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Index Numbers

Introduction of Index Numbers

Index numbers are the measures of average percentage change in a series of data where a figure which is called as the base gets attributed an arbitrary value of 100, and the other data is adjusted in terms to the base.

Index numbers are mainly used for the purpose to study the change in the effects of those factors which are not capable of getting measured directly.

Some important notes for Index Numbers

  • Index numbers are popularly used statistical tool for calculating the total changes in a collective group of variables and data.
  • Index numbers are organized and divided as per the purpose for which they are calculated. For example, in the field of business, the index numbers that will be used will be calculated would ideally be as per price, value, activity and quantity.
  • In simple words, index numbers are the comparison between the base and the current variable. The current is always measured in terms of base and the percentage change is calculated.
  • The time when the base variable was calculated is called the base period and similarly, the time for which the current variable is being calculated for is called as the current period.
  • There are two segments of index number: Single Index number and Composite Index number.
  • Single Index number measures the relative change for a single variable with the base.
  • Composite Index number measures the relative change for a group of variables with the base.
  • The different type of index numbers used popularly includes Price Index numbers and Quantity Index numbers. Within these types there can be various sub categories and types depending on the purpose of the calculation of Index numbers.

What are difficulties encountered in Index Numbers problems?

While calculating Index numbers, taking care of the base value becomes very important as it is used for all the calculations for the variables. Usually Single Index numbers are quite easy and less complex. When it comes to calculating Composite Index numbers, it becomes difficult due to the presence of a group of variables. Arranging the data and ensuring that the base figure is set is a tedious task. There are a lot of errors made during calculations. Also, there are quite a few formulas that need to be learnt and used during the calculations. The formula has a lot of elements and identifying which is what is itself a challenging task.

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