Page 213 - DECO504_STATISTICAL_METHODS_IN_ECONOMICS_ENGLISH

Unit 15 : Index Number–Introduction and Use of Index Numbers and their Types
Pavitar Parkash Singh, LPU

Unit 15 : Index Number–Introduction and Use of Index Notes

Numbers and their Types

CONTENTS
Objectives
Introduction
15.1 Introduction to Index Numbers
15.2 Use of Index Numbers
15.3 Types of Index Numbers
15.4 Summary
15.5 Key-Words
15.6 Review Questions

15.7 Further Readings

Objectives

After reading this unit students will be able to :
• Discuss the Introduction of Index Number.
• Know the Use of Index Number.
• Explain the Types of Index Number.

Introduction

Any change in the level of a phenomenon with respect to time, geographical location etc. is measured
with the help of a statistical device called Index numbers. It was for the first time used to compare the
changes in prices for the year 1750 with the price level of year 1500 in Italy. It was constructed by
Carli. However, today it is used to measure the change in level of any phenomena may it be changes
national income, expenditure, cost of living, incidences of crimes, number of accidents and so on.
Index numbers are said to be barometers which measure the charge in the level of a phenomenon.
15.1 Introduction to Index Numbers

Index numbers have become today one of the most widely used statistical devices. Though originally
developed for measuring the effect of change in prices, there is hardly any field today where index
numbers are not used. Newspapers headline the fact that prices are going up or down, that industrial
production is rising or falling, that imports are increasing or decreasing, that crimes are rising in a
particular period compared to the previous period as disclosed by index numbers. They are used to
feel the pulse of the economy and they have to be used as indicator of inflationary or deflationary
tendencies. In fact, they are described as barometers of economic activity, i.e., if one wants to get an idea
as to what is happening to an economy he should look to important indices like the index number of
industrial production, agricultural production, business activity, etc.
An index number may be described as a specialized average designed to measure the change in the
level of a phenomenon with respect to time, geographic location or other characteristics such as
income, etc. Thus, when we say that the index number of wholesale prices is 125 for the period Dec.
2005 compared to Dec. 2004, it means there is a net increase in the prices of wholesale commodities to
the extent of 25 per cent.

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