2. INTRODUCTION
Economic 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.
3. 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
4. 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
5. 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.
6. 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.
7. TYPES OF INDEX NUMBERS
Price index numbers
a) Wholesale price index number
b) Retail price index
Quantity index number
Value index numbers
Sample and Aggregative index numbers
a) Simple index numbers
b) Aggregative index numbers
Cost of living index number
Special purpose index numbers
8. 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
