable of direct measurement

​​For Comparison

​Characteristics of Index Number

Reorder

Rank the following uses of index numbers in terms of importance for you as a consumer.

• Inflation Tracking

• Wage Adjustment

• Stock Market Decisions

• Policy Making

1

2

3

4

• 1
• 2
• 3
• 4

Uses of Index Numbers

1. Measure the relative Change. 6. Wage Adjuster

2. Better for Comparison 7. Compare Standard of Living

3. Good Guides 8. Special Type Average

4. Economic Barometers 9. Formulating Policies

5. Pulse of Economy 10. Measure Purchasing Power

​Compares prices for a group of commodities at a certain time or place with prices of a base period.
WPI & CPI

​​Price Index

Study the changes in the volume of goods produced or consumed.
Output of Economy

​​Qunatity Index

​Compares total value of certain period with total value of base period.
Profit indices, Sales Indices

​​Value Index

​TYPES

Match

Match Pairs

• CPI

• Steel Output

• Exports

• Sensex

Price Index

Quantity Index

Value Index

Special Index

• Price Index

• Quantity Index

• Value Index

• Special Index

Gudelines in Construction of Index Numbers

1. Purpose or Object

2. Selection of Base

   1. Fixed Base

   2. Average Base

   3. Chain Base

3. Selection of Commodities

4. Source of Data

5. Selection of Averages

6. Weighting

   1. Implicit weighting

   2. Explicit weighting

Notations for Index Number Formula

Multiple Choice

CPI stands for?

• Consumer Price Index

• Common Price Indicator

• Current Price Index

• Central Price Indicator

Multiple Choice

Which type of index measures exports?

• Price Index

• Quantity Index

• Value Index

• Special Index

Multiple Choice

If WPI = 150, prices increased by?

• 25%

• 50%

• 75%

• 100%

​Methods of Index Numbers

​Unweighted (simple)

​Weighted

​Simple Aggregate

​Simple Average of Price Relative

​Weighted Aggregate

​Weighted Average of Price Relative