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| 1. |
State four difficulties of constructing index numbers. |
| Answer» 1. Difficulties in the Selection of the Base Period:The first difficulty relates to the selection of the base year. The base year should be normal. But it is difficult to determine a truly normal year.Difficulties in the Selection of Commodities:The selection of representative commodities for the index number is another difficulty. The choice of representative commodities is not an easy matter. They have to be selected from a wide range of commodities which the majority of people consume3.Difficulties in the Collection of Prices:Another difficulty is that of collecting adequate and accurate prices. It is often not possible to get them from the same source or place. Further, the problem of choice between wholesale and retail prices arises.4. Difficulty of Selecting the Method of Averaging:Another difficulty is to select an appropriate method of calculating averages. There are a number of methods which can be used for this purpose. But all methods give different results from one another. | |