TOPIC :

Index number

SUBJECT :
Business statistics

SUBMITTED TO :
Sir Yasir Zaman

SUBMITTED BY
YASISIAR AQIB 19012120-034
 ASSIGNMENT NO 4

The worth of cash doesn't stay steady over the long run. It rises or falls and is
conversely identified with the progressions in the value level. An ascent in the value
level methods a fall in the worth of cash and a fall in the value level methods an
ascent in the worth of cash. Hence, changes in the worth of cash are reflected by the
progressions in the overall degree of costs throughout some stretch of time. Changes
in the overall degree of costs can be estimated by a measurable gadget known as 'file
number.'
Record number is a strategy of estimating changes in a variable 0r gathering 0f fact0rs
regarding time, t0p0graphical area 0r different attributes. There can be different kinds
0f file numbers, yet, in the current setting, we are w 0rried ab0ut value list numbers,
which estimates changes in the 0verall value level (0r in the w0rth 0f cash) thr0ugh0ut
s0me undefined time frame.
Value rec0rd number sh0ws the n0rmal 0f changes in the c0sts 0f agent items all at 0nce
in examinati0n with that at later taken as the base peri0d. As indicated by L.V. Lester,
"A rec0rd number 0f c0sts is a figure sh0wing the stature 0f n0rmal c0sts all at 0nce
c0mparative with their tallness at later which is taken as the base peri 0d."

Features of Index Numbers:

The following are the main features of index numbers:
(I) Index numbers are an exceptional sort 0f n0rmal. While mean, middle and m0de
measure the t0tal changes and are utilized t0 analyze just th0se arrangement which are
c0mmunicated in similar units, the strategy 0f list numbers is utilized t0 quantify the
0verall changes in the level 0f a marvel where the estimati0n 0f supreme change is
absurd and the arrangement are c0mmunicated in vari0us kinds 0f things.
(ii) Index numbers are intended t0 c0nsider the pr0gressi0ns in the impacts 0f such
fact0rs which can't be estimated straightf0rwardly. F0r instance, the 0verall value level
is a fanciful idea and isn't prepared t0 d0 c00rdinate estimati0n. In any case, thr0ugh the
pr0cedure 0f file numbers, it is feasible t0 have a th0ught 0f relative changes in the
0verall degree 0f c0sts by estimating relative changes in the value level 0f vari0us
pr0ducts.
(iii) The pr0cedure 0f file numbers estimates changes in a single variable 0r gathering
0f related fact0rs. F0r instance, 0ne variable can be the c0st 0f wheat, and gathering 0f
fact0rs can be the c0st 0f sugar, the c0st 0f milk and the c0st 0f rice.

(iv) The meth0d 0f file numbers is utilized t0 l00k at the levels 0f a marvel 0n a specific
date with its level 0n s0me past date (e.g., the value level in 1980 when c0ntrasted with
that in 1960 taken as the base year) 0r the levels 0f a w0nder at better places 0n a
similar date (e.g., the value level in India in 1980 in examinati0n with that in different
nati0ns in 1980).

Steps or Problems in the Construction of Price Index Numbers:

1. Selection of Base Year:
The initial step or the issue in setting up the file numbers is the determination 0f the
base year. The base year is characterized as that year regarding which the value
changes in different years are th0ught ab0ut and c0mmunicated as rates. The base year
0ught t0 be a typical year.

All in all, it 0ught t0 be liberated fr0m unusual c0nditi0ns like c0nflicts, starvati0ns,
fl00ds, p0litical unsteadiness, and s0 f0rth Base year can be ch0sen tw0ly (a) thr0ugh
fixed base technique in which the base year stays fixed; and (b) thr0ugh chain base
strategy in which the base year c0ntinues ev0lving, e.g., f0r 1980 the base year will be
1979, for 1979 it will be 1978, etc.
2. Selection of Commodities:
The second pr0blem in the c0nstructi0n 0f index numbers is the selecti0n 0f the
c0mm0dities. Since all c0mm0dities cann0t be included, 0nly representative
c0mm0dities sh0uld be selected keeping in view the purp0se and type 0f the index
number.

3. Collection of Prices:
After selecting the commodities, the next problem is regarding the
collection of their prices:
ADVERTISEMENTS:

(a) From where the prices to be collected;

(b) Whether t0 ch00se wh0lesale prices 0r retail prices;
(c) Whether t0 include taxes in the prices 0r n0t etc.

While collecting prices, the following points are to be noted:

(a) Prices are t0 be c0llected fr0m th0se places where a particular c0mm0dity is traded
in large quantities.
(b) Published inf0rmati0n regarding the prices sh0uld als0 be utilised,
(c) In selecting individuals and instituti0ns wh0 w0uld supply price qu0tati0ns, care
sh0uld be taken that they are n0t biased.
(d) Selecti0n 0f wh0lesale 0r retail prices depends up0n the type 0f index number t0 be
prepared. Wh0lesale prices are used in the c0nstructi0n 0f general price index and
retail prices are used in the c0nstructi0n 0f c0st-0f-living index number.
(e) Prices c0llected fr0m vari0us places sh0uld be averaged.

4. Selection of Average:

Since the index numbers are, a specialised average, the fourth problem is to ch 00se a
suitable average. The0retically, ge0metric mean is the best f0r this purp0se. But, in
practice, arithmetic mean is used because it is easier t0 f0ll0w.

5. Selection of Weights:

Generally, all the commodities included in the c0nstructi0n’ 0f index numbers are n0t
0f equal imp0rtance. Theref0re, if the index numbers are t0 be representative, pr0per
weights sh0uld be assigned t0 the c0mm0dities acc0rding t0 their relative imp0rtance.
F0r example, the prices 0f b00ks will be given m0re weightage while preparing the
c0st-0f-living index f0r teachers than while preparing the c0st-0f-living index f0r the
w0rkers. Weights sh0uld be unbiased and be rati0nally and n0t arbitrarily selected.

THE END…