Page 238 - DMGT404 RESEARCH_METHODOLOGY

Research Methodology

Notes the average price level of all the items taken as a group will also be 10% higher in 1992 as
compared with prices of 1990. However, in real situations, neither the prices of all the items
change in the same ratio nor in the same direction, i.e., the prices of some commodities may
change to a greater extent as compared to prices of other commodities. Moreover, the price of
some commodities may rise while that of others may fall. For such situations, the index numbers
are very useful device for measuring the average change in prices or any other characteristics
like quantity, value, etc. for the group as a whole.

11.1 Definitions and Characteristics of Index Numbers

Some important definitions of index numbers are given below:
1. “An index number is a device for comparing the general level of magnitude of a group of
distinct, but related, variables in two or more situations.”
—Karmel and Polasek
2. “An index number is a special type of average that provides a measurement of relative
changes from time to time or from place to place.”
— Wessell, Wilett and Simone
3. “Index number shows by its variation the changes in a magnitude which is not susceptible
either of accurate measurement in itself or of direct valuation in practice.”
— Edgeworth
4. “An index number is a single ratio (usually in percentage) which measures the combined
(i.e., averaged) change of several variables between two different times, places or
situations.”
— Tuttle

On the basis of the above definitions, the following characteristics of index numbers are worth
mentioning:
1. Index numbers are specialised averages: As we know that an average of data is its
representative summary figure. In a similar way, an index number is also an average,
often a weighted average, computed for a group. It is called a specialised average because
the figures, that are averaged, are not necessarily expressed in homogeneous units.
2. Index numbers measure the changes for a group which are not capable of being directly
measured: The examples of such magnitudes are: Price level of a group of items, level of
business activity in a market, level of industrial or agricultural output in an economy, etc.
3. Index numbers are expressed in terms of percentages: The changes in magnitude of a group
are expressed in terms of percentages which are independent of the units of measurement.
This facilitates the comparison of two or more index numbers in different situations.
Self Assessment

Fill in the blanks:
1. Index numbers are called a specialised average because the figures, that are averaged, are
not necessarily expressed in ………………..units.

2. Index number is often recognized a ……………….average, computed for a group.

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