Distinguish between simple and weighted price indexes. – InterviewSolution

1.	Distinguish between simple and weighted price indexes.
Answer» In simple index numbers only prices are taken into account where consumption pattern of different items is assumed to be same. But if we think practically then consumption of sugar & gold is not same. Or consumption of salt & oil is not same.Therefore value of the items & total value is different than that of actual. Therefore, in weighted index numbers weights are used. Theses weights are supposed to take care of consumption & hence will give true value & index number should reflect the actual situation..

Discussion

No Comment Found

Related InterviewSolutions

Describe the uses of index number. What considerations are taken into account while selecting the base year for the preparation of an index number ?
What are the considerations underlying the choice of base period in the constructions of an index number?
What is the difference between a price index and a quantity index ?
Price Relatives `=("Current Year Price")/(?)xx100`A. Reference year priceB. Periodic year priceC. Base year priceD. both (a) and (c)
Rate of inflation is equal to: [A = Price index]A. `(A_(1))/(A_(2)+A_(1))xx100`B. `(A_(2)+A_(1))/(A_(1))xx100`C. `(A_(1))/(A_(2)-A_(1))xx100`D. `(A_(2)-A_(1))/(A_(1))xx100`
Consumer Price Index is also known as:A. Industrial Production IndexB. Cost of Living IndexC. Wholesale Price IndexD. none of these
Explain the significance of index numbers.
State the major commodity groups in the Consumer Price Index for Industrial Workers in India.
Why do we need an index number ?
State one principal limitation of index numbers.