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INDEX NUMBER
Meaning :- An index number is a number which is used as a device for comparison between the price, quantity or
value e.g. a group of articles ( related variables) in different situations, e.g. at a certain place or a period of time and
that at another place or period of time. When the comparison is in respect of prices, it is called as INDEX NUMBER
OF PRICES OR PRICE INDEX NUMBER ; when in respect of physical quantities it is termed as „Quantity Index
Number‟ Other index number are defined in the same manner. The price or value of the period with which those of the
other periods are compared is called the BASE PERIOD. Usually of period is of a year duration. Other periods are
called current period index numbers for the base period is taken to be 100 e.g., The statement “Index number of
whole sale prices in India for the year 1970 was 179 (Base 1961-62 ; 100)” signifies that as compared with the
wholesale prices during the period 1961-62, the wholesale prices of all articles during 1970 was on an average 179%.
In other words, the price increased by 79% in 1970 over the 1961-62 prices.
Definition :- Index No. measures the relative changes in the value of a variable as a group of related variable at two
different times or places. ASHUTOSH GUPTA CLASSES Phone: 9837121456
Splicing :- Splicing of index numbers is similar to base shifting. Sometimes an index number series constructed on the
basis of a particular base period is discontinued after some period and a new series (having the last year of the first
series as base) is started because of certain substantial changes in weights, etc. When this is done, it becomes
necessary to combine the two series into one so that a comparison of the indices between different years is possible.
The technique of combining is referred to as splicing of index numbers.
Deflating of Index Numbers :- Deflating means adjusting, correcting or reducing a value which is inflated. Hence by
deflating of the price index numbers we mean adjusting them after making allowance for the effect of changing price
levels. This is particularly desirable in the case of an economy which has inflationary trends because in such an
economy, the increase in the prices of commodities over a period of years means a fall in their real incomes.
Actual Wages
(i) Real wages / Real Income / Deflated Income  x 100
Price Index

Real Wages of current year

(ii) Real Wage Index / Deflated Index  x 100
Real Wages of base year

VARIOUS FORMULAE FOR INDEX NUMBERS

(A) -:Simple (unweighted) Index Numbers:-
1. Simple aggregate of actual prices / Simple aggregative price index

  p1 
 I   100  po = base year price ; p1 = current year price
  p0 
2. Simple Arithmetic Mean of price relatives

  
 100  ;  I   P 
price in the given year 
 P(price relative) 
 price in the base year   n 

  logP 
3. Simple Geometric Mean of price relatives I  Antilog 
 n 
(B) -: Weighted Index Numbers :-

4. Family Budget Method (Weighted Arithmetic Mean of price relatives)


I   wP 
 w 
 

5. Weighted Geometric Mean of Price Relatives


I   w logP 
 w 
 
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(C) -: Aggregate Expenditure Method ;-
 p1q 0
6. Laspeyre’s price index formula I  100 q 0  base year quantity
 p0q0
 p1q 1
7. Paasche’s price index formula I 100 „q1‟ = current year quantity
 p 0 q1

 p1q 0   p1 q 1
8. Marshall Edge worth’s price index formula I  100
 p 0 q 0   p 0 q1
  p1q 0  p1q 1 
9. Fisher’s Ideal price index formula : I  100   
  p 0 q 0  p 0 q1 
10. Dorbish Bowley’s Index No. : The A.M. of Laspeyre‟s index no. and Paasche‟s index no. is known as Bowley‟s
index no.
Practical Problems
1. From the following data, Calculate price index numbers for 1980 with 1970 as base by :
(i) Laspeyre‟s method ; (ii) Paasche‟s method ; (ii) Marshall – Edgeworth method, and (iv) Fisher‟s ideal method

1970 1980
Commodity Price Quantity Price Quantity
A 20 8 40 6
B 50 10 60 5
C 40 15 50 15
D 20 20 20 25

2. Compute an appropriate price & quantity index no. for purposes of comparison from the following data:
Item Base Year Current Year
Price (Rs.) Total Value Price (Rs.) Total Value
A 6 300 10 560
B 2 200 2 240
C 4 240 6 360
D 10 300 12 288
E 8 320 12 432

