Why do we use Index Numbers?

Economists use index numbers when making comparisons.

They can describe trends in a change of any economic data.

How to Calculate Index Numbers

Index numbers can be calculated in three easy steps:

1) The first step is to find the value of the base period

E.g. a firm's revenue was £2 million in 2013



2) The next step is to find the value of another period you wish to compare to the base period

E.g. the firms revenue rose to £3.2 million in 2014



3) The final step is to divide the value from step two by the base value then multiply by 100

Index Number = (3,200,000 / 2,000,000) x 100 = 160

The base value will always be equal to 100 (100%), therefore a value of 160 in 2014 indicates growth of 60%