Quantitative Technique by C SATYADEVI

Author:C SATYADEVI
Language: eng
Format: mobi
Publisher: S Chand & Co Ltd
Published: 2010-11-30T18:30:00+00:00

UNIT VI

CHAPTER

1

Index Numbers

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Index numbers is a quantitative technique widely used in various sectors of the economy and

by different departments of the Government, to measure changes in the magnitude of a group of

variables in two or more periods of time, in two or more areas. Some of the Index Numbers familiar

to us are General Price Index, Sensitive Index of Stock Markets, Productivity Index of industry etc.

To make a comparative analysis of two groups of homogenous items, averages are used, but to

compare two groups of items, which are heterogeneous in nature averages are not suitable. For

example to compare Living standards of people in 2000 with 2004, averages are not suitable. The

group of items to study the standard of living consists of basic items such as food, clothing, milk,

traveling, savings, house rent etc. each one is expressed in different units; kilograms, litres, meters,

kilometers etc. which can not be averaged by any measure of central tendency. Another problem

associated with such heterogeneous group is that price of each item moves in different directions in

different degrees. Prices of some goods move up very sharply such as house rent, education cost,

prices of some goods may be reduced to a larger extent such as computers, AC machines, CDs etc.

and some items do not show much difference such as price of salt, matchboxes etc. To measure such

groups of variables a technique called Index Numbers was developed.

Origin and Development of Index Numbers:

Genesis of Index Numbers is associated with development in the economy in the form of

changes in prices of goods and services. Index Numbers originated in Europe to measure the

drastic changes in the economy and new developments in economic activities due to the discovery

of America. These Socio-economic changes provoked economists and statisticians to measure the

changes in prices in the economy prior to the discovery of America with the price situation during

post discovery era. In 1764 an Italian, Giovanni Rinaldo Carli attempted to calculate the changes

in prices of some selected products over 250 years. His trial developed into a technique called

Index Numbers.

Concept of Index Numbers

‘Index Numbers’ is a quantitative technique that averages a group of different but related

variables over a period of time or between two areas. It is a devise used for comparative analysis

of price levels or any such quantitative terms with a base. For example prices of basic commodities

such as rice, oil, pulses, clothing, fuel, house rent, savings etc, of a particular area/ region in 2004

can be compared with the prices of a base year, may be 2000 to estimate general level of changes

in prices. This is the Index number. It is also known as ‘indices’. Thus Index Numbers is a method

that is capable to average relative changes of prices of a group of items expressed in different units

which vary in different directions in different proportions.

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Quantitative Techniques

Definitions:

1. “An Index Number measures the magnitude of a variable relative to a specified value

of the variable”. (International Encyclopedia on Social Sciences)

2. “Index Numbers are a series of numbers by which changes in the magnitude of a

phenomenon are measured from time to time or from place to place”.

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