Index number

Index number

An index number is an economic data figure reflecting price or quantity compared with a standard or base value.citation | first=W. E. | last=Diewert | contribution=Index Numbers | editor-last = Eatwell | editor-first = John | editor-link=John Eatwell, Baron Eatwell | editor2-last = Milgate | editor2-first=Murray | editor3-last=Newman | editor3-first=Peter | title= | volume=2 | pages=767–780 ] citation | first=Brent R. | last=Moulton | last2=Smith | first2=Jeffrey W. | contribution=Price Indices | editor-last=Newman | editor-first=Peter | | editor2-last = Milgate | editor2-first=Murray | editor3-last = Eatwell | editor3-first = John | editor3-link=John Eatwell, Baron Eatwell| title=The New Palgrave Dictionary of Money and Finance | volume=3 | pages=179–181 ] The base usually equals 100 and the index number is usually expressed as 100 times the ratio to the base value. For example, if a commodity costs twice as much in 1970 as it did in 1960, its index number would be 200 relative to 1960. Index numbers are used especially to compare business activity, the cost of living, and employment. They enable economists to reduce unwieldy business data into easily understood terms.

In economics, index numbers generally are time series summarising movements in a group of related variables. In some cases, however, index numbers may compare geographic areas at a point in time. An example is a country's purchasing power parity. The best-known index number is the consumer price index, which measures changes in retail prices paid by consumers. In addition, a cost-of-living index (COLI) is a price index number that measures relative cost of living over time.Turvey, Ralph. (2004) " [http://books.google.com/books?id=HOqcFW9b5VoC&pg=PA11&dq=Superlative+index+number&as_brr=3&sig=0pz8BjGjaNoB-HEPK8o09xOH57Q#PPA11,M1 Consumer Price Index Manual: Theory And Practice.] " Page 11. Publisher: International Labour Organization. ISBN 922113699X.] In contrast to a COLI based on the true but uknown utility function, a superlative index number is an index number that can be calculated. Thus, superlative index numbers are used to provide a fairly close approximation to the underlying cost-of-living index number in a wide range of circumstances.

There is a substantial body of economic analysis concerning the construction of index numbers, desirable properties of index numbers and the relationship between index numbers and economic theory.

ee also

*Price index

Notes

References

*Robin Marris, "Economic Arithmetic," (1958).


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