Index number is the tool of statistics which is used for measurement of the changes of variables. When we compare the variables, we see big quantity of raw data which is useless for decision maker. If we take the average of this data,  it will be the index number and on this index number, we can compare the variables like prices, production, consumption and taxes.  There are lots of formulas of calculating of Index number but Following is very simple formula.

Price Index Number

= Total of prices of Current Year/ Total of Prices of Base Year

Benefits  of Index Number

Why are we study index numbers? Is it waste of time. No, this is not waste the time. This is the best use of time because by studying index number, we can know to measure the changes in the variables. You know when you learn the measurement of anything, it will be easy for you to do the business. For example, you have knowledge to measure wheat in kg. Suppose, one person buys wheat of 1 kg and 250 gms. You will measure it correctly. You will take the correct price of this.  Suppose, if you do not know to measure kg., it is very risky for you to give wrong quantity. With this, you will loss in your business. Like this, measuring of changing in the prices is very necessary. Because correct measurement can give benefit for whole economy. For example, India, prices of consumable goods are increasing. Govt. will calculate the index of different consumable goods. If the index number of any consumable good will very high, Govt. will take action to control that good's price first. For controlling, Govt. can give subsidy for giving relief to poor community.

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Svtuition: Index Number in statistics
Index Number in statistics
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