Index Number Article For Free

There are different ways of construction of index numbers. In general, construction of index number is further available for the division in two parts: Simple and Weighted. Furthermore, the simple method is classified into simple aggregative and simple relative.

Aggregative method of calculating index numbers In this method, the index number (P) = the sum of all the values of all the commodities in the current year (P1) divided by the sum of all the values of the same commodities in the base year (P0) and multiplied by 100.

I) Weighted Aggregative Method: Paasche's Method. Fisher's Ideal Method. Drobish and Bowley's Method. Marshall Edgeworth Method.

A simple index number is the ratio of two values representing the same variable, measured in two different situations or in two different periods. For example, a simple index number of price will give the relative variation of the price between the current period and a reference period.

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.

An index starts in a given year, the base year, at an index number of 100. In subsequent years, percentage increases push the index number above 100, and percentage decreases push the figure below 100. An index number of 102 means a 2% rise from the base year, and an index number of 98 means a 2% fall.

Index numbers are values expressed as a percentage of a single base figure. For example, if annual production of a particular chemical rose by 35%, output in the second year was 135% of that in the first year. In index terms, output in the two years was 100 and 135 respectively.