INDEX NUMBERS
 

Index Numbers are used to measure the change in some quantity which we cannot observe directly.

Basic Types of Index Numbers

i.  Price Index
ii. Quantity Index
iii. Value Index
iv. Specific Index

i. Price Index: Price index is an index that measures overall changes in the price levels of a commodity in the economy between two periods. These prices can either be retail or wholesale.

Simple price index = $\frac{P_1(\mathrm{Current} \mathrm{year} \mathrm{prices})}{P_0\hspace{0.17em}(\mathrm{Base} \mathrm{year} \mathrm{prices})}\times 100$

ii. Quantity Index: It measures overall changes in the physical quantity of  goods produced, consumed or sold in the economy between two periods. This index helps in taking production decisions. It is periodically used for the commodities that are subject to price variations.

Quantity index = $\frac{Q_1(\mathrm{Current} \mathrm{year} \mathrm{quantity})}{Q_0\hspace{0.17em}(\mathrm{Base} \mathrm{year} \mathrm{quantity})}\times 100$


iii. Val…