Index Numbers | Class 11 Economics Notes

2. WHAT IS AN INDEX NUMBER

This section defines an index number as a statistical device used to measure changes in the magnitude of a group of related variables over two different situations or periods. It explains that an index number represents the general trend of diverging ratios from which it is calculated, essentially measuring the average change across related variables such as prices, production volumes, or costs of living. The base period is introduced as the reference period against which comparisons are made, and its value is conventionally set at 100. The section clarifies that index numbers are usually expressed in percentage terms and that an index number greater than 100 indicates an increase relative to the base period, while less than 100 indicates a decrease. It distinguishes between price index numbers, which measure changes in prices of specified commodities, and quantity index numbers, which measure changes in physical volumes such as production or employment. The section emphasizes the widespread use of price index numbers but also notes the importance of production indices as indicators of economic output.

📊 Diagram: The section includes a diagram showing the concept of index numbers with base period and current period values, illustrating how index numbers relate to changes in prices or quantities over time.

🔗 Connection: Prepares the reader for the next section on the construction of index numbers, including methods and formulas.