Index Number

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Index number is method to find out the average changes in related variables. It is a statistical device (measure). Mostly price index numbers are used in practical statistics.

  • It’s purpose of showing average changes in one or more related variable (like price or quantity) between 2 period of time (between 1991 and 1996) or two places (like Delhi and Mumbai) or countries (like India and Japan).

  • Consumer price index number or cost of living index number helps in taking such decisions.

  • Different commodities are measured in different units.

    For example:

  • Wheat and rice are measured in Kilograms,

  • Cloth in meters,

  • Milk in liters etc.

  • Index numbers are indicators of the various trends in an economy.

  • It may be simple or weighted.

  • Price index numbers indicate the position of prices, whether they are rising or falling at which rate.

Features of an Index Number:

Specialized Type of Averages:

  • Central tendency measure used to compare two or more series.

  • Face a problem of difference in units of measurement.

    For example: Average height of students of a class is 100 cms, their average weight is 50 kgs.

  • Method of Index number helps to overcome this difficulty. That’s why it’s called specialized types of averages.

Measure the Net Change in a Group of Related Variables:

  • Describe the change in a group of related variables in terms of a single figure.

  • Within the group some goods might have become cheaper or costlier in comparison to others.

Measure the Effect of Change Over a Period of Time or Places:

  • Mostly used for measuring changes over a period of time.

  • Compare the agricultural production, industrial production, imports, exports, wages etc at two different times.

  • Used to compare economic conditions of different areas or different industries.