Index Number: Features of an Index Number: Specialized Type of Averages

Get unlimited access to the best preparation resource for CA : fully solved questions with step-by-step explanation- practice your way to success.

Download PDF of This Page (Size: 131K)

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

Features of an Index Number

Features of an Index Number

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.

Developed by: