What is the difference between a price index and a quantity index?

What is the difference between a price index and a quantity index Introduction: The Significance of Economic Indices Hello everyone! Economic indices play a crucial role in understanding market dynamics and making informed decisions. Two key indices that often take the spotlight are price indices and quantity indices. While they may seem similar at first, they serve distinct purposes and provide unique insights. Today, we'll explore the differences between these indices, shedding light on their individual characteristics and applications. Price Index: Capturing Inflation and Deflation A price index, as the name suggests, measures the average price changes of a basket of goods and services over time. It serves as a reliable indicator of inflation or deflation within an economy. The most well-known price index is the Consumer Price Index (CPI), which reflects the price changes of goods and services commonly purchased by households. By tracking the CPI, policymakers, businesses, and individuals can gauge the impact of price fluctuations on purchasing power and plan accordingly. Quantity Index: Tracking Changes in Output On the other hand, a quantity index focuses on changes in the physical output of goods or services. It provides insights into production trends and is often used to analyze productivity growth.