INDEX NUMBER IS AN RATIO OR AN AVERAGE
OF RATIO EXPRESSED AS A PERCENTAGE.IN
OTHER WORS,IT IS A STATISTICS WHICH
ASSIGNS A SINGLE NUMBER TO SEVERAL
INDVIDUAL SATISTICS IN ORDER TO QUANTIFY
TRENDS.TWO OR MORE TIME PERIODS ARE
INVOLVED,ONE OF EHICH IS A BASE TIME
PERIOD. THE VALUE AT THE BASE TIME PERID
SERVES AS THE STANDARD POINT OF
AN INDEX NUMBER IS SPECIAL TYPE OF
AVERAGE THAT PROVIDES A MEASURMENT OF
RELATIVE CHANGES FROM TIME TO TIME OR
FROM PLACE TO PLACE.
ACC. TO WESSEL,WILLET
MEASURES OF RELATIVE CHANGES.
EXPRESSED IN PERCENTAG.
BASIS OF COMPARISONS.
CONSTRUCTION OF INDEX
•SELECTION OF DATA.
•SELECTION OF WEIGHTS.
•USE OF AVRAGES.
•CHOICE OF VARIABLES.
•SELECTION OF FORMULA.
Problems in construction of
Definition of the purpose.
Selection of the base year.
Selection of the items and their varieties.
Collection of data relating to price and quantity.
Assignment of weights.
Selection of the suitable methods of averages.
Choice of the appropriate formula.
IMPORTANCE OR USE OR
•HELPS IN FRAMING POLICIES.
•.HELPS IN MEASURING THE CHANGES IN
THE VALUE OF MONEY.
•HELPS IN ANALYSING THE MARKETS.
•USEFUL TO MEASURE QUANTITATIVE
QUALITY OF THE PRODUCT REMAINS SAME.
SPECIFIC INDEX FOR SPECIFIC PURPOSE.
NO CHANGE IN TASTE,HABITS AND CUSTOMERS.
VARIETY OF METHODS OF CONSTRUCTIONS.
UNRALIABLE COMPARISONS OVER LONGER
TYPES /KINDS/CLASSIFICATION OF INDEX
COST OF LIVING
METHODS OF CONSTRUCTION OF
PRICE INDEX USING A.M,G.M USING A.M, LASPREYRE’S
QUANTITY INDEX & H.M. & G.M. PAASCHE’S,
TESTS OF AN INDEX NUMBER
1. TIME REVERSAL.
2. FACTOR REVERSAL.
What is Time Reversal Test?
Time reversal test is a test used to determine
whether a given method works both ways in
time, forward or backward.
According to Prof. Irving Fisher – “The test is that
the formula for calculating the index number
should be such that it will give the same ratio
between one point of comparison and the other,
no matter which of the two is taken as base.”
What is Factor Reversal test
It holds that the product of price index and the
quantity. In the words of Fisher, should be equal to
the corresponding value index. In the words of Fisher,
“Just as each formula should permit the interchange
of the two items without giving inconsistent results,
so it ought to permit interchanging the prices and
quantities without giving inconsistent results i.e. the
two results multiplied together should give the true