NIOS Economics (318) Notes/Answer| Chapter-8|Index Numbers (Meanings and Its Construction)

NIOS Economics (318) Notes/Answer| Chapter-8|Index Numbers (Meanings and Its Construction). Important questions for NIOS Economics (318) Questions Answers brings you latest queries and solutions with accordance to the most recent pointers SOS . Students will clear all their doubts with regard to every chapter by active these necessary chapter queries and elaborate explanations that area unit provided by our specialists so as to assist you higher. These queries can facilitate students prepare well for the exams thanks to time constraint . NIOS Economics (318) Notes/Answer| Chapter-8|Index Numbers (Meanings and Its Construction)

HS 2nd years Solutions (English Medium)

NIOS Economics (318) Notes/Answer| Chapter-8|Index Numbers (Meanings and Its Construction)

Intext Questions

Q.1.State whether the following statements are true or false: 

(a) Index number are specialised averages to measure relative changes.

Ans. True

(b) Index number measures net change in related variables over time.

Ans. True

(c) Simple index number requires weights in their construction.

Ans. False

(d) Index Number do not indicate the trend of change in the economy.

Ans. False

Q.2. Fill in the blanks:

(a)Index number is a statistical device to express _________ change in related variables.

Ans. average

(b) An index number is a _________ average. 

Ans. specialised

(c) Index number measures net change in group of variables.

Ans. related

Q.3.Fill in the blanks:

(a) In the index number represented by P1990,1995 the base year is _________ and the current year is _________

Ans. 1990, 1995

(b) Simple index number has_________ weights.

Ans. equal

(c) The price relative number means the ratio of current year price to __________

Ans. base year price

(d) If the price index number increases from 100 to 300, it shows_________ increase in price. Ans. 200%

Q.4. State whether the following statements are true or false:

(a) A study of family budget shows that a rich family

spends proportionately more on food than a poor family does.

Ans. False

(b) Simple index number are weighted index numbers.

Ans. False

(c) We get the same index number whether we use simple aggregate method or simple average of price relative method.

Ans. False

Q.5. Fill in the blanks with appropriate words out of those given in the brackets:

(a) In Laspeyres’ method of finding index number we use __________ Quantities as weights (current year, base year)

Ans. base year

(b) In Paasche’s method of finding index numbers we use ____________ Quantities as weights (base year, current year).

Ans. current year

(c) P= Σp1q0 × 100 /Σpoqo  is ________ weighted index number. (Laspeyres/ Paasche’s)

Ans. Laspeyres

(d) P = Σp1qo x 100 / Σpoqo is………weighted index number. (Laspeyres/ Paasche’s)

Ans. Paasche’s

6. State whether the following statements are true or false: 

(a) In weighted index number category, the major problem is that of the decision regarding weights.

Ans. True

(b) Laspeyres’ uses current year quantities as weights.

Ans. False

(c) Paasche’s uses base year quantities as weights

Ans. False

Terminal Exercise

1. Explain meaning of an index number and its main characteristic.

Ans. “An index number is a statistical measure, designed to measure changes in a variable, or a group of related variables”.

“Index number is a single ratio (or a percentage) which measures the combined change of several variables between two different times, places or situations”.

INDEX NUMBER expresses the relative change in price, quantity, or value compared to a base period. An index number is used to measure changes in prices paid for raw materials; numbers of employees and customers, annual income and profits, etc.

Following are some of the important characteristics of index numbers:

  1. Index numbers are a special type of average that provides a measurement of relative changes in the level of a certain phenomenon from time to time. It is a special type of average because it can be used to compare two or more series which are composed of different types of items or even expressed in different types of units.
  2. Index numbers are expressed in terms of percentages to show the extent of relative change.
  3. Index numbers measure relative changes. They measure the relative change in the value of a variable or a group of related variables over a period of time or between places.
  4. Index numbers can also measure changes which are not directly measurable. For Example the cost of living, the price level or the business activity in a country are not directly measurable but it is possible to study relative changes in these activities by measuring the changes in the values of variables/ factors which affect these activities. 

2. What is ‘price relative’? Show with the help of an example how it is calculated?

Ans. A price relative is defined as a ratio of the price of a single commodity in a given period called current period (P1) to its price in some past period called base or reference period (Po) i.e. Price Relative (PR) – P1/Po

3. Distinguished between simple and weighted index numbers.

Ans. In the simple or unweighted index number the weights are not assigned to the various items used for the calculation of index number.

There are two types of simple or unweighted index numbers.

  1. Simple Aggregate Method and 
  2. Simple Average of

Price Relatives Method In weighted index number rational weights are assigned to all the items or commodities. Such weights indicate the relative importance of the items included in the calculation of the index. In most cases quantity of usage is the best measure of importance.

