Define Index Number. Why is an Index Number called a Specialized Type of Average?

An index number can be called as a device which measures the relative change in the level of a phenomenon with respect to time, geographical location or some other characteristics. The phenomenon may be the prices of commodities, the physical quantity produced etc.

  • An index number is a statistical measure designed to show changes in a variable or a group of related variables with respect to time, geographical location or other characteristic. —Spiegel
  • Index numbers are devices for measuring differences. in the magnitude of a group of related variables. —Croxton and Cowden
  • Index Numbers are used to measure the changes in some quantity which we cannot observe directly. —Dr. A.L.Bowley

An index number is a specialized type of average. An average is a single figure representing a group of figures. Averages are used to compare two or more series as they represent their central tendencies. But there is a great limitation in the use of average. Averages can be used to compare only those series which are expressed in the same units. But the device of index numbers helps us in comparing change in series which are in different units. Therefore, index numbers are. called specialized type of averages.

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