Question

points to Remember for the Construction of Index Number.

Answer 1

1. Index number is independent of units. Hence, it should not be stated that the index number of price is ₹ 350. But it should be stated that the index number of price is 350.

2. Index number of the base year is always 100.

3. Adding to 100, the percentage rise in the variate value in the current year as compared to the base year, we get the index number of that variate for the current year, e.g., if the price of certain commodity in the current year has increased by 140% with respect to the price of the commodity in the base year, then the index number of price for that commodity is 100 + 140 = 240.

4. Subtracting from 100, the percentage fall in the variate value in the current year as compared to the base year, we get the index number of that variate for the current year, e.g., if the production of certain commodity in the current year has decreased by 8 % with respect to the production in the base year, then the index number of production for that commodity is 100 – 8 = 92.

5. Multiplying by 100, the number representing what multiple of the variate value in the base year is the variate value in the current year, we get the index number of that variate for the current year, e.g., if the expense on food in the current year is 1\(\frac{1}2\) times the expense on food in the base year, then the index number of the expense on food for the current year is 100 × 1\(\frac{1}2 \)= 100 × 1.5 = 150.

6. For the calculations of Laspeyre’s, Paasche’s and Fisher’s index number, prepare the four columns P₁q₀’ P₀q₀’ P₁q₁, and P₀q₀ respectively.

7. If the price of two different periods and weights are given or if the price of two different periods and percentage expenses for different items are given, then calculate the index number by family budget method only.

8. If the column of ‘unit’ is given in the data, it represents that the price of the item is given in that unit. Before starting the calculation for the index number, check whether the units of the price and quantity are same or not. If they are not the same, make them to be the same and then only start the calculations.