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    Index Number: - According To Prof. Bowley

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    Saniya Siddiqui
    The document discusses index numbers, which are used to compare price levels or other economic quantities over time. It provides a simple formula to calculate an index number, using the current and base year prices. For example, if wheat price was Rs. 500 in 2018 (base year) and Rs. 600 in 2019 (current year), the 2019 index number would be 120. The document also outlines characteristics, considerations, and methods for selecting the base year in index number construction.

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    Index Number: - According To Prof. Bowley

    Uploaded by

    Saniya Siddiqui
    216 views12 pages
    The document discusses index numbers, which are used to compare price levels or other economic quantities over time. It provides a simple formula to calculate an index number, using the current and base year prices. For example, if wheat price was Rs. 500 in 2018 (base year) and Rs. 600 in 2019 (current year), the 2019 index number would be 120. The document also outlines characteristics, considerations, and methods for selecting the base year in index number construction.

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    Index number pdf

    Original Title

    Index Number

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    The document discusses index numbers, which are used to compare price levels or other economic quantities over time. It provides a simple formula to calculate an index number, using the current and base year prices. For example, if wheat price was Rs. 500 in 2018 (base year) and Rs. 600 in 2019 (current year), the 2019 index number would be 120. The document also outlines characteristics, considerations, and methods for selecting the base year in index number construction.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    216 views12 pages

    Index Number: - According To Prof. Bowley

    Uploaded by

    Saniya Siddiqui
    The document discusses index numbers, which are used to compare price levels or other economic quantities over time. It provides a simple formula to calculate an index number, using the current and base year prices. For example, if wheat price was Rs. 500 in 2018 (base year) and Rs. 600 in 2019 (current year), the 2019 index number would be 120. The document also outlines characteristics, considerations, and methods for selecting the base year in index number construction.

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    INDEX NUMBER

    • According to Prof. Bowley:- “A series of index number is a


    series which reflects in its trend and fluctuations the
    movement of same quantity to which it is related”.
    • Suppose the price of a commodity changes from 100 to 120
    and then from 120 to 180. Here just by looking at this
    information, we can tell that the price has hiked by 20% and
    80% respectively with respect to the initial price.
    • Simple formula of Index number:

    Where,
    P01 = Index number of current year.
    p1 = price of current year
    p0 = price of base year
    For example: In 2018 the price of a unit of wheat, rice
    and cloth is Rs. 500 and in 2019 the price of the same unit
    is 600. Calculate an index number for 2019 assuming
    2018 as base.

    p1 600
    P01   100   100  120
    p0 500

    Index number for 2019 = 120

    Where,
    P01 = Index number of current year.
    p1 = price of current year
    p0 = price of base year
    Characteristics of Index Numbers
    1. Index numbers are used for the purposes of comparison
    in situations where two or more series are expressed in
    different units or the series are composed of different
    types of items.
    2. Index numbers are expressed in terms of percentage so
    as to show the extent of relative change. However
    percentage sign (%) is not used.
    3. The technique of index numbers is used to compare the
    levels of a phenomenon on a certain date with its level
    on some previous date , for example;
    The price level in 2018 (current year) as compared to
    that in 2010 taken as the base year.
    Things to be considered at the time of construction of index numbers

    • Purpose of Index Number:


    • Selection of Commodities:
    • Determination of Number of Commodities:
    More commodities included in index the more reliable the result will be.

    • Selection of Representative Prices: It is to be decided


    whether the price will be of wholesale or of retail. There is a great
    difference in retail prices at different places.

    • Selection of Base Year:- Base year should always be a


    normal year. Normal year is the year which is not affected by flood,
    draught or any other natural calamities.
    Methods for the selection of Base Year
    There are two methods for the selection of base year
    (1) Fixed base method.
    (2) Chain base method.
    Fixed base index number: In this method the base year remains
    unchanged or constant. Fixed base year is also of two types.
    (a) One year base.
    (b) Average year base.
    Current year price Index numbers =

    P01 = Current year price index number


    p1 = Current year Price
    p0 = Base year Price
    (2) Chain Base Method: Under this method the base year shifts
    along with the change in current year. In other words the base
    year of every current year is the year immediately preceding
    the current year.
    The following is the formula for calculating index number by
    this method:-

    where,
    P01 = Price index of current year on the basis of previous year
    p1 = Current year price
    p0 = Price of the previous year immediately preceding the current year.
    Base Conversion

    • Base conversion can be of two types.


    • (a) Conversion from fixed base to chain base.
    • (b) Conversion from chain base to fixed base.
    • (a) Conversion from fixed base to chain base:- The
    index of the first year is assumed as 100 to convert the fixed base index
    into chain base index.

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