Quantitative Methods for Management_MBA_Bharathiar University probability distribution Unit 4 - Basic concept of index numbers – simple and weighted index numbers – concept of weights - types of index numbers – Business index number – CPT, WPI, Sensex, Niffy, Production Index, Time series – variations in Time Series for business forecasting.

1. Index numbers
&
Time series
By
Mr. Victorseelan D., MSc.,MPhil(Statistics)
Dept of Mathematics
Nehru College of Management
Coimbatore

2. UNIT III - Syllabus
Basic concept of index
numbers
• Simple and weighted
index numbers
• Concept of weights
• Types of index
numbers
• Business index number
• CPT, WPI, Sensex, Niffy
• Production Index.
Time series
• Variations in Time
Series for business
forecasting.

3. Index Numbers - Intro
• Of the important statistical devices and techniques,
Index Numbers have today become one of the most
widely used for judging the pulse of economy, although
in the beginning they were originally constructed to
gauge the effect of changes in prices.
• Today we use index numbers for cost of living, industrial
production, agricultural production, imports and
exports, etc.
• Index numbers are the indicators which measure
percentage changes in a variable (or a group of
variables) over a specified time.

4. Definition
According to Patternson :
" In its simplest form, an index number is the
ratio of two index numbers expressed as a percent .
An index is a statistical measure, a measure
designed to show changes in one variable or a
group of related variables over time, with respect to
geographical location or other characteristics".
According to Tuttle :
"Index number is a single ratio (or a percentage) which
measures the combined change of several variables
between two different times, places or situations".

7. Purpose of Index Numbers
• An index number, which is designed
keeping, specific objective in mind, is a
very powerful tool.
• For example, an index whose purpose is
to measure consumer price index, should
not include wholesale rates of items and
the index number meant for slum-
colonies should not consider luxury items
like A.C., Cars refrigerators, etc

8. Classification of Index Numbers
Price Index : Measure changes in price over
a specified period of time. It is basically
the ratio of the price of a certain number
of commodities at the present year as
against base year.

9. Classification of Index Numbers
Quantity Index : As the name suggest, these
indices pertain to measuring changes in
volumes of commodities like goods produced
or goods consumed, etc.
Value Index : These pertain to compare changes
in the monetary value of imports, exports,
production or consumption of commodities

10. METHODS OF CONSTRUCTING INDEX
NUMBERS

11. Tests of Adequacy of Index Numbers
• Unit Test
• Circular Test
• Time Reversal Test
• Factor Reversal Test

12. CONSTRUCTION OF INDEX NUMBERS
Suppose one is interested in comparing the sum
total of expenditure on a fixed number of commodities in
the year 2003 as against the year 1998. Let us consider
the following example.

13. Since all the commodities are in different units and their
prices are not enlarged proportionally, we just cannot get an
average for comparison. For that reason, we express the rates of
all commodities in 1998 as 100 each and proportionally increase
for the corresponding commodities for 2003.

14. Result
We find that
the average number (Index) for 2003
is 156.83 as against 100 for the year
1998.
We can say that the prices have gone
up by 56.83% in the year 2003 as against
1998.
This method is used for finding price
index numbers.

15. 01.Simple Aggregative Method

16. Example
• Construct the price index number for
2003, taking the year 2000 as base year

17. The price index for the year 2003, taking 2000 as base year, is 137.5,
showing that There is an increase of 37.5% in the prices in 2003 as against
2000.

18. 02 Simple Average of Relatives

19. 03 Weighted Index Numbers

20. 04 Weighted Average of Prize
Relatives

21. II Value Index Numbers

22. Chain Index Numbers

23. Types of Index Numbers
• Consumer Prize Index Number (CPI)
• Aggregate Expenditure Method
• Family Budget Method
• Whole Sale Prize Index Number (WPI)
• Production Index
• Sensex Prize Index
• Niffty
•

26. Uses of CPI
Uses of WPI

27. Index Number of Industrial Production (IIP)
Its indicates the changes in level of Industrial
Production or a percentage change in physical
volume of output of commodities in following
industries.
Mining
Quarrying
Manufacturing
Electricity

28. Index Number - Uses

29. SENSEX
• SENSEX is the short form of Stock Exchange Sensitive
Index with 1978-79 as Base. It is a useful guide for
the Investors in the Stock Market.
• It deals with 30 stocks represented by 13 sectors of
the economy

30. NIFFTY
• The NIFTY 50 is National Stock Exchange of India's a
diversified index comprising of 50 stocks from 12
sectors. It tracks the market performance of largest
cap companies’ stocks, and hence, broadly reflects
the sense of the Indian economy.
• The NIFTY 50 Index represents about 63% of the free
float market capitalization of the stocks listed on NSE
as on March 31, 2017.

31. TIME SERIES ANALYSIS