Characteristics of Index Numbers
The various features of Index Numbers are as follows:
1. Specialized Averages:
To compare two or more series, averages like mean, median and mode can be used. But averages can not be used for comparison when series are composed of different types of items, or if two or more series are expressed in different units. Index numbers enable comparing changes in series.
2. Expressed in Percentages:
The magnitude of a group’s changes is expressed in terms of percentages, which are independent of the measurement units. It helps in figuring out how two or more index numbers compare in various circumstances. Although, the % sign is never used.
3. It assesses the impact of changes with respect to time or location:
To compare changes over time, between places, and within categories, index numbers can be used. For example, the cost of living in two locations may differ at the same time, or the cost of living in one city can be compared over two time periods.
4. It measures the change that can not be measured directly:
Its purpose is to examine changes in the effect of such factors that cannot be observed directly. For example, the cost of living can not be measured directly. We can only study relative changes by examining variations in some related external factors.
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