What is index number with example?

● Index numbers measure a net or relative change in a variable or a group of variables. ● For example, if the price of a certain commodity rises from ₹10 in the year 2007 to ₹15 in the year 2017, the price index number will be 150 showing that there is a 50% increase in the prices over this period.

What are the limitations of constructing an index number?

Limitations of Index Number The limitations of index numbers are as follows: There are chances for errors given that index numbers come as a result of samples. These samples are put together after deliberation, which creates chances for errors. It can also be found in weights or base periods etc.

What is q0 in index number?

q0 — Quantity of a commodity consumed or purchased during the Base Year. q1 — Quantity of a commodity consumed or purchased in the Current Year. w — weight assigned to a commodity according to its relative importance in the group. P01 – Price Index Number for the current year with reference to the base year.

What are the methods to calculate the index numbers?

There are two methods of calculating index number (i) simple aggregative method and (ii) Simple average of price relatives….As index number which accounts for the relative importance of the items is knwon as:

  • weighted Index.
  • simple aggregative Index.
  • simple average of relatives.

What is 11th index number?

An index number is a statistical device for measuring changes in the magnitude of a group of related variables. It represents the general trend of diverging ratios from which it is calculated.

What are the six problems in constructing index number?

Problems In The Construction Of Index Numbers

  • The purpose of the index.
  • Selection of a base period.
  • Selection of number of items.
  • Price quotations.
  • Choice of an Average.
  • Selection of appropriate weights.
  • Selection of an appropriate formula.

Can index number be misused?

(2) Misuse of Index Numbers: Index numbers can be misused. We compare the index numbers with the base year. Hence a person may choose a base year which is suitable forhis purpose. A businessman may use a base year in which profits are high and show that his profits are falling now.

What is the difference between Laspeyres and Paasche index?

The Paasche index is also called a “current weighted index”. It is a weighted harmonic average of the price relatives that uses the actual expenditure shares in the later period t as weights; whereas the Laspeyres index is the weighted arithmetic average that uses weights from a previous period.

What is the formula of laspeyres?

Laspeyres Index Formula= ∑ ( Observation Price * Base Qty) / ∑ ( Base Price * Base Qty)

What is index number how it is prepared?

An index number is a statistical derive to measure changes in the value of money. It is a number which represents the average price of a group of commodities at a particular time in relation to the average price of the same group of commodities at another time.

How do you find simple index numbers?

We can also calculate a simple index number of quantity: I_{n/0} = \frac{Q_n}{Q_0} \cdot 100 = \frac{20}{25} \cdot 100 = 80\:. The sold quantity therefore has decreased by 20% ( { 100 – 80 } ) between the reference period and the actual period.

Why is Fisher’s index number ideal?

Fisher’s formula is called the ideal because of the following reasons: i It is based on geometric mean which is considered best for constructing index numbers. ii It fulfills both the time reversal and factor reversal tests. iii It takes into account both current year as well as base year prices and quantities.

What are the methods of index numbers?

Answer:The index numbers are three types they are price index, quantity index, value index.

What are the problems in construction of index number 11?

Selection of items : Collection of data is the main problem in constructing index number, as there is a large variety of goods and prices. If the number of the commodities is too large, a choice of some representative items has to be made.

What are the methods of calculating index?


  • Full Market Capitalisation method:
  • Free Float Market Capitalisation method:
  • Modified Capitalisation Weighted:
  • Price weighted Index:
  • Equal Weighing:
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