A price-weighted index and a market-cap-weighted index differ primarily in how they calculate and weigh their components. In a price-weighted index, such as the Dow Jones Industrial Average (DJIA), the weight of each stock is determined by its price per share. Higher-priced stocks have a greater influence on the index's movement, regardless of the company's overall size or market value. For example, if a high-priced stock experiences a significant price change, it will impact the index more than a lower-priced stock, even if the latter represents a larger company.

In contrast, a market-cap-weighted index, like the S&P 500, weights stocks based on their market capitalization, which is calculated by multiplying the stock's price by the number of outstanding shares. In this approach, larger companies with higher market caps have a greater impact on the index. This method is often considered more representative of the overall market, as it reflects the relative size and economic significance of each company.

The key difference lies in their focus: price-weighted indexes emphasize stock prices, while market-cap-weighted indexes emphasize company size. As a result, market-cap-weighted indexes are generally more reflective of broader market trends, whereas price-weighted indexes can be skewed by the performance of a few high-priced stocks.