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.