An index is essentially a ratio derived from a series of observations whose numericalscale can be used to make relative comparisons between any particular values with areference number, revealing relative changes over any period of time. for example, anindex with a base of 100 that changes in price from 125 to 130 represents a relativechange of 5% (this differs from the percentage calculation you are assuming, whichwould look something like [130-125]/125 = 4% - a calculation that is not inherent in theindex values themselves). the same information is not revealed by an averagebecause an average does not provide a beginning reference number with whichrelative comparisons can be made. the index reveals relative percentage changesover any time period simply by looking at two values and knowing the base value. anaverage does not.
Answer Anonymously
Copy Link
