consumer index numbers

 Definition of consumer index numbers 

 According to Croxton and Cowden, index number are devices for measuring differences in the magnitude of a group of related variables. 

 According to Spiegal, an index number is a statistical measure designed to show changes in a variable or a group of related variables with respect to time, geographical locations, or other characteristics (meaning and characteristics, n.d.). 

Types of consumer index numbers 

1) Price index number: It evaluates the relative differences in costs between two particular points in time. 

2) Quantity index number: It measures the differences in the physical quantity of the product’s manufacturing, buying, or selling of one item or a group of items.

 3) Value index number: It is formed from the ratio of the aggregate value for a particular period with that of the aggregate value that is found in the base period (what is index number and types, n.d.). 

Properties of consumer index numbers 

1) Expressed in percentage 

 A change in terms of the absolute values may not be comparable.  Index numbers are expressed in percentage, so they remove this barrier. Although, we do not use the percentage sign.  It is possible to compare the agriculture production and at the same time being expressed in percentage, we can also compare the change in prices of different commodities. 

2) Relative measures or measures of net changes 

 Index numbers measure a net or relative change in a variable or a group of variables.  For example, if the price of a certain commodity rises from Nu. 10 I the year 2020 to Nu. 15 in the year 2021, the price index number will be 150 showing that there is a 50% increase in the prices over this period. 3)

 Measure changes over a period of time or in two or more places  Index numbers measure the net changes among the relative variables over a period of time or at two or more places.  For example, change in prices production, and more, over the two periods or at two places. 

4) Specialised average 

 Simple averages like, mean, median, mode, and more can be used to compare the variables having similar units.  Index number are specialised average, expressed in percentage, and help in measuring and comparing the change in those variables that are expressed in different units.  For example, we can compare the change in the production of industrial goods and agricultural goods. 

5) Measuring changes that are not directly measurable 

 Cost of living, business activity, and more are complex things that are not directly measurable.  With the help of index numbers, it is possible to study the relative changes in such phenomena (index numbers: characteristics, formula, examples, types, n.d.). Advantages of consumer index number Index number are one of the most widely used statistical tools. 

Some of the advantages or uses of index numbers are as follows: 

a) Help in formulating policies: Most of the economic and business decisions and policies are guided by the index number.

 b) Help in study of trends: Index number help in the study of trends in variables like, export-import, industrial and agricultural production, share prices, and more. 

c) Helpful in forecasting: Index number not only help in the study of past and present behavior, they are also used to forecasting economic and business activities. 

d) Facilities comparative study: To make comparisons with respect to time and place especially where units are different, index number prove to be very useful. 

e) Measurement of purchasing power of money to maintain standard of living: Index numbers, such as cost inflation index help in measuring the purchasing power of money at different times between different regions. 

f) Act as economic barometer: Index numbers are very useful in knowing the level of economic and business activities of a country. So, these are rightly known as economic barometers (index number: characteristics, advantages and limitations, n.d.). 

References 

index number: characteristics, advantages and limitations. (n.d.). Retrieved from http:://thefactfactor.com. index numbers: characteristics, formula, examples, types. (n.d.). Retrieved from http://www.economicsdisussion.net. meaning and characteristics. (n.d.). Retrieved from http://byjus.com/commerce/. what is index number and types. (n.d.). Retrieved from http://businessjargons.com.

Compile by Sonam Yangdon

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