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  • An index number is a statistical device designed to compare a group of related variables over a period of time or space
  • Generally index numbers are of three types
    • Price index numbers
    • Quantity index numbers
    • Value index numbers
  • Simple or unweighted index numbers
    Simple aggregative method: Description: 72656.png 
  • Simple average of relatives method
    It can be obtained using
    Unweighted Arithmetic Mean Description: 72650.png 
  • Weighted aggregative index
  • Laspeyre’s index number:
    Description: 72644.png 
  • Paasche’s index number:
    Description: 72638.png 
  • Marshall–Edgeworth index number:
    Description: 72632.png 
  • Fisher’s ideal index number:
    Description: 72626.png 
  • Weighted aggregative of relative method
    The weighted Arithmetic Mean of price relatives using base year value weights is represented by
    Description: 72620.png 
  • Description: 72614.png
  • Description: 72608.png 
  • When we want to measure and compare quantities, we resort to quantity index numbers 
  • Simple average of quantity relatives is expressed as Description: 72601.png
  • Weighted aggregate quantity indices 
  • Laspeyres’ quantity index number:
    Description: 72595.png 
  • Paasche’s index number:
    Description: 72589.png 
  • Marshall–Edgeworth index number:
    Description: 72583.png 
  • Fisher’s ideal index number:
    This formula is the Geometric Mean of Laspeyre’s and Paasche’s index number.
    Description: 72577.png 
  • A value index equals the total sum of values of given year divided by the sum of values of base year
  • Consumer price index number is an index number of the cost met by a specified class of consumer in buying goods and services needed in day-to-day life of the specified class of consumers.
    There are two methods of computation of consumer price index number. They are
  • Aggregative expenditure method
    Here, the quantities used in the base year are taken as weights. Thus, the consumer price index number by this method, Description: 72571.png
  • Family budget method
    Consumer price index number by this method is the weighted Arithmetic Mean of the price relatives. The weights assigned are the expenditure in a normal period.
  • Shifting of base period or reference period of the index is known as base shifting.
    This can be done using the following relation
    Description: 72565.png 
  • The process of combining two or more index numbers covering different bases into a single series is called splicing.
  • Deflating is a technique used to make allowances for the effect of changing price values. It is used to measure the purchasing power of money.
  • There are four tests to check for the adequacy of index numbers. They are
    • Time reversal test
    • Factor reversal test
    • Unit test
    • Circular test

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