Show the methods of constructing index numbers with the help of a diagram.
Method of constructing simple index numbers:
(a) Simple aggregative method
(b) Simple average of price relative method
(ii) Methods of constructing weighted index numbers.
(a) Weighted aggregative method
(b) Weighted average of price relatives method
Many difficulties are faced to prepare index number. Explain any two of them.
Many problems are faced while constructing an index number. Two of them are as follows:
1. Selection of base year : The first problem which arises while preparing index number is the selection of base year. Which year should be selected as a base? While selecting a base year, we should remember that it should be a normal period. It should not be either too short or too long. It should be free from all sorts of abnormalities or irregular fluctuations.
2. Selection of items : We should also be careful in selecting the items to be included in
the index number. Items selected should be relevant to the purpose of the index. The items should be standardized which are easy to describe and understand. Moreover, the total number of commodities selected for the index should be neither too small nor too large.Give the methods of calculating simple index and their formula.
Equal weightage is assigned to all the items included in the index number. There are two methods of calculating index number (i) simple aggregative method and (ii) Simple average of price relatives.
1. Simple aggregative method : This is the simplest method of calculating index numbers. In this method, total of the current year prices for the various commodities is divided by the total of the base year and the quotient multiplied by 100. Symbolically.
Where P1 and P0 indicate the price of the commodity in the current and base periods respectively.
2. Simple Average of price relatives : In this method, first of all, price relatives are calculated. A price relative is the price for the current period expressed as the percentage of the price of the base period. Symbolically,
Write down the features of consumer price index number.
Features of CPI. Following are main features of CPI.
1. In India three CPI’s are constructed:
(i) CPI for industrial workers (ii) CPI for urban non-manual employees and (iii) CPI for agricultural labourers.
2. The base year for CPI for industrial workers, CPI for urban non-manual employees and CPI for agricultural labourers are 1982,1984-85 and 1986-87, respectively.
3. They are routinely calculated every month to analyse the impact of changes in the retail price on the cost of living of these three broad categories of consumers.
4. The CPI for industrial workers and agricultural labourers are published by Labour Bureau Shimla.
5. The Central Statistical Organization publishes the CPI for urban non-manual employees.
6. The items shown in the table are taken while calculating CPI. for industrial workers. From the table we come to know that food has the largest weight.
CPI for industrial workers
|
Major Crops |
Weight in percentage |
|
Food |
57.00 |
|
Pan, Supari, Tobacco etc. |
3.15 |
|
Fuel and light |
6.28 |
|
Housing |
8.67 |
|
Clothing, bedding and footwear |
8.54 |
|
Music group |
16.36 |
|
General |
100.00 |
Write down the functional equation of an upward sloping straight line.
(i) Originating from the Y axis.
(ii) Starting from the origin.
(iii) Starting from Y - negative portion of the Y - coordinate.
(i) In first case it will be as follows
y = a + b.
(ii) In second case it will be as follows
y = bx
(iii) In third case it will be as follows
y = a + bx
Here, a will be negative.
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