GENERAL PRINCIPLES OF MEASURING PRICE AND VOLUME INDICES

10.12 The creation of an integrated system of price and volume indices is based on the assumption that, at the level of a single homogeneous good or service, value (v) is equal to the price per unit of quantity (p), multiplied by the number of quantity units (q), that is

v ≡ p × q

10.13 Definition:

Price is defined as the value of one unit of a product, for which the quantities are perfectly homogeneous not only in a physical sense but also in respect of a number of other characteristics described in paragraph 10.16. To be additive in an economic sense, quantities must be identical and have the same unit price. For each aggregate of transactions in goods and services shown in the accounts, price and quantity measures have to be constructed so that

value index = price index × volume index

This means that each and every change in the value of a given flow must be attributed either to a price change or to a change in volume or to a combination of the two.

10.14 For transactions in goods it is in many cases easy to define the physical unit involved in the transaction and hence the price per unit. In a number of cases, e.g. for unique capital goods, it is more difficult and special solutions have to be adopted.

For transactions in services it is frequently more difficult to specify the characteristics which determine the physical units and differences of opinion on the criteria to be used may arise. This may concern important industries such as financial intermediation services, wholesale and retail trade, services to enterprises, education, research and development, health or recreation. In view of the growing importance of the service industries, it is essential to find common solutions to the problem of the choice of physical units, even if they are only conventional ones.