3. From the following data construct a price index no. of the group of 4 commodities by using the appropriate formula
Commodity Base Year Current Year
Price per unit Expenditure Price per unit Expenditure
A 20 400 50 750
B 40 160 80 400
C 10 100 20 240
D 50 250 100 600

4. Using the following data, show that fisher‟s formula satisfies both the time reversal & factor reversal test :-
Price (Rs.) per unit No. of units
Commodity Base Period Current Period Base Period Current Period
P 6 10 50 56
Q 2 2 100 120
R 4 6 60 60
S 10 12 30 24
T 8 12 40 36
5. Find shifted price index to the base 1982 for the following data :-
Year 1980 1981 1982 1983 1984 1985
Price Index(1980 = 100) 100 105 110 112 115 117
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6. Compute index numbers from the following taking 1984 as the base & shift the base to 1986.
Year 1984 1985 1986 1987 1988
Price 10 12 15 21 20
7. Splice the following two index number series, Series A forward & the series B backward :
Year 1983 1984 1985 1986 1987 1988
Series A 100 120 150 -- -- --
Series B -- -- 100 110 120 150
8. The following table gives the money wages & price index no. based on 1959. Calculate Deflated Index ?
Year 1959 1962 1963 1964 1965 1966 1967
Wages (in Rs.) 200 240 350 360 360 370 375
Price Index No. 100 160 280 290 300 320 330
9. Monthly wages average in different years is as follows. Calculate real wages index numbers.
Year 1967 1968 1969 1970 1971 1972 1973
Wages 200 240 350 360 360 380 400
Price Index 100 150 200 220 230 250 250
10. The following table gives the money wages and cost of living index no. based on 1979. Calculate the real wages.
Year 1979 1980 1981 1982 1983 1984 1985
Wages (Rs.) 65 70 75 80 90 100 120
Cost of living Index no. 100 110 120 130 150 200 250
11. The graph indices and the corresponding weights for the working class cost of living index numbers in an
industrial city for the years 1976 and 1980 are given below
Group Weight Group Index
Food 71 370 380
Clothing 3 423 504
Fuel etc. 9 469 336
House rent 7 110 116
Miscellaneous 10 279 283
Compute the cost of living indices for the two years 1976 and 1980.
12. Calculate the cost of Living Index Number from the following data :
Price Weight
Items
Base year Current Year
Food 30 47 4
Fuel 8 12 1
Clothing 14 18 3
House Rent 22 15 2
Miscellaneous 25 30 1

13. From the table of group index number and group weights given below, calculate the cost of living Index:
Group Index No. Weight
Food 428 45
Clothing 240 15
Fuel & Light 200 8
House Rent 125 20
Others 170 12
14. The cost of living index for the working class families for 1983 was 267·22 Using the data, find the weight of the
fuel and lighting group :
Group Weight Index No.
Food 46 352
Fuel & Lighting ? 220
Clothing 9 230
House Rent 13 160
Misc. 22 190
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1985 – Nov (2) Using Fisher‟s Ideal Formula, compute price and quantity index numbers for 1984 with 1982 as base
year, given the following information:
Commodity A Commodity B Commodity C
Price (Rs.) Quantity (Kg) Price (Rs.) Quantity (Kg.) Price (Rs.) Quantity (Kg.)
1982 5 10 8 6 6 3
1984 4 12 7 7 5 4
1998 – May (12) Find Laspeyre‟s Paasche‟s & Fisher‟s price and quantity index number from the following data:
Commodity Base Year Current Year
Price (Rs.) Quantity (Kg.) Price (Rs.) Quantity (Kg.)
A 05 25 06 30
B 10 05 15 04
C 03 40 02 50
D 06 30 08 35

