INTRODUCTIONEconomic and business data change from time totime.For instance,prices of all commodities do not remainconstant.It is possible that sometimes price of acommodity rises and sometimes falls. The measurementof such changes is possible only by means of somestatistical methods.Index numbers are such statisticaldevices which help in the measurement of suchchanges.For eg:- prices going up or down,industrialproduction is rising or falling or whether exports areincreasing or decreasing.
DEFINITIONSIndex Numbers are devices for measuring diffferences in themagnitude of a group of related variables - Croxton & cowdenAn Index Number is a statistical measure designed to showchanges in a variable or a group of related variables with respectto time,geographic location or other characteristics. -Spiegel
USES OF INDEX NUMBERSTo simplify ComplexitiesHelpful in fixation of salary and dearness allowanceHelpful in PredictionsHelpful in ComparisonsTo measure purchasing power of moneyUseful in business
LIMITATIONS OF INDEXNUMBERS Index numbers measure relative changes indifferent phenomenon.Index nubers are true only onthe averages. A given type of index number is not suitable for allpurposes.Multipurpose index numbers cannot beconstructed.
CONT’D No consideration is given to thechanges taking place in the quality of acommodity while constructing the indexnumbers. Bias in the selection of base year andselection of representatives sometimesleads to misleading results. Index numbers lack in perfect accuracybecause they are mostly constructed onthe basis of sample commodities.
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
PROBLEMS IN THECONSTRUCTION OF INDEXNUMBBERSPurpose of index numberSelection of itemsSelection of pricesSelection of base yearSelection of weightsSelection of an averageSelection of an appropriate formula