PRESENTATION ON INDEX NUMBERS

INTRODUCTIONEconomic and business data change from time to time.For instance,prices of all commodities do not remain constant.It is possible that sometimes price of a commodity rises and sometimes falls. The measurement of such changes is possible only by means of some statistical methods.Index numbers are such statistical devices which help in the measurement of such changes.For eg:- prices going up or down,industrial production is rising or falling or whether exports are increasing or decreasing.

DEFINITIONS

Index Numbers are devices for measuring diffferences in the magnitude of a group of related variables - Croxton & cowden

An Index Number is a statistical measure designed to show changes in a variable or a group of related variables with respect to time,geographic location or other characteristics. -Spiegel

USES OF INDEX NUMBERS To simplify Complexities

Helpful in fixation of salary and dearness allowance

Helpful in Predictions

Helpful in Comparisons

To measure purchasing power of money

Useful in business

LIMITATIONS OF INDEX NUMBERS

Index numbers measure relative changes in different phenomenon.Index nubers are true only on the averages.

A given type of index number is not suitable for all purposes.Multipurpose index numbers cannot be constructed.

CONT’D

No consideration is given to the changes taking place in the quality of a commodity while constructing the index numbers.

Bias in the selection of base year and selection of representatives sometimes leads to misleading results.

Index numbers lack in perfect accuracy because they are mostly constructed on the basis of sample commodities.

TYPES OF INDEX NUMBERS

Price index numbers

a) Wholesale price index numberb) Retail price index

Quantity index numberValue index numbersSample and Aggregative index numbers

a) Simple index numbersb) Aggregative index numbers

Cost of living index numberSpecial purpose index numbers

PROBLEMS IN THE CONSTRUCTION OF INDEX NUMBBERS

Purpose of index number Selection of items Selection of prices Selection of base year Selection of weights Selection of an average Selection of an appropriate formula

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