Index Number Theory

Index number theory involves creating single, comparable figures—called index numbers—that measure changes in economic variables like prices, quantities, or costs over time or across different places. These numbers simplify complex data, allowing us to track trends, inflation, or cost-of-living adjustments. For example, a price index shows how prices have increased or decreased since a base year, helping consumers, businesses, and policymakers make informed decisions. Essentially, index numbers condense large data sets into a manageable figure that reflects relative changes accurately and consistently.