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Economics · Ch 7 — Index Numbers

What is an Index Number

7.2

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. It captures the general trend of many diverging ratios, giving the average change in the group between two situations. The comparison may be between like categories (persons, schools, hospitals) or of the values of variables such as prices of a list of commodities, volume of production, agricultural output, or the cost of living.

Have you understood? / Can you make it simpler? A two-person comprehension-check dialogue cartoon: a young man, chin in hand, thinks '?' beside small rising and falling chart icons and asks 'Can you make it simpler?'; an older mentor-figure gestures back, asking 'Have you understood?' — a prompt to pause and confirm the formal index-number definition above has actually sunk in before moving on to construction methods.
Have you understood? / Can you make it simpler? A two-person comprehension-check dialogue cartoon: a young man, chin in hand, thinks '?' beside small rising and falling chart icons and asks 'Can you make it simpler?'; an older mentor-figure gestures back, asking 'Have you understood?' — a prompt to pause and confirm the formal index-number definition above has actually sunk in before moving on to construction methods.

Drawn by us to help you understand the concept clearly, and verified to make sure it's accurate. For exams, practice from your NCERT textbook's own diagram.

Our own line-art recreation of the NCERT comprehension-check cartoon printed on page 108, right after the formal 'index number' definition. It illustrates exactly the moment this section asks of you — pausing to check the definition has actually sunk in before moving on to how an index number is actually built. The scene and caption are taken from the textbook as facts; t …

By convention index numbers are expressed as percentages. One of the two periods is the base period, whose value is set at 100; every other period's index is stated in proportion to it. So if 1990 is the base, an index for 2005 tells you how prices have changed relative to 1990, and an index of 250250 means the value is two-and-a-half times the base-period value.

Two broad types exist:

  • Price index numbers — measure and compare the prices of specified goods. …
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