There are two types of weighted index numbers:

  1. Weighted Aggregative Price Indices and 
  2. Weighted Price Relative Method

4. Explain the method of construction of unweighted index numbers by Simple Aggregate Method.

Ans. In this method each item is given equal weight. If we give an equal weight to each item it means the same things, whether each item is given a weight or not. It is the simplest method of constructing an index number. We use the following three steps to find it

  1.  Find the sum of current year prices of all items included in the list i e ΣP₁
  2. Find the sum of base year prices of the same items included in the list i.e ΣPo

Po1 = ΣP₁ x 100 / ΣPo

5. Explain the method of construction of unweighted index number by Simple Aggregate of Price Relatives Method.

Ans. As we know that a price relative is nothing but the ratio of current year prices to those in base year i.e /. Here the average of the price relatives is obtained by using any of the measures of central tendency. For example, if we use arithmetic mean for averaging, the formula for the index number is =

Where, N stands for the number of commodities included in the index number.

Steps to calculate index number by Simple Average of Price Relatives Method

  1. Find percentage price relative for each commodity i.e.
  2. Find the sum of these percentage price relatives i.e.
  3. Divide by the number of commodities included in the list. 

NIOS Class 12th Economics (318) Notes/Question Answer

Chapter Chapters NameLink
Chapter 1Economy and Its ProcessClick Here
Chapter 2Basic Problems of an EconomyClick Here
Chapter 3Economic Development and Indian EconomyClick Here
Chapter 4Statistics: Meaning and ScopeClick Here
Chapter 5Making Statistical Data MeaningfulClick Here
Chapter 6Presentation of Statistical DataClick Here
Chapter 7Statistical MethodsClick Here
Chapter 8Index Numbers (Meanings and Its Construction)Click Here
Chapter 9Index Numbers (Problem and Uses)Click Here
Chapter 10Income FlowsClick Here
Chapter 11National Income: ConceptsClick Here
Chapter 12National Income: MeasurementClick Here
Chapter 13Uses of National Income EstimatesClick Here
Chapter 14What micro EconomicsClick Here
Chapter 15What affects demandClick Here
Chapter 16What affects supplyClick Here
Chapter 17Price determinationClick Here
Chapter 18CostClick Here
Chapter 19RevenueClick Here
Chapter 20Profit maximizationClick Here
Chapter 21Government budgetingClick Here
Chapter 22Money supply and its regulationClick Here
Chapter 23Need for planning in IndiaClick Here
Chapter 24Achievements of planning in IndiaClick Here
Chapter 25Recent economic reforms and the role of planningClick Here

Optical Module – I

Chapter 26AgricultureClick Here
Chapter 27IndustryClick Here
Chapter 28Independence of Agriculture and IndustryClick Here
Chapter 29Transport and CommunicationClick Here
Chapter 30EnergyClick Here
Chapter 31Financial InstitutionsClick Here
Chapter 32Social Infrastructure (Housing, Health and Education)Click Here

Optical Module – II

Chapter 33Direction and composition of India’s Foreign tradeClick Here
Chapter 34Foreign exchange rateClick Here
Chapter 35Balance of trade and balance of paymentsClick Here
Chapter 36Inflow of capital (Foreign Capital and Foreign Aid)Click Here
Chapter 37New trade policy and its implicationsClick Here
Chapter 38Population and economic developmentClick Here
Chapter 39Population of IndiaClick Here

6. Point out the main difference between Laspayres’ and Paasche’s methods of weighted index numbers. Explain Laspayres’ method.

Ans. Both the Laspayres’ and Paasche’s methods are used to calculate weighted index numbers. The main difference between the two is that. Laspayres’ uses base year quantities of commodities as their relative weights, while Paasche’s uses current year quantities of commodities as their relative weights for preparing a prior index.

Laspayres’ method uses base year quantities () as weights. Accordingly, the formula is, P=

Step to calculate weighted index number by Laspayres’ method

  1. Multiply current year price () with base year quantity() to get for each item commodity. and service. 
  2. Multiply base year price () with base year quantity () to get for each item commodity.
  3. Add all by separately to get ” and ” respectively. 
  4. Divide “by” and by 100 to obtain Laspeyres’ price index number.

7. Explain Paasche’s method of weighted index number. Why is the result of this index different from Laspeyres’?

Ans. Paasche’s uses current year quantities of commodities as their relative weights for preparing a prior index.

Paasche’s method uses current year quantities () as weights. Accordingly the formula is P=

The result of Paasche’s price index number is different from the value of Laspeyres’ price index number for the same data because of differences in weights.

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