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To overcome the disadvantage of a simple average of relative method, we can use ____ a) weighted average of relative method b) chain base index number c) simple aggregative method d) fixed base index number?
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To overcome the disadvantage of a simple average of relative method, w...
Weighted Average of Relative Method is the answer to overcome the disadvantage of a simple average of relative method.
Explanation:
The Simple Average of Relative Method is a simple method to calculate index numbers. But it has a disadvantage of not taking into account the importance of different items in the base period. To overcome this disadvantage, we can use the Weighted Average of Relative Method. In this method, we give different weights to different items in the base period according to their importance.
Steps to calculate Weighted Average of Relative Method:
1. Assign weights to different items in the base period according to their importance.
2. Calculate the relative prices of each item in the current period with respect to the base period.
3. Multiply each relative price with its corresponding weight.
4. Add all the weighted relative prices to get the weighted aggregate.
5. Divide the weighted aggregate by the sum of weights to get the index number.
Advantages of Weighted Average of Relative Method:
1. It takes into account the importance of different items in the base period.
2. It gives a more accurate representation of the changes in the price level.
3. It is easy to understand and calculate.
Disadvantages of Weighted Average of Relative Method:
1. It requires the availability of weights for different items in the base period.
2. It is sensitive to the choice of weights.
3. It may not be suitable for comparing price levels of different countries or regions.
Conclusion:
The Weighted Average of Relative Method is a better method than the Simple Average of Relative Method to calculate index numbers. It takes into account the importance of different items in the base period and gives a more accurate representation of the changes in the price level. However, it requires the availability of weights for different items in the base period and is sensitive to the choice of weights.
Explanation:
The Simple Average of Relative Method is a simple method to calculate index numbers. But it has a disadvantage of not taking into account the importance of different items in the base period. To overcome this disadvantage, we can use the Weighted Average of Relative Method. In this method, we give different weights to different items in the base period according to their importance.
Steps to calculate Weighted Average of Relative Method:
1. Assign weights to different items in the base period according to their importance.
2. Calculate the relative prices of each item in the current period with respect to the base period.
3. Multiply each relative price with its corresponding weight.
4. Add all the weighted relative prices to get the weighted aggregate.
5. Divide the weighted aggregate by the sum of weights to get the index number.
Advantages of Weighted Average of Relative Method:
1. It takes into account the importance of different items in the base period.
2. It gives a more accurate representation of the changes in the price level.
3. It is easy to understand and calculate.
Disadvantages of Weighted Average of Relative Method:
1. It requires the availability of weights for different items in the base period.
2. It is sensitive to the choice of weights.
3. It may not be suitable for comparing price levels of different countries or regions.
Conclusion:
The Weighted Average of Relative Method is a better method than the Simple Average of Relative Method to calculate index numbers. It takes into account the importance of different items in the base period and gives a more accurate representation of the changes in the price level. However, it requires the availability of weights for different items in the base period and is sensitive to the choice of weights.
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To overcome the disadvantage of a simple average of relative method, w...
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To overcome the disadvantage of a simple average of relative method, we can use ____ a) weighted average of relative method b) chain base index number c) simple aggregative method d) fixed base index number?
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To overcome the disadvantage of a simple average of relative method, we can use ____ a) weighted average of relative method b) chain base index number c) simple aggregative method d) fixed base index number? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about To overcome the disadvantage of a simple average of relative method, we can use ____ a) weighted average of relative method b) chain base index number c) simple aggregative method d) fixed base index number? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for To overcome the disadvantage of a simple average of relative method, we can use ____ a) weighted average of relative method b) chain base index number c) simple aggregative method d) fixed base index number?.
To overcome the disadvantage of a simple average of relative method, we can use ____ a) weighted average of relative method b) chain base index number c) simple aggregative method d) fixed base index number? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about To overcome the disadvantage of a simple average of relative method, we can use ____ a) weighted average of relative method b) chain base index number c) simple aggregative method d) fixed base index number? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for To overcome the disadvantage of a simple average of relative method, we can use ____ a) weighted average of relative method b) chain base index number c) simple aggregative method d) fixed base index number?.
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