2000 – May 13(a) Compute Fisher‟s ideal price and quantity index numbers for the current year on the basis of the
following data ASHUTOSH GUPTA CLASSES Phone: 9837121456
Item Base Year Current Year
Price (in Rs.) Total Value (in Rs.) Price (in Rs.) Total Value (in Rs.)
A 6 300 10 560
B 2 200 2 240
C 4 240 6 360
D 10 300 12 288
E 8 320 12 432
2000 – Nov 13(a) For the following data, compute the Laspeyre‟s and Paasche‟s price and quantity index number for
1980 with 1970 as the base year:
Commodity 1970 1980
Quantity Value Quantity Value
A 50 350 60 420
B 120 600 140 700
C 30 330 20 200
D 20 360 15 300
E 5 40 5 50
14(a) May 2004 :- From the data given below construct Laspeyre‟s and Paasche index numbers :-
Commodities Base year Current year
Price Expenditure Price Expenditure
A 2 40 5 75
B 4 16 8 40
C 1 10 2 24
D 5 25 10 60
1998 – Nov 14(a) The following data shows the prices and quantities of four commodities A, B, C and D in the base
and current years:
Base Year Current Year
Commodity
Price (Rs.) Quantity (Kg.) Price (Rs.) Quantity (Kg.)
A 10 40 12 50
B 12 25 15 20
C 15 10 20 12
D 20 05 30 02
Use the above data to check whether Fisher‟s ideal index satisfies the Time Reversal and Factor Reversal tests.
2001 – May 14(a) Compute Fisher‟s ideal number from the data given below and check whether the time reversal test
is satisfied:
Commodity Base Year Current Year
Price Quantity Price Quantity
A 2 7 6 6
B 3 6 2 3
C 4 5 8 5
D 5 4 2 4
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12(b) May2003:- The following are the index numbers of wholesale prices of a commodity based on the year 1996 :
YEAR 1996 1997 1998 1999 2000 2001 2002
INDEX NUMBER 100 108 120 150 210 225 240
Prepare new index numbers taking 1999 as base year.
1985 – May 10(b) Wholesale price index numbers in a certain country for three years, viz., 1955, 1960 and 1965 with
1960 as reference base are 80, 100 and 120 respectively. Wholesale index numbers in the same country for two years,
viz., 1965 and 1970 with 1970 as reference base are also available and they are 90 and 100 respectively. What would
be the index number of 1960 with 1970 as reference base and the index number of 1970 with 1960 as reference base?
1987 – May 12(a) The following three series of index numbers are given:
Year Index A Index B Index C
(1954 = 100) (1969 = 100) (1975 = 100)
1954 100 --- ---
1960 120 --- ---
1969 200 100 ---
1975 --- 200 100
1985 --- --- 120
Prepare spliced series of Index Numbers with base 1975 = 100
1999 – Nov 13(a) An index is at 100 in 1991. It rises 5% in 1992, falls 6% in 1993, falls 5% in 1994, rises 4% in
1995 and 7% in 1996. Calculate the index numbers for all these years with 1991 as base ?

1. The weights used in Laspeyre's price index are denoted as: (a) qo (b) q1. (c)po (d) p1
2. The weights used in Laspeyre's quantity index are denoted as: (a) qo (b) q1. (c) p0 (d) p1
3. The weights used in Paasche's price index are denoted as: (a) qo (b) q1. (c) p0 (d) p1
4. The weights used in Paasche's quantity index are denoted as: (a) qo (b) q1. (c) p0 (d) p1
5. Weighted aggregative index formula using base year quantities as base is called:
(a) Laspeyre's price index (b) Paasche's price index (c) Bowley's price index (d) Fisher's price index
6. Weighted aggregative index formula using the average of base year and current year's quantities as weights is
called: (a) Laspeyre's price index (b) Fisher's price index (c) Marshall-Edgeworth's index (d) Bowley's index
7. The geometric mean of Laspeyre's and Paasche's indices is:
(a) Fisher's ideal index (b) Bowley's index (c) Marshall and Edgeworth's index (d) None of these.
8. Weighted average of relatives if base year value is taken as weights gives:
(a) Fisher's index (b) Laspeyre's index (c) Paasche's index (d) Bowley's index
9. The formula for simple average of price relative is: ASHUTOSH GUPTA CLASSES Phone: 9837121456
p
(a) 1 Σ 1  100
p q
(c) 1 Σ 1 100
(b) Σ 1
 100 (d) None.
n p p n q
0 0 0