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Unformatted text preview: 10. INDEX NUMBERS
An index number is a statistical device for comparing the
general level of magnitude of a group of related variables in two or
more situation. If we want to compare the price level of 2000 with
what it was in 1990, we shall have to consider a group of variables
such as price of wheat, rice, vegetables, cloth, house rent etc., If
the changes are in the same ratio and the same direction, we face no
difficulty to find out the general price level. But practically, if we
think changes in different variables are different and that too,
upward or downward, then the price is quoted in different units i.e
milk for litre, rice or wheat for kilogram, rent for square feet, etc
We want one figure to indicate the changes of different
commodities as a whole. This is called an Index number. Index
Number is a number which indicate the changes in magnitudes.
M.Spiegel say, “ An index number is a statistical measure designed
to show changes in variable or a group of related variables with
respect to time, geographic location or other characteristic”. In
general, index numbers are used to measure changes over time in
magnitude which are not capable of direct measurement.
On the basis of study and analysis of the definition given
above, the following characteristics of index numbers are apparent.
1. Index numbers are specified averages.
2. Index numbers are expressed in percentage.
3. Index numbers measure changes not capable of direct
4. Index numbers are for comparison.
10.2 Uses of Index numbers
Index numbers are indispensable tools of economic and
business analysis. They are particular useful in measuring relative
changes. Their uses can be appreciated by the following points.
1. They measure the relative change.
2. They are of better comparison.
241 3. They are good guides.
4. They are economic barometers.
5. They are the pulse of the economy.
6. They compare the wage adjuster.
7. They compare the standard of living.
8. They are a special type of averages.
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This note was uploaded on 01/18/2014 for the course BUS 100 taught by Professor Moshiri during the Winter '08 term at UC Riverside.
- Winter '08