Index number

CLASS 11
STATISTICS
 NOTES
Index Number
It is a measure designed to show changes in variable or group of
related variables with respect to time, geographic location or other

Under index number prices of one year is compared with prices

(or quantity) of some base year (treated as 100)

It helps us to find out % change in the values of different variables

overtime, with reference some Base year, which happens to be the
year of comparison

Features

Percentage Change Average Change

Quantitative
expresion
Relative change over time

in Relation to some base.

CLASS 11 STATISTICS
 NOTES
Index Number
Problems in construction of index numbers
1.Purpose objective
There exist a variety of index numbers for different objectives.
such as
To study change value of money on consumer price index number is
made.
To study change in wholesale price, wholesale price index number is
constructed.
Before constructing index number one should be clear about the
objective of study.

2.Base year selection

It refers to the reference year
ie.. the year with which prices of current year is compared
An ideal base year must be free from any un-usual ups or down,
otherwise, real change comparision is not possible

3.Selection of goods and services

It is not possible and even not desirable to take all the goods & services
produced in an economy.
A handful of commodities must be selected which represent majority.

4.Selection of prices of goods & services

whether to take wholesale price, retail price or open market price.

5.Selection of formula (many formulas exist)

PRICE DETERMINATION (ECONOMICS)

CLASS 11 STATISTICS
 NOTES
Index Number
Simple and weighted index numbers
Simple equal weightage to all the items of the series
weighted different items have different weights depending upon their
relative importance

Methods of constructing Index number

Simple Weighted

Simple aggregative Simple average

weighted average of Weighted aggregative
method of price relative
price relative method method

Simple Aggregative method

Under this method, aggregate of the prices of the commodity
In the current year are divided by the aggregate of their prices in the
Base year and then multiplied by 100
Formula Po₁ = ΣP1 x 100
ΣP0
P1 = Prices of the commodities of current year
Po= Prices of the commodities of base year
Po1= Price index of the current year.

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 NOTES
Index Number
Base year current year

Commodities Prices in (2011) Prices in (2022)

A 15 30
B 28 34
C 35 50
D 25 40
E 45 56

ΣP0 148 ΣP1 210

Po₁ = ΣP1 x 100

ΣP0
= 210 x 100
148
Po₁ = 141.89
it means that price has been increases by 41%

Simple Average of Price Relative method

Price relative → % ratio b/w price of a commodity in current year and
that in the base year.
Price Relative = Current year price (P1) x 100
Base year price (Po)

Formula Po1 = Σ ( P1 x 100)

P0
N

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CLASS 11 STATISTICS
 NOTES
Index Number

Commodities Prices in Prices in Price Related ( P1 x 100)

(2011) (2022) P0

A 100 200 400/100 x 100 = 200

B 10 50 50/10 x 100 = 500
C 5 40 40/5 x 100 = 800
D 200 800 500/200 x 100 = 400
E 5 30 30/5 x 100 = 600

2500

P01 = Σ ( P1 x 100) P01 = 2500 /5 = 500

P0 Price Index = 500
N

Weighted index number

weighted Average of weighted Aggregative

price relative method

1.Weighted Average of price Relative

P01 = Σ RW
Σ RW
R = Price Relative = P1/P0 x 100
W = weight

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CLASS 11 STATISTICS
 NOTES
Index Number
Commodities Weight 2011( P0) 2022 (P1) (P1/p0 x 100) RW

A 40 100 200 200 8000

B 30 200 800 400 12000
C 15 2 16 800 12000
D 10 8 40 500 5000
E 5 1 6 600 3000

100 40,000

P01 = Σ RW 40000 = 400

Σ RW 100
2. Weighted Aggregative method
weights are according to the Quantity purchased
on the Basis of
Quantity brought in Both year
Current year
in Base year
Fisher’s method
Paasche method
Laspeyre’s method
Combination of
P01 = Σp1q1 above 2
Σp0q1 P01 = Σp1q0 P01 = Σp1q0 x Σp1q1 x 100
Σp0q0 Σp0q0 Σp0q1
Treated as ideal method
satisfy both
base of both current time reversal test
year & base year factor reversal test
based on Geometric mean (GM - ab )

TIME SEIES GRAPH (STATISTICS)

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 NOTES
Index Number
Note
Time reversal test - if we changes base year into Current year & vice-
versa, the product of 2 indexes will be equal to 1
Factor reversal test - K x P01 = PK01

Comm P0 Q0 P1 Q1 P1Q0 P0Q0 P1Q1 P0Q1

A 10 6 12 8 72 60 96 80
B 15 4 20 5 80 60 100 75
C 8 5 16 3 80 40 4 24
D 9 3 1 6 3 27 6 54

235 187 250 233

Laspeyre’s method P01 = Σp1q0 x 100

Σp0q0
= 235/187 x 100
= 125.67

Paasche’s method P01 = Σp1q1 x 100

Σp0q1
= 250/233 x 100
= 107.29

Fisher’s method P01 = Σp1q0 x Σp1q1 x 100

Σp0q0 Σp0q1

= 235 x 250 x 100 1.25 x 1.07 x 100

187 233
= 1.161 X 100 = 116.1
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CLASS 11 STATISTICS
 NOTES
Index Number
Cost of living or Consumer price index
It measures the average change in prices paid by the specific class of
consumers for goods and services consumed by them in the current
year in comparision to base year.

Ex 5kg daal 2011 mai Kitne ki thi in comparision to aaj Kitne ki hai

It is constructed for

Industrial Agricultural
workers (IW) labourers (AL)
Urban - non manual
employees (UNME)

Methods of constructing CPI

Aggregative Family Budget

Expenditure method method

Similar to laspeyre's CPI = ΣRW

method ΣW
R = current year price relative
R = P1 x 100
CPI = ΣP1Q0 x 10 P0
ΣP0Q0 w = weights of various items
(similar to weighted method)

CLASS 11 STATISTICS
 NOTES
Index Number
Importance
Helps in price policy (used by govt.)
Wage Adjustment
Market on to analysis
Real value calculation (Purchasing power)

Wholesale Price Index WPI

It measures the relative changes in the prices. of commodities traded
in the wholesale market.

Base year 2011 -12

Uses
Helps in forecasting demand And supply
Estimation of real values
Indicator of rate of inflation (Mehngai)

Rate of inflation

WPI is prepared Every week

If for week 1 it is A1, & for Week 2 it is A2

A2 - A1
Rate of inflation X 100
A1

CLASS 11 STATISTICS
 NOTES
Index Number
Index number of industrial production Base year 2011 -12
It measures the relative increase or decrease in the level of industrial
output in the country in comparision to the Base year level of produduction.
The industries are classified into 3 groups
1. Mining
2. Manufacturing
3. Electricity

Formula
Index number for industrial (Q1/Q0)W
production = x 100
W
Q1 = Level of production in current years
Q0 = Level of production in Based years
w = Weight of industrial Output
Q. Construct index number of industrial production from the following data:

Industry Output Units

Base Year Current Year Weights

Manufacturing 122 300 85 Mill. Tonnes

Production

Electrical 203 400 5 Th. Nos.

Products

Mining 65 87 10 Mill. Tonnes

DEPRICIATION (ACCOUNTS)

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