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Index Number

1. Index numbers are statistical measures used to track changes in variables like prices, quantities, and values over time, by expressing them as percentages of a base figure. 2. The three main types of index numbers are price, quantity, and value indexes. Price indexes track price changes, quantity indexes track quantity changes, and value indexes track changes in the total value (price times quantity). 3. Different methods like Laspeyre's, Paasche's, and Fisher's indexes are used to calculate price indexes based on weights drawn from the base or current period prices and quantities.

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55 views

Index Number

1. Index numbers are statistical measures used to track changes in variables like prices, quantities, and values over time, by expressing them as percentages of a base figure. 2. The three main types of index numbers are price, quantity, and value indexes. Price indexes track price changes, quantity indexes track quantity changes, and value indexes track changes in the total value (price times quantity). 3. Different methods like Laspeyre's, Paasche's, and Fisher's indexes are used to calculate price indexes based on weights drawn from the base or current period prices and quantities.

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Index Number

Index Number:
Index number is a statistical device that used to measure the changes in one or more
variable over a period of time. These numbers are stated as a percentage of a base figure.

Types of Index Number:


There are many types of index number, among them the most widely used three types
are,
1. Price Index
2. Quantity Index
3. Value Index.

Price Index:
Price index numbers measure the relative changes in the price of a commodity between two
periods. Mathematically,
∑ 𝑝𝑛
𝑃0𝑛 = ∗ 100
∑ 𝑝0

Where,
p0= Price of the base year.
pn= Price of current year.

Quantity Index:
These index numbers are considered to measure changes in the physical quantity of
goods produced, consumed or sold for an item or a group of items. Mathematically,
∑ 𝑞𝑛
𝑄0𝑛 = ∗ 100
∑ 𝑞0

Where,
q0= quantity of the base year.
qn= quantity of the current year.
Value Index:
The product of price and quantity of a commodity is called the value of that commodity. And
the value index is the index which measures the relative changes in the value of a
commodity. Mathematically,
∑ 𝑞𝑛 𝑝𝑛
𝑉0𝑛 = ∗ 100
∑ 𝑞0 𝑝0

Where,
p0q0= value of the base year.
pnqn= Value of the current year.

Methods of Constructing Index Number:

1. Laspeyre’s Method:

Laspeyre’s index is proposed by German economist Étienne Laspeyres (1834–


1913) for measuring current prices or quantities in relation to those of a selected
base period.
By Laspeyre’s,
∑ 𝑝𝑛 𝑞0
𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥, 𝑃0𝑛 = ∗ 100
∑ 𝑝0 𝑞0

2. Paasche’s Method:

The German statistician Paasche in 1874 constructed an index number, in which


weights are determined by quantities or prices of the current year, is called
Paasche’s index number. By Paasche’s

∑ 𝑝𝑛 𝑞𝑛
𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥, 𝑃0𝑛 = ∗ 100
∑ 𝑝0 𝑞𝑛

3. Fisher’s Method:

This index is the geometric mean of Laspeyre’s and Paasche’s indices.

∑ 𝑝𝑛 𝑞0 ∑ 𝑝𝑛 𝑞𝑛
𝑃𝑟𝑖𝑐𝑒 𝑖𝑛𝑑𝑒𝑥, 𝑃0𝑛 = √ ∗ ∗ 100
∑ 𝑝0 𝑞0 ∑ 𝑝0 𝑞𝑛

Problem-01

Following data represents the crops production of Rangamati Hill District.

2000 2019
Price (per kg) Quantity Price(per kg) Quantity
Tomato 20 100 30 80
Potato 15 120 20 150
Corn 25 200 30 210

Calculate,
a) Laspeyre’s price Index and interpret the result.
b) Paasche’s price Index and interpret the result.
c) Fisher price Index and interpret the result.

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