What Are Index Numbers?

This chapter introduces the concept of index numbers, particularly in the context of economics. Index numbers are used to measure changes over time or differences between places or individuals, often for quantities that are difficult to measure directly. The chapter begins with a definition from John Maynard Keynes, highlighting that an index number quantifies changes in magnitudes that are otherwise hard to measure accurately. The term “index number” has its origins in the word “index,” which initially meant a pointing finger, evolving to signify something that indicates or points out. Its economic application began in the mid-nineteenth century, with significant contributions from economists like William Newmarch and William Stanley Jevons. This chapter explains the structure of the book that includes chapters on the history of index numbers, representative index formulas, advanced index number theory, and practical applications.