Business statistics

Class : B.Com 2 year
Subject : Business statistics
Faculty's name: Dr. Asmita Jain
Topic : Index number

Tests of Adequacy of Index Numbers
Index numbers are used to measure changes in prices, quantities, or values over time. To be adequate (reliable and acceptable), an index number should satisfy certain tests of adequacy. These tests check whether the index number formula is logically consistent and accurate.

1. Unit Test (Test of Dimensional Consistency)

Meaning:
An index number should be independent of the units of measurement (kg, quintal, meter, etc.).
Explanation:
If units of quantity are changed, the value of the index number should not change.

Conclusion:
• If an index satisfies this test → it is adequate.
• Price index numbers generally satisfy this test.

. Time Reversal Test
Meaning:
If the time periods are reversed, the product of the two index numbers should be 1.
Formula:
P01×P10 = 1
Where:
• P01​ = index from base year (0) to current year (1)
• P10​ = index from current year (1) to base year (0)