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Important Questions: Index Numbers | Economics Class 11 - Commerce PDF Download

Q1: Define weighted index number.
Ans:
A weighted index number is an index in which different items of the series are assigned varying weights based on their relative importance. This method acknowledges that not all items contribute equally to the overall change, allowing for a more accurate representation of the variation in the group of variables being measured.

Q2: State the two types of price index numbers.
Ans: 
The two types of price index numbers are:

  • Consumer price index: Reflects the average change in prices paid by specific consumer groups.
  • Wholesale price index: Measures the relative difference in wholesale market prices of goods.

Q3: Define index number.
Ans: 
An index number is a statistical measure designed to illustrate changes in a group of related variables or a single variable concerning time, specific characteristics, and geographical location. It serves as a numerical representation of the relative changes in a set of values, enabling comparisons across different periods or categories.

Q4: Name the consumer groups for which the consumer price index number is computed.
Ans: 
The consumer price index number is computed for various consumer groups, including:

  • Industrial workers
  • Urban non-manual employees
  • Agricultural laborers

Q5: What is the wholesale price index?
Ans: 
The wholesale price index calculates the relative difference in the prices of goods traded in wholesale markets. It is used to monitor price changes in bulk transactions between manufacturers and retailers, providing insights into inflationary trends within the production and distribution sectors.

Q6: What is a simple index number?
Ans: 
A simple index number is an index in which all items of the series are given equal weightage or importance. Each item contributes equally to the calculation of the index, simplifying the computation process, especially when all items are considered to be of equal significance.

Q7: What should be the base year like?
Ans: 
The base year should be a period without significant fluctuations, neither too distant nor too recent in history. It should be a time frame for which reliable and comprehensive data are available. The choice of the base year profoundly influences the accuracy of the index number's representation of changes over time.

Q8: Define consumer price index number.
Ans:
The consumer price index number is an index that measures the average change in prices paid by specific consumer groups for goods and services consumed in the current year compared to a base year. It reflects the fluctuations in the cost of living and is commonly used to assess inflation and its impact on consumers.

Q9: Name one principal limitation of index numbers.
Ans: 
One principal limitation of index numbers is their lack of uniformity in the unit of currency and the composition of production across different regions and countries. This disparity makes it challenging to construct an index number that facilitates accurate international comparisons, limiting its applicability in a global context.

Q10: Explain price relative.
Ans: 
A price relative is the percentage ratio of the value of a variable in the current year to its value in the base year. It provides a relative comparison of the current price or value of a commodity or service to its price in a reference or base year, indicating the extent of change over time.

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FAQs on Important Questions: Index Numbers - Economics Class 11 - Commerce

1. What are index numbers and how are they calculated?
Ans. Index numbers are statistical measures used to compare changes in a variable over time. They provide a way to track the relative change in a specific variable, such as prices, production levels, or economic indicators. The calculation of index numbers involves selecting a base period and assigning it a value of 100. Subsequent periods are then compared to the base period, and the percentage change is calculated using a formula. This formula typically involves dividing the current period's value by the base period's value and multiplying by 100.
2. Why are index numbers important in economics?
Ans. Index numbers play a crucial role in economics as they provide a means to analyze and compare changes in various economic variables. These variables can include prices, wages, production levels, employment rates, and other economic indicators. By using index numbers, economists can track and measure the relative changes in these variables over time, facilitating better decision-making, policy formulation, and economic analysis. They are widely used in economic research, forecasting, and policy evaluation.
3. What are the limitations of using index numbers?
Ans. While index numbers are useful tools for comparing changes in variables, they do have certain limitations. One limitation is that index numbers only provide a relative measure of change and do not reveal the actual values of the variables. Another limitation is the choice of the base period, which can impact the interpretation of the index. Additionally, index numbers may not account for changes in quality, substitution effects, or other factors that can affect the accuracy of the measurement. It is important to consider these limitations when interpreting and using index numbers in economic analysis.
4. How are index numbers used in measuring inflation?
Ans. Index numbers are commonly used to measure inflation, which is the rate at which the general level of prices for goods and services is rising and, subsequently, purchasing power is falling. Inflation is typically measured using a price index, such as the Consumer Price Index (CPI). The CPI compares the price level of a basket of goods and services in a given period to a base period and calculates the percentage change. By tracking the changes in the CPI over time, economists and policymakers can monitor and analyze inflation trends.
5. Can index numbers be used to compare variables across different countries?
Ans. Yes, index numbers can be used to compare variables across different countries. However, certain considerations must be taken into account. First, the choice of the base country or period becomes crucial in ensuring comparability. Additionally, exchange rates and purchasing power parities must be considered to account for differences in currency values and cost of living. Adjustments may need to be made to ensure meaningful comparisons between countries. International organizations, such as the International Monetary Fund (IMF) and World Bank, often publish index numbers that facilitate cross-country comparisons of various economic variables.
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