CH 8 Index Numbers 2

Download as pptx, pdf, or txt
Download as pptx, pdf, or txt
You are on page 1of 22

Economics:

Introduction to
index numbers

PRESENTED BY-
Poonam Dua
Amend Education Academy
www.amendeducation.com
Topic
Introducation
• An index number is an economic data
figure reflecting price or quantity compared
with a standard or base value. The base
usually equals 100 and the index number
is usually expressed as 100 times the ratio
to the base value..

• A simple index number is the ratio of two


values representing the same variable,
measured in two different situations or in
two different periods. For example, a
simple index number of price will give
the relative variation of the price between
the current period and a reference period.
Some More information
INDEX NUMBER
about

• Economists frequently use index


numbers when making comparisons over
time. An index starts in a given year, the
base year, at an index number of 100. ...
An index number of 102 means a 2% rise
from the base year, and an index number
of 98 means a 2% fall.
Examp
le
Index Numbers have the following
features
• (i) Index numbers are specialised
averages which are capable of
being expressed in percentage.
• (ii) Index numbers measure the changes
in the level of a given phenomenon.
• (iii) Index numbers measure the
effect of changes over a period of
time
Index Numbers are indispensable
tools of economic and business
analysis. Their significance can be
appreciated by following points :

• 1. Index number helps in measuring


relative changes in a set of items.
• 2. Index numbers provide a good basis
of comparison because they are
expressed in abstract unit distinct from
the unit of element.
• 3. Index numbers help in framing
suitable policies for business and
PROBLEMS RELATED TO INDEX
NUMBERS
WAYSOFCONSTRUCTINGINDEX
NUMBERS
SIMPLE AGGREGATIVE
METHOD
• Simple Aggregative
Under this method, the price index for a
given period is obtained by dividing the
aggregate of different prices of the current
year by the aggregate of different prices of
the base year, and multiplying
the quotient by 100. As such, the price
index, under this method, is computed by
the formula,
•P 01
= ( ∑P1/∑P0 ) X 100

Where, P = Price index of the current year


Weighted average of price
relative
The Weighted Average of Relatives Price Index. ... As
the term suggests, in 'a weighted average of
relatives computation, each relative is multiplied by
its weight, the products are added, and then the sum
of the products is divided by the sum of the weights.
Weighted arithmetic mean of price relative-

P01 = PV

V

Where- P = PP01
×100
P=Price relative
V=Value weights=
p0 q0
Weighted average of price
relative
Value index
numbers
A chain index is an index number in which the value of any given
period is related to the value of its immediately preceding period (resulting in an
index for the given period expressed against the preceding period = 100); this is
distinct from the fixed-base index, where the value of every period in a time
series is directly related to the same value of one fixed base period.
Calculate Chain Index Number for the following

You might also like