Construction of Value Index Number

The nature of value index number has been explained earlier under the head ‘Types of index number’. For construction of such index numbers, the following formula is to be applied:

       V01  = ∑V1/∑V0 × 100

Where, V₀₁ = Value index of the current year w.r.t the base year’s value.

    ∑V1  = Total of the values of the commodities consumed, produced, or marketed during the current year i.e. ∑P0q0.

And       ∑V0   = Total of the values of the commodities consumed, produced, or distributed during the   base year i.e.∑P0q0.

The above formula, also, can be substituted as under:

       V₀₁   =∑P1q1/∑P0q0  × 100

Since, the value of a thing is equal to the product of its quantity and price, the consistency of this formula is tested with reference to the product of the price index and the quantity index. If, the value index tallies with the product of the price land quantity indices, the consistency of the formula is established.