FRAME 14.

Percentages are a useful method for comparing various items. However, to make comparisons

over several time periods, the INDEX NUMBER is often a better tool. Percent change measured

change over two time periods. Index numbers are used to compare like items in each of several

years to one common year which will be called a base year. In terms of a formula, we have the

following:

Index number = Value in any time period X 100

Value in base time period

Consider the following example involving the cost for a television set during a seven year period

where 1985 is the base year.

YEAR

PRICE

1983

2

1984

388

(base) 1985

400

1986

420

1987

424

1988

460

1989

468

Using the index number formula, the index number for 1985 is as follows:

Index Number for 1985 = 400 X 100

400

= 1 X 100

= 100

Note that we compared the price for 1985 to the price for the base ear which also happened to

be 1985. Just as with a percent we multiplied by 10O. In fact, index numbers are sometimes

called relative percentages, but index numbers never include the word "percent." The index

number for 1985 is simply 100, not 100 percent.

QUESTIONS:

What is the index number for 1983? _______________

What is the index number for 1987? _______________