Question

Reasons for an Ideal Index Number.

Answer 1

• The formula for Fisher’s index number takes into account the prices and quantities of both, the base year as well as the current year.
• It is defined as the geometric mean which is considered to be the best average for the index number.
• It satisfies the basic tests of a good index number.
• It is not biased because it balances the drawbacks of Laspeyre’s and Paasche’s index number.