INTRODUCTION

A fundamental part of statistics is the reduction of large

data volumes into forms that can be compared and extracted
conclusions. Thus the mean, standard deviation, and other functions describe
a frequency distribution. The trend and the station indices, for their
part describe time series.

Index numbers are statistical measures of related data, and

they are used to compare this data over time, about a territory
or in other ways. In the practice of administration and economics, usually
there is the difficulty of not being able to relate a variable at a moment
determined, with the same variable but at another time.

More precisely, an index number is defined as a figure

relative that records the average variations in prices, quantities or values
of one or more variables over a period with respect to a specific period.
In other words, an index number reflects relative variations, and not
absolutes, experienced by an economic variable, whether it is the price of a
well, the price level of the economy, the value of exports, or the
gross domestic product
 INDEX NUMBERS
That statistical measure that is used to compare a magnitude (or
a set of magnitudes) in two situations (temporal or spatial)
different; one of which is considered as a reference. (Usually it
it will try to compare different periods of time).

An index number is a relative value expressed as a percentage or

quotient, which measures a given period against a determined base period.
Leonard Kasmier

An index number is a statistical measure designed to put

relieve changes in a variable or in a group of variables related to
regarding time, geographical situation, income, or any other
feature." Spiegel Murray

Index numbers are indicators of various aspects of the

industry and commerce… such numbers will vary with the date and also with the
area of the country to which they refer. The index numbers typically begin
with a base of 100 at a particular time for the country." Taro Yamane.

It is generally calculated like this:

Index= X 100

Example: a merchant has recorded the followingsalesannual.

Taking as a basis the year 1980

Year 1980 1981 1982 1983 1984

Ventas ($) 200.000 250,000 200,000 190,000 220,000

Calculation of a sales index

 Change of a Index
Year Reason
decimal multiplied by 100
1980 200,000/200,000 1.00 100
1981 250,000/200,000 1.25 125
1982 200,000/200,000 1.00 100
1983 190,000/200,000 0.95 95
1984 220,000/200,000 1.10 110

IMPORTANCE
An index number is a relative value with a base equal to 100% or a
multiple of 100% such as 10 and 100. The index numbers are important
concerning business and economic activities. The index numbers
they are offered a way to measure such changes.

Index numbers represent the most suitable tool for

to study the evolution of a series of economic magnitudes that provide us
response to questions such as: Is the economic situation positive or
negative? Is the level of inflation appropriate or not? etc.

An index number can be defined as a statistical measure that

provides us the relative variation of a magnitude (simple or complex) to
through time or space.

Index numbers are very versatile, making them applicable to

any science or field of study. They are essentially used to make
comparisons. In education, index numbers can be used to
compare the relative intelligence of students in different locations or in different years
different.

Managers use index numbers as part of a calculation.

intermediate to better understand other information. Seasonal indices
They are used to modify or improve future estimates.
 In the field where index numbers are of greatest usefulness is in
the economy, since it uses economic indicators to study the
current situations and try to predict future ones, these indicators
economic indicators are essentially index numbers, examples of which are CPI, PNI,
implicit deflator of the PNI, among many others.

TYPES OF INDEX NUMBERS

SIMPLE INDEXES

Simple price indices:

The indexof pricesit is the most used. Compare the changes in the
price between two periods. The price indexto the consumermeasure the changes
global price of variousgoodsof consumptionand also of theservices,and it
used to definethe costof life" Richard Levin

One of the simplest examples of an index number is a relationship

of prices, which is nothing but the ratio between the price of an item in a
given period and its price in another period, known as base period or
reference period. Spiegel Murray

Sea the price of a good in the given period and the price
in the base period. The general formula for the simple price index is:
Leonard Kasmier

X 100

Example: determine the simple price indexes for the year 2000 of
the three goods considered, using 1995 as the base year:

Prices and consumption of three goods in a metropolitan area

Unit of Price Price Consumption Consumption

Merchandise
quotation 1995 2000 1995 2000
Milk Liter 0.99 1.29 15.0 18.0
 Piece of a
Pan 1.10 1.20 3.8 3.7
libra
eggs Dozen 0.80 1.20 1.0 1.2

Dand the milkI= x 100 = 103.3

Of the bread I= x100= 109.1

From the eggs I= x100 = 150.0

Simple quantity indices

The quantity index measures how much the number or amount changes over time.
amount of a variable.

Instead of comparing the prices of an item, we can be

interested in comparing the quantities (or volumes) of production,
consumption [Link] such cases, we speak of relationships of quantity or

relationshipsof volumeMurray Spiegel

Similarly, if indicate the quantity of an item produced or

sold in the given period and the amount in the base period, the formula
general for the simple index of quantity is: "Leonard Kasmier"

X 100

Example using Table 1 as a reference, determine the indices.

simple quantities of the three goods considered in the year 2000, using
1995 as the base year.

From the milk I= x 100=120.0

 Of the bread I= x 100= 97.4

From the eggs I= x100= 109.1

Simple value index

Value index measures changes in total monetary value... measures the

changes in the monetary value of a variable. Indeed, it combines the changes
of price and quantity to present a more informative index.

