How index numbers are calculated and interpreted, including the base year and the use of weights
An index number tracks how a variable changes over time by comparing it to a fixed starting point called the base year, which always equals 100. Weights make the index more accurate by giving bigger influence to more important items.
Formula
Index value = (Current value ÷ Base year value) × 100
Real World
The UK's CPI basket assigns a weight of roughly 140 per 1,000 to transport costs; when petrol prices spiked in 2022, this heavy weighting meant transport alone added over a percentage point to the UK's headline inflation figure.
Exam Focus
Show the index number calculation explicitly in exam answers — writing out the formula and substituting values earns method marks.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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