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# Index numbers

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### Index numbers

1. 1. Index numbers BY-HANINDER KAUR VIRPAL KAUR
2. 2. MEANING 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 COMPARISON.
3. 3. DEFINITION 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 AND SIMON.
4. 4. FEATURES SPECIALISED AVERAGES. MEASURES OF RELATIVE CHANGES. EXPRESSED IN PERCENTAG. BASIS OF COMPARISONS. UNIVERSAL APPLICATION.
5. 5. CONSTRUCTION OF INDEX NUMBER •SELECTION OF DATA. •BASE PERIOD. •SELECTION OF WEIGHTS. •USE OF AVRAGES. •CHOICE OF VARIABLES. •SELECTION OF FORMULA.
6. 6. Problems in construction of index numbers 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.
7. 7. IMPORTANCE OR USE OR ADVANTAGES. •HELPS IN FRAMING POLICIES. •FACILITATES COMPARISONS. •.HELPS IN MEASURING THE CHANGES IN THE VALUE OF MONEY. •HELPS IN ANALYSING THE MARKETS. •USEFUL TO MEASURE QUANTITATIVE CHANGES.
8. 8. LIMITATIONS SAMPLING ERRORS. 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 PERIODS. NORMAL YEAR.
9. 9. TYPES /KINDS/CLASSIFICATION OF INDEX NUMBRS. INDEX NUMBER PRICE INDEX NUMBER WHOLESALE PRICE INDEX NUMBER. RETAIL PRICE INDEX NUMBER. QUANTITY INDEX NUMBER COST OF LIVING INDEX NUMBER. SPECIAL PURPOSE INDEX NUMBER.
10. 10. METHODS OF CONSTRUCTION OF INDEX NUMBER. PRICE INDEX USING A.M,G.M USING A.M, LASPREYRE’S QUANTITY INDEX & H.M. & G.M. PAASCHE’S, FISHER’S, BOWLEY, MARSHALL, KELLY’S. INDEX NUMBER UNWEIGHTED OR SIMPLE SIMPLE AGGREGATIVE SIMPLE AVAREAGES OF PRICE RLATIVES WEIGHTED WEIGHTED AVERAGES OF PRICE RLATIVES. WEIGHTED AGGRGATIVE.
11. 11. NOTATIONS USED IN INDEX NUMBERS
12. 12. FORMULAS OF SIMPLE INDEX NUMBERS.
13. 13. TESTS OF AN INDEX NUMBER 1. TIME REVERSAL. 2. FACTOR REVERSAL.
14. 14. 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.”
15. 15. 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 value ratio.”
16. 16. ANY QUERY???