- Shows change in quantity/production
- Formula: Q₀₁ = (Σq₁ / Σq₀) × 100
- Σq₀ = Base year total quantity
- Σq₁ = Current year total quantity
- Example: 280 / 210 × 100 = 133.33
- Quantity increased by 33.33%
Definitions [1]
Definitions: Index Numbers
- Spiegel: “An index number is a statistical measure designed to show changes in a variable or a group of related variables with reference to time, geographical location and other characteristics such as income, profession etc.”
- Croxton and Cowden: “Index Numbers are devices for measuring differences in the magnitude of a group of related variables.”
Key Points
Key Points: Price Index Number
- Shows change in prices
- Formula: (Σp₁ / Σp₀) × 100
- Σp₀ = Base year total prices
- Σp₁ = Current year total prices
- Example: 300 / 220 × 100 = 136.36
- Prices increased by 36.36%
Key Points: Quantity Index Number
Key Points: Value Index Number
- Measures change in value (p × q)
- Formula: (Σp₁q₁ / Σp₀q₀) × 100
- Example result: 880
Key Points: Laaspeyre’s Price Index Number
- Given by Étienne Laspeyres
- Uses base year quantities as weights
- Measures price change
- Formula: (Σp₁q₀ / Σp₀q₀) × 100
- Example result: 150.87
Key Points: Paasche’s Price Index Number
- Given by Hermann Paasche
- Uses current year quantities as weights
- Measures price change
- Formula: (Σp₁q₁ / Σp₀q₁) × 100
- Example result: 212.69
Key Points: Limitations of Index Numbers
- Based on samples, not all items
- Possibility of biased or incomplete data
- Can be misused by choosing a favourable base year
- No perfect formula; only an average
- Ignore changes in tastes and habits
- Do not consider quality changes
- Weights may be arbitrary
- Have limited scope
Important Questions [15]
- State with reasons whether you agree or disagree with the following statement: Index numbers can be constructed without the base year.
- Assertion and reasoning question: Assertion (A): The index number considers all factors. Reasoning (R): The index number is based on samples.
- Statements that are incorrect in relation to index numbers: (a) An index number is a geographical tool. (b) Index numbers measure changes in air pressure.
- Read the given passage and answer the questions: Index Number is a technique of measuring changes in a variable or group of related variables with reference to time,
- ______ : Base year prices :: P1 : Current year prices.
- Explain the meaning of index number.
- Observe the following table and answer the questions given below it: Commodities Prices in 2006 (in ₹) (Base Year) P0 Prices in 2006 (in ₹) (Current Year)
- Distinguish between: Price Index and Quantity Index.
- Explain the types of index numbers.
- State with reasons whether you agree or disagree with the following statement. There are many types of index numbers.
- Index numbers are very significant/important in economics.
- Statements that highlight the significance of index numbers. a. Index numbers are useful for making future predictions. b. Index numbers help in the measurement of inflation.
- Calculate the price index number from the given data: Commodity A B C D Price in 2005 (₹) 6 16 24 4 Price in 2010 (₹) 8 18 28 6
- Explain the steps involved in the construction of index numbers.
- State with reason whether you agree or disagree with the following statement: Index numbers are free from limitations.
Concepts [17]
- Index Numbers
- Features of Index Numbers
- Types of Index Numbers
- Index Numbers Used by Government of India
- Significance of Index Numbers
- Rebasing of GDP, IIP, and WPI
- Construction of Index Numbers
- Methods of Constructing Index Numbers > Simple Index Number
- Price Index Number
- Quantity Index Number
- Value Index Number
- Methods of Constructing Index Numbers > Weighted Index Number
- Laaspeyre’s Price Index Number
- Paasche’s Price Index Number
- Concepts of Sensex and Nifty
- Crops in India's Agricultural and Industrial Production Index
- Limitations of Index Numbers
