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INDEX NUMBER

INDEX NUMBER. Index number are measures that expresses a current change in Price Quantity Productivity with respect to some fixed point called base period “Index number are used to measure the change in some quantity which we can not observe directly.” Or

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INDEX NUMBER

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  1. INDEX NUMBER • Index number are measures that expresses a current change in • Price • Quantity • Productivity • with respect to some fixed point called base period • “Index number are used to measure the change in some quantity which we can not observe directly.” • Or • An index number is a device that measures the change occurring in data from time to time or from place to place.

  2. USES OF INDEX NUMBER • Used as Economic barometer -change in employment, public health, production, cost of living • Used in Business – change in volume of business, sales, stocks and prices • Used for comparison – prices, volume of productions of different periods • Used for forecasting – future sales, expenses, production, prices • Used for Price Index – shows the change in price level of a period of time

  3. USES OF INDEX NUMBER • Used in Insurance Companies – For fixing the duration of life of insured person and fixing the rate premium • Used in Departments – Meteorology, commerce (import /export) • Used for cost of living – monthly expenses, government fixing the minimum wages rate

  4. TYPE OF INDEX NUMBERS • Price Index Number • To measure the relative change in price of commodity or a group of commodities (goods) • Quantitative Index Number • To measure the relative change in quantity of volume of commodities imported, exported or produced • Aggregative Type of Index Number • To measure the change in the cost of living (prices and quantities) in a particular locality for specified income group of people.

  5. PRICE INDEX NUMBER • Simple Price Index • Relates to the price of only one commodity at different periods • General Price Index • Relates to the prices of more than one commodities at different periods

  6. PRICE INDEX NUMBER- CHOICE OF BASE PERIOD • Fixed Base Method • Base year selected, when the prices were normal • Price relative = (Pn / Po) x 100 • Where Pn = Current year price • Po = Base year price • Chain Base Method • No fixed base year, it changes from year to year • Link relative = (Pn / Pn-1 ) x 100 • Where Pn = Current year price • Pn-1 = Preceding year price

  7. Exercise From the following data compute index number by taking 1960 as base year 1965 as base year

  8. SOLUTION - a

  9. SOLUTION - b

  10. Exercise The Price of Wheat is given for the year 1980 to 1990. Calculate the index number by taking 1980 as base year Average of first 4 years price as base year price Average of all 11 years price as a base year price

  11. Solution - a

  12. Solution - b b- Mean of 4 years = 24 + 25 + 28 + 31 4 = 108 = 27 4

  13. Solution - b

  14. Solution - c c – Mean of 11 Years = 24+25+28+31+39+32+35+42+50+51+60 11 =37

  15. Solution - c

  16. PRICE INDEX NUMBER • Simple Price Index • Relates to the price of only one commodity at different periods • General Price Index • Relates to the prices of more than one commodities at different periods

  17. General Price Index From the following data compute the index numbers of prices taking as abase year 1960 as base year

  18. Solution

  19. Exercise From the following data compute the index number of prices as a base year 2000 as base year

  20. Solution

  21. Chain Base Method • No fixed base year, it changes from year to year • Link relative = (Pn / Pn-1 ) x 100 • Where Pn = Current year price • Pn-1 = Preceding year price

  22. Exercise From the following data compute chain index number

  23. SOLUTION

  24. Exercise From the following data compute chain index number

  25. SOLUTION

  26. Exercise From the following data compute the index numbers by chain base method

  27. Solution

  28. Exercise

  29. Solution

  30. Weighted Aggregative Index Numbers • Laspeyre’s Index Number • Price for current and base year are required • As well as quantity of base year • Quantity of base year used as weight • Also called as base year weighted index number ∑Pn qo Pon = --------- x 100 ∑Po qo Where Pn = Current year price Po = Base year price qo = Base year quantity

  31. Retail Price Index

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