Index numbers play a crucial role in the field of statistics as they provide a means to compare and analyze data over time or across different categories. An index number is essentially a relative measure that quantifies changes in a set of data, typically with reference to a base period or base value. In this chapter, we will delve into the fundamentals of index numbers and their significance in various applications, such as economics, finance, and business. We will explore how to construct different types of indices, including the Laspeyres and Paasche indices, and discuss their advantages and limitations.
Additionally, we will study the concept of weighted indices and how to compute them, as well as methods for testing the adequacy and accuracy of index numbers. Understanding index numbers is essential for making informed decisions, monitoring economic trends, and evaluating changes in prices, quantities, or other variables over time. This chapter provides a solid foundation for comprehending the intricacies of index numbers and their practical utility in statistical analysis.