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Index Numbers

This document provides an introduction to index numbers. It discusses that an index number reflects price or quantity compared to a base value, usually set at 100. A simple index number is the ratio of two values measuring the same variable in different situations or periods. Economists use index numbers to compare changes over time, with an index of 102 meaning a 2% rise from the base year and 98 a 2% fall. Key features of index numbers are that they are specialized averages expressed as percentages that measure changes over periods of time. Index numbers are useful tools for economic and business analysis by helping to measure relative changes and provide comparisons with an abstract unit. The document also discusses different ways of constructing index numbers, including simple

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Puttu Guru Prasad
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277 views

Index Numbers

This document provides an introduction to index numbers. It discusses that an index number reflects price or quantity compared to a base value, usually set at 100. A simple index number is the ratio of two values measuring the same variable in different situations or periods. Economists use index numbers to compare changes over time, with an index of 102 meaning a 2% rise from the base year and 98 a 2% fall. Key features of index numbers are that they are specialized averages expressed as percentages that measure changes over periods of time. Index numbers are useful tools for economic and business analysis by helping to measure relative changes and provide comparisons with an abstract unit. The document also discusses different ways of constructing index numbers, including simple

Uploaded by

Puttu Guru Prasad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Economics:

Introduction to index
numbers
Puttu Guru Prasad
Associate Professor
Management Faculty
S&H Department
VIVA-VVIT-Nambur​
Guntur-A.P
9394969898
Topic Introducation
• An index number is an economic data figure
reflecting price or quantity compared with a
standard or base value. The base usually equals 100
and the index number is usually expressed as 100
times the ratio to the base value..

• A simple index number is the ratio of two values


representing the same variable, measured in two
different situations or in two different periods. For
example, a simple index number of price will
give the relative variation of the price between the
current period and a reference period.
Some More information about
INDEX NUMBER

• Economists frequently use index numbers when


making comparisons over time. An index starts
in a given year, the base year, at an index
number of 100. ... An index number of 102
means a 2% rise from the base year, and an
index number of 98 means a 2% fall.
Example
Index Numbers have the following features
• (i) Index numbers are specialised averages
which are capable of being expressed in
percentage.
• (ii) Index numbers measure the changes in the
level of a given phenomenon.
• (iii) Index numbers measure the effect of
changes over a period of time
Index Numbers are indispensable tools of
economic and business analysis. Their
significance can be appreciated by following
points :

• 1. Index number helps in measuring relative


changes in a set of items.
• 2. Index numbers provide a good basis of
comparison because they are expressed in
abstract unit distinct from the unit of element.
• 3. Index numbers help in framing suitable
policies for business and economic activities"
PROBLEMS RELATED TO INDEX NUMBERS
WAYSOFCONSTRUCTINGINDEX
NUMBERS
SIMPLE AGGREGATIVE METHOD
• Simple Aggregative
Under this method, the price index for a given
period is obtained by dividing the aggregate of
different prices of the current year by the aggregate
of different prices of the base year, and multiplying
the quotient by 100. As such, the price index, under
this method, is computed by the formula,
• P01= ( ∑P1/∑P0 ) X 100
• Where, P01= Price index of the current year with
reference to the base year
• ∑P1 = total of the prices of the current year
• ∑P0 = total of the prices of the base year.
Weighted average of price relative
The Weighted Average of Relatives Price Index. ... As the
term suggests, in 'a weighted average of relatives
computation, each relative is multiplied by its weight, the
products are added, and then the sum of the products is divided
by the sum of the weights. Weighted arithmetic mean of price
relative-

P01 
PV
V

P
Where- P  1100
P0

P=Price relative
V=Value weights=
p0 q0
Weighted average of price relative
Value index numbers
A chain index is an index number in which the value of any given
period is related to the value of its immediately preceding period (resulting in an
index for the given period expressed against the preceding period = 100); this is
distinct from the fixed-base index, where the value of every period in a time
series is directly related to the same value of one fixed base period.
Calculate Chain Index Number for the following

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