Theory Thursdays! Interesting indices

Most students will now have met indices in some shape or form in their A-level course, probably in relation to the Consumer Price Index. This extension activity helps students to develop their understanding of the construction of indices in general. As a starting point, you may want to ask your students to contribute towards the latest Economist Big Mac Index, which looks at the price of a Big Mac in various cities around the world in order to work out whether exchange rates are over- or under- valued as well as the cost of living in various countries. The Economist has asked people around the world to go into their local McDonald’s and then post the price of a Big Mac onto their online forum - you can do this here.

An interesting index also recently constructed by the Economist is the shoe-throwers index , which provides a measure of an Arab country’s vulnerability to revolution. Students could take a look at this index, and the Big Mac Index, and then develop their own suggestions for interesting indices, and what factors might be taken into account in their construction. These indices could range from measuring consumer/business confidence in a local town, through to alternative price index measures, or an index which looks at the economic well-being of a particular town or street local to students.

A neat summary of some of the common pitfalls in measuring economic data and developing indices can be found here.

It would be great to hear about some of the suggestions that your students come up with!