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Understanding Index Numbers in Statistics

Index numbers are statistical measures used to compare changes over time in variables that cannot be directly measured, such as business activity or price levels. They provide a composite measure by combining variations in related variables to obtain a representative figure of overall change. Index numbers can be classified based on what they measure, such as prices, quantities, values, or business activity. Specifically, price indexes show changes in price levels compared to a base period in the past. Index numbers may consider changes for a single variable or provide a composite view of changes across multiple related variables.

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Hanifah Amin Hanifah Amin
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37 views2 pages

Understanding Index Numbers in Statistics

Index numbers are statistical measures used to compare changes over time in variables that cannot be directly measured, such as business activity or price levels. They provide a composite measure by combining variations in related variables to obtain a representative figure of overall change. Index numbers can be classified based on what they measure, such as prices, quantities, values, or business activity. Specifically, price indexes show changes in price levels compared to a base period in the past. Index numbers may consider changes for a single variable or provide a composite view of changes across multiple related variables.

Uploaded by

Hanifah Amin Hanifah Amin
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

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INTRODUCTION
History of Index Number
Index numbers are meant to study the change in the effects of such factors which cannot be measured directly. According to Bowley, index numbers are used to measure the changes insome quantity which we cannot observe directly. For example, changes in business activity in a country are not capable of direct measurement but it is possible to study relative changesin business activity by studying the variations in the values of some such factors which affect business activity, and which are capable of direct measurement. Index numbers arecommonly used statistical device for measuring the combined fluctuations in a group related variables. If we wish to compare the price level of consumer items today with that prevalentten years ago, we are not interested in comparing the prices of only one item, but incomparing some sort of average price levels. We may wish to compare the present agricultural production or industrial production with that at the time of independence. Here again, we have to consider all items of production and each item may have undergone a different fractional increase (or even a decrease). How do we obtain a composite measureThis composite measure is provided by index numbers which may be defined as advice for combining the variations that have come in group of related variables over a period of time,with a view to obtain a figure that represents the result of the change in the constitutevariables. Index numbers may be classified in terms of the variables that they are intended tomeasure. In business, different groups of variables in the measurement of which indexnumber techniques are commonly used are (i)price, (ii) quantity, (iii) value and (iv) businessactivity. Thus, we have index of wholesale prices, index of consumer prices, index of industrial output, index of value of exports and index of business activity, etc. Here we shall be mainly interested in index numbers of prices showing changes with respect to time,although methods described can be applied to other cases. In general, the present level of prices is compared with the level of prices in the past. The present period is called the current period and some period in the past is called the base period.

Index Numbers
Index numbers are statistical measures designed to show changes in a variable or group of related variables with respect to time, geographic location or other characteristics such asincome, profession, etc. A collection of index numbers for different years, locations, etc., issometimes called an index series.

Simple Index Number


A simple index number is a number that measures a relative change ina single variable withrespect to a base.

Composite Index Number


A composite index number is a number that measures an average relative changes in a groupof relative variables with respect to a base

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