Features and Types of Index Numbers

Features of index numbers.

1. Specialised averages. An ordinary average (mean, median) summarises values of the SAME kind expressed in the SAME unit; an index number is a special average that summarises the CHANGE in items that may be expressed in entirely different units (kilograms of rice, litres of oil, metres of cloth) into one comparable percentage figure.
2. Expressed as percentages, but conventionally quoted WITHOUT the % sign (an index of 128, not 128%).
3. Measure relative, not absolute, change — always relative to the fixed base = 100.
4. Measure the net effect of many changes working together, some upward and some downward, into a single figure.
5. Comparable over time and, with suitable adjustment, across regions.

Types of index numbers, classified by WHAT is being measured:

• Price Index Number — measures the average change in the PRICES of a group of goods between two periods (e.g., a wholesale price index, a consumer price index). This is the type studied in depth in this chapter.
• Quantity (Volume) Index Number — measures the average change in the QUANTITIES produced, consumed, or sold of a group of goods (e.g., an index of industrial production).
• Value Index Number — measures the average change in the total VALUE (price × quantity) of a group of goods, combining both a price effect and a quantity effect in one figure:

$V_{01} = \frac{\sum p_1 q_1}{\sum p_0 q_0}\times 100$ …