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DR.SIJI k
Associate professor
Gopalan college of commerce
An Index number is a statistical
device for measuring changes in the
magnitude of a group of related
MEANING variables on a particular date in
comparison to their level on some
previous date. It measures relative
changes in two or more related
variable over time.
According to croxton and cowden
“index numbers are devices for
measuring differences in the
magnitude of a group of related
variables”.
According to Spiegal “ An index
DEFINITIONS number is a statistical measure
designed to show changes in a
variable or a group of related
variables with respect to time,
geographic location or other
characteristics”.
Specialised averages
Expressed in percentages
Measure the change in the
level of phenomenon
Measure changes not
CHARACTERISTICS OF capable of direct
INDEXNUMBERS measurement
Meant for comparison
Measures the effect of
change over periods of
time or from one place to
another.
To measure and compare
changes
To provide guidelines to
USES OF INDEX NUMBERS policy
To study trends and
tendencies
Useful for deflating
Based on samples
Approximate indicators of
the relative level of
phenomenon
Not good for all purposes
Specialised type of
Limitations averages
Liable to be misused
Different method yield
different results
Chances of error are so
many
Purpose of index
Selection of the base
period
Selection of number of
items
Problems in the construction of
index numbers Obtaining price quotations
Selection of an average
Selection of appropriate
weights
Selection of an
appropriate formula
Simple aggregative
method
Simple average of
Methods of construction of Index relatives
numbers
Weighted aggregative
method
Weighted average of
relative
This method is the simplest
of all the methods of
constructing Index numbers.
The aggregate of price of all
the commodities in the
Simple aggregative current year is expressed as a
method percentage of the aggregate
of prices of the base year.
Formula
Po1= ΣP1/Σp0×100
Where
Po1=∑P1qo/∑Poqo×100
PAASCHES INDEXNUMBER
The quantities of various commodities actually
produced or consumed in the current year are taken as
weight and their value at current price is compared with
their value at the base price
Po1=∑P1q1/∑Poq1×100
FISHERS INDEXNUMBER
The geometric mean of Laspeyre’s and Paasche’s index
numbers is known as Fisher’s ideal index number. It is
called ideal because it satisfies the time reversal and factor
reversal test.It is based on both base year and current year
quantities.
MARSHALL EDGEWORTH INDEX
The average of the base year and current year
quantities are used as weights.
Po1=∑P1q0+∑P1q1/∑Poqo+∑Poq1×100