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Index Number

# Index Number

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One particular type of descriptive measure that is useful in allowing comparisons of data over time is the index number. An index number is, in part, a ratio of a measure taken during one time frame to that same measure taken during another time frame, usually denoted as the base period. Often the ratio is multiplied by 100 and is expressed as a percentage. When expressed as a percentage, index numbers serve as an alternative to comparing raw numbers.
One particular type of descriptive measure that is useful in allowing comparisons of data over time is the index number. An index number is, in part, a ratio of a measure taken during one time frame to that same measure taken during another time frame, usually denoted as the base period. Often the ratio is multiplied by 100 and is expressed as a percentage. When expressed as a percentage, index numbers serve as an alternative to comparing raw numbers.

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Sub: Statistics Topic: Data Analysis
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Index Number
One particular type of descriptive measure that is useful in allowing comparisons of data over time isthe
index number
. An
index number
is, in part, a ratio of a measure taken during one time frame tothat same measure taken during another time frame, usually denoted as the base period. Often theratio is multiplied by 100 and is expressed as a percentage. When expressed as a percentage, indexnumbers serve as an alternative to comparing raw numbers. Index number users become accustomedto interpreting measures for a given time period in light of a base period on a scale in which the baseperiod has an index of 100(%). Index numbers are used to compare phenomena from one time periodto another and are especially helpful in highlighting inter-period differences. Index numbers arewidely used around the world to relate information about stock markets, inflation, sales, exports andimports, agriculture, and many other things. Some
examples
of specific indexes are the employmentcost index, price index for construction, index of manufacturing capacity, producer price index,consumer price index, and index of output.The motivation for using an
index number
is to reduce data to an easier-to-use, more convenientform. Using simple index numbers, the business researcher can transform these data into values thatare more usable and make it easier to compare other years to one particular key year. The use of simple index numbers makes possible the conversion of prices, costs, quantities, and so on fordifferent time periods into a number scale with the base year equaling 100%. One of the drawbacks of simple index numbers, however, is that each time period is represented by only one item orcommodity. When multiple items are involved, multiple sets of index numbers are possible. Suppose a
decision maker is interested in combining or pooling the prices of several items, creating a “marketbasket” in order to compare the prices for several years. Fortunately, a technique does exist for
combining several items and determining index numbers for the total (aggregate). Because thistechnique is used mostly in determining price indexes, the focus in this topic is on developing

Sub: Statistics Topic: Data Analysis
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aggregate price indexes.
Weighted aggregate price index numbers
are computed by multiplyingquantity weights and item prices in determining the market basket worth for a given year. Sometimeswhen price and quantity are multiplied to construct index numbers, the index numbers are referred toas value indexes. Thus, weighted aggregate price index numbers are also value indexes. The
Laspeyresprice index
is a weighted aggregate price index computed by using the quantities of the base period(year) for all other years. The advantages of this technique are that the price indexes for all years canbe compared, and new quantities do not have to be determined for each year.