2. What is Index Number?
• An index number is the measure of change in a variable (or group of
variables) over time. It is typically used in economics to measure
trends in a wide variety of areas including: stock market prices, cost of
living, industrial or agricultural production, and imports. Index
numbers are one of the most used statistical tools in economics.
• MEASURES THE RLATIVE CHANGE IN A VERIABLE OVER ONE TIME
PERIOD TO ANOTHER.
• Using the index number we can make number MEANINGFUL &
CONVERTIBLE.
3. EXAMPLE
P of Sugar = (3200/2200)*100 = 145.45
P of Milk = (20/18)*100 = 111.11
P of oil = (71/68)*100 = 104.41
P of Wheat = (1000/900)*100 = 111.11
P of Clothing = (60/50)*100 = 120
4. Uses of Index Number
• To make number convertible.
• To make a meaningful comment.
• To make large information into short.
5. Types
Unweighted Indexes
Simple Average of the Price Indexes
Simple Aggregate Index
Weighted Indexes
Lespeyres Price Index
Paasche Price Index
Fisher’s Price Index
Value Index
Special Purpose Index
Consumer Price Index
Producer Price Index
S&P Index
7. Unweighted Index:
Simple Average of the price Index: P = ∑Pi/n
P = 653.91/6
P = 108.99
Simple Aggregate Index: P =
P = (549603/561021) *100
P = 97.96
x 100
8. Weighted Index:
Lespeyres Index: P =
P = (2040748526/1447551121) * 100
P = 140.9793
Paasches Index: P =
P = (2345604216/1824191784) * 100
P = 128.5832
x 100
x 100
10. CPI vs. PPI
CPI PPI
Elaboration Consumer Price Index Producers’ Price Index
Price level Dealer price level Mill gate or wholesale price level
Origin of products Domestic & Foreign Domestic
Products Only market basket goods &
services
All goods whose are produced in a
certain time period.
Present Present the livelihood Present the production cost
