Economics · Class 11 Commerce
Ch 7Index Numbers — Class 11 Economics, concept-first.
In earlier chapters you learnt how to obtain a summary measure from a mass of data on a single variable. This chapter takes the next step: how to obtain a summary measure of the change in a whole group of related variables over time.
Key concepts
Hover a concept to preview it and jump to its most relevant Q&A.
Weighted Price Relative Index
Imagine you're tracking how the cost of your monthly shopping basket changes. You buy 10 eggs, 2 litres of milk, and 1 packet of biscuits. If the price of eggs doubles, your total bill goes up a lot.
Most relevant Q&A
- Calculation of simple aggregative price index. Compute the simple aggregative price index (P₀₁ = ΣP₁/ΣP₀ × 100) for the following data: | Co…Free
- Calculation of weighted aggregative price index. Using the following data, compute the weighted aggregative price index by Laspeyre's method…Free
- Calculation of weighted price relatives index. Compute the weighted price relatives index (P₀₁ = Σ Wᵢ((P₁ᵢ/P₀ᵢ) × 100) / Σ Wᵢ) for the follo…Preview
- Construction of consumer price index number. Compute the consumer price index (CPI = ΣWR/ΣW) from the following data: | Item | Weight in % (…Preview
- An index number which accounts for the relative importance of the items is known as (i) weighted index (ii) simple aggregative index (iii) s…Free
Chapter contents
The NCERT structure, section by section. Open a section to see its questions, then read the concept-first solution.
Introduction
In earlier chapters you learnt how to obtain a summary measure from a mass of data on a single variable.
What is an Index Number
An index number is a statistical device for measuring the change in the magnitude of a group of related variables.
Construction of an Index Number
The principles of constructing an index number are illustrated through the price index. Consider four commodities whose base- and current-period prices differ, giving a different percentage change for…
The Aggregative Method
Simple (unweighted) aggregative index. Add up the current-period prices, divide by the sum of base-period prices, and multiply by 100:
Method of Averaging Relatives
When there is a single commodity, the price index is simply the ratio of its current price to its base price, in percentage terms — the price relative, .
Some Important Index Numbers
Beyond textbook illustrations, several index numbers are computed regularly and used in policy and finance.
Consumer Price Index
The Consumer Price Index (CPI), also called the cost-of-living index, measures the average change in retail prices.
Consumer Price Index Number
India's government agencies prepare several consumer price index numbers, differing in the population they cover and their base year (values shown are for May 2017):
Wholesale Price Index
The Wholesale Price Index (WPI) shows the change in the general price level and, unlike the CPI, has no reference consumer category and excludes services (barber charges, repairs, etc.) — only the pri…
Index of Industrial Production
Unlike the CPI and WPI, the Index of Industrial Production (IIP) measures quantities, not prices. Its base year is 2011-12 = 100 (with effect from April 2017); the base is refreshed often because each…
Human Development Index
The Human Development Index (HDI) is another widely used index — but unlike a price or production index, it is a broad measure of the overall development of a country rather than of prices or physical…
Sensex
The Sensex is short for the Bombay Stock Exchange Sensitive Index, with 1978-79 as its base period; its value is always read against that period.
Issues in the Construction of an Index Number
Constructing a sound index number requires care on several points:
Index Number in Economics
Index numbers — chiefly the WPI, CPI and IIP — are indispensable in policy making:
Where Can We Get These Index Numbers?
Several of the most widely used index numbers are compiled and published together for ready reference.
Conclusion
Estimating an index number lets you express the change in a large number of items as a single measure, and such indices can be built for price, quantity, volume and more.
Recap
- An index number is a statistical device for measuring the relative change in a large group of items between two periods, the base period being set at 100.
Worked Examples
Solved examples, worked out step by step.
+−Show 4 questionsHide questions4 questions
- Example 1Calculation of simple aggregative price index. Compute the simple aggregative price index (P₀₁ = ΣP₁/ΣP₀ × 100) for the following data: | Co…Free
- Example 2Calculation of weighted aggregative price index. Using the following data, compute the weighted aggregative price index by Laspeyre's method…Free
- Example 3Calculation of weighted price relatives index. Compute the weighted price relatives index (P₀₁ = Σ Wᵢ((P₁ᵢ/P₀ᵢ) × 100) / Σ Wᵢ) for the follo…Preview
- Example 4Construction of consumer price index number. Compute the consumer price index (CPI = ΣWR/ΣW) from the following data: | Item | Weight in % (…Preview
Exercises
+−Show 22 questionsHide questions22 questions
- Q1An index number which accounts for the relative importance of the items is known as (i) weighted index (ii) simple aggregative index (iii) s…Free
- Q2In most of the weighted index numbers the weight pertains to (i) base year (ii) current year (iii) both base and current yearFree
- Q3The impact of change in the price of a commodity with little weight in the index will be (i) small (ii) large (iii) uncertainFree
- Q4A consumer price index measures changes in (i) retail prices (ii) wholesale prices (iii) producers pricesPreview
- Q5The item having the highest weight in consumer price index for industrial workers is (i) Food (ii) Housing (iii) ClothingPreview
- Q6In general, inflation is calculated by using (i) wholesale price index (ii) consumer price index (iii) producers' price indexPreview
- Q7Why do we need an index number?Preview
- Q8What are the desirable properties of the base period?Preview
- Q9Why is it essential to have different CPI for different categories of consumers?Preview
- Q10What does a consumer price index for industrial workers measure?Preview
- Q11What is the difference between a price index and a quantity index?Preview
- Q12Is the change in any price reflected in a price index number?Preview
- Q13Can the CPI for urban non-manual employees represent the changes in the cost of living of the President of India?Preview
- Q14The monthly per capita expenditure incurred by workers for an industrial centre during 1980 and 2005 on the following items are given below.…Preview
- Q15Read the following table carefully and give your comments. INDEX OF INDUSTRIAL PRODUCTION BASE 1993–94 | Industry | Weight in % | 1996–97 |…Preview
- Q16Try to list the important items of consumption in your family.Preview
- Q17If the salary of a person in the base year is Rs 4,000 per annum and the current year salary is Rs 6,000, by how much should his salary be r…Preview
- Q18The consumer price index for June, 2005 was 125. The food index was 120 and that of other items 135. What is the percentage of the total wei…Preview
- Q19An enquiry into the budgets of the middle class families in a certain city gave the following information; | Expenses on items | Food 35% |…Preview
- Q20Record the daily expenditure, quantities bought and prices paid per unit of the daily purchases of your family for two weeks. How has the pr…Preview
- Q21Given the following data- | Year | CPI of industrial workers (1982 =100) | CPI of agricultural labourers (1986–87 = 100) | WPI (1993–94=100)…Preview
- Q22The monthly expenditure (Rs.) of a family on some important items and the Goods and Services Tax (GST) rates applicable to these items is as…Preview