if the prices of all commodities in a place have increased 1.25 times ...
Explanation:
What are Index Numbers?
Index numbers are statistical measures used to measure changes in the price level of a basket of goods and services over time. They are used to compare changes in price levels over time, or to compare price levels between different geographical regions.
Calculation of Index Numbers
The formula for calculating the price index is as follows:
Price index = (Price in current period / Price in base period) x 100
Example Calculation
If the prices of all commodities in a place have increased 1.25 times in comparison to the base period, the index number of the prices of that place now is:
Price index = (1.25 / 1) x 100
Price index = 125
This means that the prices of commodities in that place have increased by 25% over the base period.
Conclusion
Index numbers are important tools for measuring changes in price levels over time. They can be used to compare changes in price levels between different regions or countries, or to track changes in the price of specific goods or services over time. By using index numbers, policymakers and analysts can better understand how changes in price levels affect the economy and society as a whole.