PPT - Index Numbers | Economics Class 11 - Commerce PDF Download

 Page 1


Index 
Numbers
Page 2


Index 
Numbers
Introduction to Index 
Numbers
The Need for Summary Measures
Index numbers provide a single figure to 
summarize diverse economic changes 
when prices or growth rates vary widely.
Real-World Applications
These metrics track living standards, stock 
markets, and inflation across various 
economic sectors.
Practical Relevance
Index numbers help assess purchasing 
power and guide investment decisions in 
complex economies.
Page 3


Index 
Numbers
Introduction to Index 
Numbers
The Need for Summary Measures
Index numbers provide a single figure to 
summarize diverse economic changes 
when prices or growth rates vary widely.
Real-World Applications
These metrics track living standards, stock 
markets, and inflation across various 
economic sectors.
Practical Relevance
Index numbers help assess purchasing 
power and guide investment decisions in 
complex economies.
What Is An Index Number?
Definition
A statistical measure 
that tracks changes in 
variables over time, 
capturing general 
trends between 
periods.
Expression Format
Expressed as 
percentages with base 
period at 100. Other 
periods show relative 
change (e.g., 250 
means 2.5 times the 
base).
Types of Index 
Numbers
Price indices track 
goods costs while 
quantity indices 
measure production. 
Price indices are more 
common, though both 
serve as key economic 
indicators.
Page 4


Index 
Numbers
Introduction to Index 
Numbers
The Need for Summary Measures
Index numbers provide a single figure to 
summarize diverse economic changes 
when prices or growth rates vary widely.
Real-World Applications
These metrics track living standards, stock 
markets, and inflation across various 
economic sectors.
Practical Relevance
Index numbers help assess purchasing 
power and guide investment decisions in 
complex economies.
What Is An Index Number?
Definition
A statistical measure 
that tracks changes in 
variables over time, 
capturing general 
trends between 
periods.
Expression Format
Expressed as 
percentages with base 
period at 100. Other 
periods show relative 
change (e.g., 250 
means 2.5 times the 
base).
Types of Index 
Numbers
Price indices track 
goods costs while 
quantity indices 
measure production. 
Price indices are more 
common, though both 
serve as key economic 
indicators.
Construction of an Index Number
The Challenge
When price changes vary 
across items, individual 
reporting becomes 
impractical. A price index 
offers a single value 
representing these diverse 
changes.
Two Main Methods
Indices are constructed 
using either the 
aggregative method or by 
averaging relatives, with 
formulas selected based 
on analytical needs.
Example: Simple Price 
Changes
Four commodities with 
differing changes (A: 
100%, B: 20%, C: 25%, D: 
50%) illustrate why a 
summary measure is 
essential for 
understanding overall 
trends.
Page 5


Index 
Numbers
Introduction to Index 
Numbers
The Need for Summary Measures
Index numbers provide a single figure to 
summarize diverse economic changes 
when prices or growth rates vary widely.
Real-World Applications
These metrics track living standards, stock 
markets, and inflation across various 
economic sectors.
Practical Relevance
Index numbers help assess purchasing 
power and guide investment decisions in 
complex economies.
What Is An Index Number?
Definition
A statistical measure 
that tracks changes in 
variables over time, 
capturing general 
trends between 
periods.
Expression Format
Expressed as 
percentages with base 
period at 100. Other 
periods show relative 
change (e.g., 250 
means 2.5 times the 
base).
Types of Index 
Numbers
Price indices track 
goods costs while 
quantity indices 
measure production. 
Price indices are more 
common, though both 
serve as key economic 
indicators.
Construction of an Index Number
The Challenge
When price changes vary 
across items, individual 
reporting becomes 
impractical. A price index 
offers a single value 
representing these diverse 
changes.
Two Main Methods
Indices are constructed 
using either the 
aggregative method or by 
averaging relatives, with 
formulas selected based 
on analytical needs.
Example: Simple Price 
Changes
Four commodities with 
differing changes (A: 
100%, B: 20%, C: 25%, D: 
50%) illustrate why a 
summary measure is 
essential for 
understanding overall 
trends.
The Aggregative 
Method
Simple Index
Shows price increase of 38.5%
Laspeyre's Index
Uses base period quantities as weights
Paasche's Index
Uses current period quantities as weights
Simple aggregative price index formula: (£P¡/
£P ) × 100. This method ignores measurement 
unit differences.
Weighted indices use base or current period 
quantities as weights, yielding different results.