A summary of Index Number

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1.What is index number?

An index number is a number that calculates the change in a variable over time relative to the value of the variable during base period.

2.Types of index number?

There are 3 types of index number.They are:

***Price index :A price index measures the change in the price on the level of situation with respective time.Price index is indicated by Pon.
Pon=Pn/Po*100,where,Pn is current year ,Po is base year and  Pon is the price index at time N.
They are further sub-divided into the following classes:
(i) Wholesale Price Index Numbers: The wholesale price index numbers reflect
the changes in the general price level of a country.
(ii) Retail Price Index Numbers: These indices reflect the general changes in the
retail prices of various commodities such as consumption goods, stocks and shares,
bank deposits, government bonds, etc.
(iii) Consumer Price Index: Commonly known as the Cost of living Index, CPI is
a specialized kind of retail price index and enables us to study the effect of changes
in the price of a basket of goods or commodities on the purchasing power or cost of
living of a particular class or section of the people like labor class, industrial or
agricultural worker, low income or middle income class etc.

***Quantity index : A quantity index measures the change in the quantity such as oil consumption,number of shares sold on the share market,physical volume of exports and imports etc.Quantity index is denoted by Q0n.
Q0n=Qn/Qo*100

***Value index : A value index measures the relative or general change in the total value of the same variable.We can say,value index measures the combined effects of the price and quantity change.It is denoted by Von,
Von=∑Pn*Qn/∑Po*Qo*100

3.Different methods of measuring index number :

1.Laspeyres index formula : Using base year quantities as weights ,Laspeyres has given a formula which is called laspeyres price index.
la,Pon=∑Pn*Q0/∑Po*Qo*100

2.Paasches index formula : Using current year quantities as weights ,Paasche has stated a formula which is named as paasche price index.
Pa,Pon=∑Pn*Qn/∑Po*Qn*100

3.Dorbish and Bowley's index formula : Using arithmetic mean of laspeyres and paasches formula,Dorbish and Bowley has given a formula.
Da,Pon=½(∑Pn*Q0/∑Po*Qo+∑Pn*Qn/∑Po*Qn)100

 4.Fishers index formula : Using geometric mean of Laspeyres and Paasches formula,fisher has prescribed a method.
Fi,Pon=√∑Pn*Q0/∑Po*Qo*∑Pn*Qn/∑Po*Qn*100

5.Marshalls Edgeworth index formula : Marshall has set this formula by using arithmetic mean of current and base year quantities.
Ma,Pon=∑Pn(Q0+qn)/∑Po(Qo+Qn)*100

6.Walsch index formula : Walsh has denoted this formula by using geometric mean of current and base year quantities.
Wa,Pon=∑Pn(√Q0*qn)/∑Po(√Qo*Qn)*100


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