History of Index Number
An index number is an economic data figure reflecting price or quantity compared with astandard or base value. The base usually equals 100 and the index number is usually expressed as100 times the ratio to the base value. For example, if a commodity costs twice as much in 1970as it did in 1960, its index number would be 200 relative to 1960. Index numbers are usedespecially to compare business activity, the cost of living, and employment. They enableeconomists to reduce unwieldy business data into easily understood terms.In economics, index numbers generally are time series summarizing movements in agroup of related variables. In some cases, however, index numbers may compare geographicareas at a point in time. An example is a country's purchasing power parity. The best-knownindex number is the consumer price index, which measures changes in retail prices paid byconsumers. In addition, a cost-of-living index (COLI) is a price index number that measuresrelative cost of living over time. In contrast to a COLI based on the true but unknown utilityfunction, a superlative index number is an index number that can be calculated. Thus, superlativeindex numbers are used to provide a fairly close approximation to the underlying cost-of-livingindex number in a wide range of circumstances.There is a substantial body of economic analysis concerning the construction of indexnumbers, desirable properties of index numbers and the relationship between index numbers andeconomic theory.