Introduction to Quantitative Methods

SUMMARY: An index number is a statistical measure designed to show changes in variables or a group of related variables with respect to time, geographic locations or other characteristics of the variable under study. It is referred to as a measure of change, a device to measure change or a series representing the process of change. Index numbers are used as a barometer to indicate the changes in economic activity. They also provide framework for decision making and to forecast future events. There are three types of index numbers which are generally used. They are price index, quantity index and value index. These index numbers can be developed either by aggregate method or by average of relatives method. This chapter discussed various methods of weighting an index like the Laspeyres method, Paasche method, Fisher method and the fixed weight aggregates method. Although there are many problems related to developing an index it is a handy