Index number

Index Number 1. Index Number. Index number is the technique of measuring relative changes in the magnitude of variable or a group of related variables over time with respect to same base year.

2. Characteristics of index number. i. ii. iii. iv. v.

Expressed In numbers Relative measure Average of percentages Basis of comparison Universal utility

3. Importance or Advantages of Index numbers. i. Simplicity complexities. ii. To facilitate comparative study. iii. Used in business sphere. iv. Helpful in fixation of salary and allowances. v. To measure the changes in the value of money.

4. Limitations of Index numbers. i. Estimated ii. International comparison is not possible iii. Arbitrary weightage iv. Limited use 5. Methods of construction of index number i. Simple Aggregative method Po1 = ÎŁP1/Po x 100 ii. Simple average of price relatives method Price relative = P1/Po x 100 Po1 = ÎŁ(P1/Po x 100)/N

iii.

Weighted index numbers (a) Laspeyre’s method Po1 = ÎŁP1qo/ÎŁPoqo x 100 (b ) Paasche’s Method Po1 = ÎŁP1q1/ÎŁPoq1 x 100 (c ) Fisher Method P01 = √(ÎŁP1q0 á ÎŁP0q0) Ă— âˆšÎŁP1q1 á ÎŁP0q1 Ă—

100 (D) Weighted Average Relative Method đ?‘ƒ01 = ÎŁPV á ÎŁV

6. Consumer đ?’‘đ?’“đ?’Šđ?’„đ?’† đ?’Šđ?’?đ?’…đ?’†đ?’™ đ?’?đ?’–đ?’Žđ?’ƒđ?’†đ?’“. đ??śđ?‘œđ?‘›đ?‘ đ?‘˘đ?‘šđ?‘’đ?‘&#x; đ?‘?đ?‘&#x;đ?‘–đ?‘?đ?‘’ đ?‘–đ?‘›đ?‘‘đ?‘’đ?‘Ľ đ?‘›đ?‘˘đ?‘šđ?‘?đ?‘’đ?‘&#x;đ?‘ đ?‘Žđ?‘&#x;đ?‘’ đ?‘–đ?‘›đ?‘Ąđ?‘’đ?‘›đ?‘‘đ?‘’ to represent the average change over time in the prices paid by the ultimate consumers. It is also known as cost of living index numbers. Consumer price index number includes the following goods: i.

Food ii.

Clothing iii. Fuel and lightning iv. House rent v.

Miscellaneous Following are the methods of construction of consumer price index number. (a)

Aggregative đ?‘ƒ01 = ÎŁP1q0 á ÎŁP0q0 Ă— 100

(b)

Family budget Method đ?‘ƒ01 = ÎŁPV á ÎŁV

7. Wholesale Price Index number. Index number which represents general change in the prices of the commodities is called Wholesale price index number.

8. Index Number of Industrial Production. Index number of industrial production measures the change in the level in the industrial production in a given time period in a economy in comparison to the level of production in the base year.