Question

Answers the following

Explain the different types of index numbers.

Answer 1

Index number is a statistical measure that is used to calculate the changes in variables, such as price and cost of living, with reference to different time periods. The following are the three types of index numbers-

i. Price Index Number: A price index number is used to calculate the changes in the prices of goods produced in a year with reference to the prices in the base year. In other words, these price indices are used to measure relative changes in the prices of goods over a time period. There are three types of price indices. These are:
a. Wholesale price index
b. Retail price index
c. Cost of living index

ii. Quantity Index Number: A quantity index number is used to calculate the changes in the quantities of industrial or agricultural goods produced in a year with reference to the base year. In other words, these quantity indices are used to measure relative changes in quantities over a time period. This indicates the level of output and its progress over a period of time.
Mathematically,

Quantity index number $=\frac{\sum P_0{Q}_1}{\sum P_0{Q}_0}\times 100$

iii. Special purpose index number- It is an index number that is created or constructed for a unique and specific purpose. For instance, import - export index, labour-productivity index and share price index are examples of special purpose index numbers, as they are constructed for a particular purpose.