Index Numbers

An index number is a specialised average

designed to measure the changes in a
variable or a group of related variables
with respect to time, geographic location
or other characteristic such as income,
profession etc.
An index number is a number which
indicates the level of a certain
phenomenon at any given date in
comparison with the level of the same
phenomenon at some standard date.

 An index number is a quantity which ,

by reference to a base period, shows its
variations or changes in the magnitude
over a period of time.
When one says wholesale price index is
130 for Aug 2005 compared to Aug.
2004, it means the wholesale prices of
commodities have increased by 30%
during the year.
An index may be univarite index
computed from a single variable or
a composite index computed from a
group of variables

 Index numbers are called Economic

Barometres as they indicate the pulses
of economy and tendencies in price
fluctuations.
Features
Index numbers are specialised averages
They measure the net change in a group of
related variable
They measure the effect of changes over a
period of time

Uses
Index numbers reveal trends and tendencies
Index numbers help in framing suitable
policies
Index numbers are useful in forecasting
future economic activity
Index numbers are suitable in studying long
term trend, seasonal and cyclical variations
Index numbers are not only useful in the field of
business but are also useful in the field of
agriculture, employment and governance. They
reduce complex form of measurement into
simple numbers.

Methods
Simple Aggregative method
Weighted Aggregative method
Simple Average of Price relatives
method
Weighted Average of Price relatives
method

Laspeyres Method
The Laspeyres Price Index is a
weighted aggregate price index
where the weights are the base
period quantity.
In general, Laspeyres index answers
the question, What would be the
value of the base period list of goods
when valued at given period prices?

Paasche Method
The Paasche method is a weighted
aggregate price index where the
weights are the given period
quantities.
In general, Paasche price index
answers the question, What would
be the value of the given period list of
goods when valued at base period
prices?

 The following information relates to

the weekly pay of the wage earners
of a company.
You are requested to construct an
index of weekly earnings by using;
Base year weighting and
Current
year weighting
Age
in
April
Pay (Rs) April
1991
Number

Pay
( Rs)

years

1990
Number

Men above
21

350

2500

300

4200

Women
above 18

400

1600

1200

8000

Youth
( Boys)

150

450

100

560

Youth ( Girls)

100

250

400

1540

 From the following data, compute

Fishers price index for the current
year and also check whether Fishers
index satisfies the time reversal and
factor
reversal
tests.
Commodi
Base year
Current year
ty
Price (Rs)

Quantity
(Kg)

Price (Rs)

Quantity
(Kg)

Consumer Price Index / Cost of

Living Index Number
CPI measures how much the consumers of a
particular class have to pay more/ less for a
certain basket of goods and services in a given
period compared to the base period. It may be
noted that the CPI does not measure the actual
cost of living.
Uses

To determine wages
To determine DA
To measure purchasing power of money.
To frame various govt. policies such as Wage policy,
Rent control policy, Taxation, Price policy etc.

Time Series
A time series is a set of observations taken at
specified times, usually at equal intervals.
Mathematically, a time series is defined by the
values of Y, which can be symbolised by Y =F(t)
Time series refers to any group of statistical
information collected at regular intervals of
time. Usually regular intervals may be an hour,
a day, a week or a month, an year or a decade.
Techniques applied to measure the time based
data over a period of time is known as time
series analysis.