If p is the price of an item during a period and q is the quantity

(or volume) produced, sold, etc. During that period, so why did it
call the total value

The value of a commodity in a given period is equal to

price of the merchandise multiplied by the quantity produced (or sold). In
consequence indicates the value of a merchandise in the given period,

while indicate the value of the goods in the base period. The
The general formula for a simple value index is: "Leonard Kasmier

X 100

Example taking table 1 as a reference, calculate the simple indices.

of value for the year 2000, using 1995 as the base year

From the milk I= x100 = 156.4

Of the bread I= x100= 106.2

Of the eggs x 100 = 180.0

COMPOSITE INDEX NUMBER

 It happens when a single index can reflect a set orgroupof
changing variables" Richard Levin

Aggregate indices

Unweighted index of aggregates

...the prices of various items or goods could simply

to add up both for the given period and for the base period,
respectively, and then compare themselves" Leonard Kasmier

The simplest form of a composite index is the non-index.

weighted aggregates. Unweighted means that allthe values
included in calculating the index have equal importance. Aggregated means that
we add all [Link] main advantage of this index is its
simplicity

The unweighted index of aggregates is obtained by summing all the

elements of the compound over a certain period and then dividing the
result between the sum of the same elements during the base period.
Richard Kasmier

The equation is:

Unweighted index of aggregate quantity= x 100

Where:

amount of each element in the group during the year

actual
amount of each element in the group during the year
base
Disadvantages of the unweighted aggregate index
 It does not take into account the relative importance of the various articles.
Thus, assign equal weight to milk as to shaving cream when it comes to
calculate the consumer price index

The units chosen when recording the prices (gallons, pounds, kilos, etc.)
Mirror Murray

Weighted aggregate index

"In order to avoid the disadvantages of the unweighted index"

added, we assign a weight to the price of each item, generally the quantity
(or volume) sold during the base year, during the given year." Spiegel
Murray

"We often need to attribute greater importance to changes of"

some variables that for others when calculating an index. This weighting gives us
allows for the inclusion of more information than just price changes through the
time. It also allows us to improve the accuracy of the overall estimation of the
price level, based on the sample.

Weighted aggregate price index= x 100

Where:

price of each element in the group in the current year

price of each element of the group in the base year
Q= selected weighting factor of quantity

Existin 3 methodsto weigh an index

PAASCHE METHOD

It differs from the first because it uses measures of quantity in

the current period.
It is calculated as follows:
 Paasche Index= x 100

Where:

prices in the current period

quantities in the current period

prices in the base period

Example calculate the Paasche aggregate price index for the year 2000
of the three goods in table 1, using the year 1995 as a base.

Merchandise
Milk 23.22 ($) 17.82($)
Pan 4.44 4.07
Eggs 1.44 0.96
total 29.10($) 22.85($)

I= x 100 = 127.4

Advantages of the Paasche Method: It is very useful because it combines the

effects of changes in price and consumption patterns, is a better
indicator of the general changes in the economy

Disadvantages of the Paasche Method: The measures of quantity in a

index periods tend to be different from those of another index period, which is why
It is impossible to attribute the difference exclusively to price changes.
existing between 2 indices, it is difficult to compare the indices of the different
periods determined by this method.

LASPEYRES METHOD
 Estthe methodit is based on the quantities consumed during the period
basis, is the most commonly used technique as it requires measurements of quantities during
a single period. As each index number is based on the same price and
base amount, the managers can compare the index of a period with that of
another
It is calculated this way:

Laspeyres Index= X 100

Where:

prices in the current year

sold quantities in the base year

price in the base year

Example to calculate the Laspeyres aggregate price index for the

year 2000 of the three goods table 1, using 1995 as the base year.

Merchandise
Milk 19.35 ($) 14.85($)
Pan 4.56 4.18
Eggs 1.20 0.80
total 25.11($) 19.83

I= x 100 = 126.7

Advantages of the Laspeyres Method

The comparability of one index with another

Using the same amount from the base period allows us to make a
direct comparison.
 Disadvantages of the Laspeyres Method

It does not take into account the changes that occur in the patterns of
consumption.
 Conclusion
Index numbers have long been a
vital tool for economists, managers, and even for the government
these constitute a great help since many times it is not possible
to manage information, which combines several different factors, such as weight and
dollars, for example.

In many countries, countless indices have been calculated,

different things, including price indices and indices of
production, among the price indices we have, for example, the price index of
wholesale price consumer (raw materials) that are processed
by the B.L.S. (Bureau of Labor Statistics of the U.S.).

The use of index numbers is very important for various

fields, for example in government, are used to determine policies
economic.

An index number must be constantly updated, that is,

They must make new calculations so that the index is based on a period of
more current time for example.
 BIBLIOGRAPHY
TIRED, Enrique. (1975). Course ofstatisticsgeneral. Center
inter-American of teachingof statistics (CIENES), Santiago de
Chile.
KASMIER, Leonard J. (2000). Applied statisticsto the administrationy
to the economy. 3rdeditMexico, MCGraw-Hill
LEVIN, Richard. (1996). Statistics for Administrators. Sixth Edition.
Pearson Education

Sources Consulted on the Internet

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