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  • What Are Index Numbers

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    SimranParhar
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    Index numbers measure changes in economic variables over time and make comparisons easier. An index number takes a value in a base period, like coffee costing 75p in 1995, and assigns it a value of 100%. It then calculates the value in another period, like 99p in 2002, as a proportion of the base. For coffee, the 2002 price of 99p is an increase of 32% over the 1995 base period price of 75p. Index numbers thus show the percentage change in a variable from a base period in a concise way.

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    What are index numbers?

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    Index numbers measure changes in economic variables over time and make comparisons easier. An index number takes a value in a base period, like coffee costing 75p in 1995, and assigns it a value of 100%. It then calculates the value in another period, like 99p in 2002, as a proportion of the base. For coffee, the 2002 price of 99p is an increase of 32% over the 1995 base period price of 75p. Index numbers thus show the percentage change in a variable from a base period in a concise way.

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    14 views1 page

    What Are Index Numbers

    Uploaded by

    SimranParhar
    Index numbers measure changes in economic variables over time and make comparisons easier. An index number takes a value in a base period, like coffee costing 75p in 1995, and assigns it a value of 100%. It then calculates the value in another period, like 99p in 2002, as a proportion of the base. For coffee, the 2002 price of 99p is an increase of 32% over the 1995 base period price of 75p. Index numbers thus show the percentage change in a variable from a base period in a concise way.

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    What are index numbers? Index numbers are designed to measure the magnitude of economic changes over time.

    Because they work in a similar way to percentages they make such changes easier to compare. Briefly, this works in the following way. Suppose that a cup of coffee in a particular caf cost 75p in 1995. In 2002, an identical cup of coffee cost 99p. How has the price changed between 1995 and 2002? The particular time period of 1995 which we've chosen to compare against, is called the base period. The variable for that period, in this case the 75p, is then given a value of 100, corresponding to 100%. The index can then be calculated for the later period of 2002 as a proportionate change as follows:

    The index number shows us that there has been a price increase of 32% since the base period. An index number for a single price change like this is called a price relative.

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