ABSTRACT
This chapter explains the use of index numbers. It discusses the problems associated with the index numbers. The chapter provides a simple and composite index and builds the index numbers using the aggregative and the average of relatives methods. Index numbers may be classified as either a simple index or a composite index. The simple index expresses the relationship between two numbers with one of the numbers used as a base. The composite index number combines information from a number of related time series into a single series. Indices may be used to measure movement of prices, quantities, or values. The price index measures the change in prices received by producers and consumers. The quantity index measures change in production. The value index that has two components, namely, the quantity and price, measures the change in total value. The change in value may result from change from either the quantity or the price.
