Index Numbers

In the market the prices of the numerous commodities change on daily basis. The prices of all commodities do not move together. It may be possible that the prices of some commodities may be rising and price of some other commodities may be falling. The rate of change in prices is also different i.e. some prices may be rising faster and some may be rising slower. In order to introduce the element of uniformity the idea of general price level is introduced. This is done by means of index numbers.

Index numbers are devices for measuring the differences in the magnitude of a group of related variables. An index number is a number which indicates the price level at any given date as compared with the level of prices at some standard date called the base.


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