NCERT Solutions Class 11, Economics, Statistics for Economics, Chapter- 7, Index Numbers
1. An index number which accounts for the relative importance of the items is known as:
(a) weighted index
(b) simple aggregative index
(c) simple average of relatives
Solution:
(a) weighted index
An index number in which different items of the series are accorded weightage in accordance with their relative importance is known as weighted index numbers.
2. In most of the weighted index numbers the weight pertains to:
(a) base year
(b) current year
(c) both base and current year
Solution:
(a) base year
While calculating weighted index numbers, the weight pertains to base year. This method uses the base period quantities as weights.
3. The impact of change in the price of a commodity with little weight in the index will be:
(a) small
(b) large
(c) uncertain
Solution:
(a) small
A lesser important commodity is assigned lower weight as it would not have a significant effect of price change.
4. A consumer price index measures changes in:
(a) retail prices
(b) wholesale prices
(c) producers prices
Solution:
(a) retail prices
Consumer Price Index is used to measure changes in the cost in which the retail prices of consumer goods and services are obtained.
Thus, it measures the average changes in the retail prices.
5. The item having the highest weight in consumer price index for industrial workers is:
(a) Food
(b) Housing
(c) Clothing
Solution:
(a) Food
The weight schemes in CPI for industrial workers include food, fuel, lighting, housing, clothing etc. The food is given the top most priority as this component has the highest weight. So, the changes in food price have a significant impact on the CPI.
6. In general, inflation is calculated by using:
(a) wholesale price index
(b) consumer price index
(c) producers’ price index
Solution:
(a) wholesale price index
WPI measures the relative changes in the prices of the commodities traded in the wholesale markets. It determines the situations of overall demand and supply in the market.
7. Why do we need an index number?
Solution:
An index number is a statistical device which is used for measuring the changes in the magnitude of a group of variables.
It is a needful measurement because:
- It measures the changes in the price level.
- It determines the change in the standard of living.
- It helps in planning and decision making.
- It regulates the level of production.
8. What are the desirable properties of the base period?
Solution:
The base year must have the following desirable properties:
- The base year should neither be too short nor be too long.
- The base year should neither be too near nor too far in the past.
- It should be easily accessible and available.
- It should be constantly or routinely updated.
9. Why is it essential to have different CPI for different categories of consumers?
Solution:
It is important to have different CPIs for different categories of consumer because the consumption pattern of the general groups i.e., industrial workers, urban non-manual workers and agricultural labourers differ from each other. Thus, to determine the impact of the price change on the cost of living of the three groups, component items included in the index need to be given different weights for each of the group.
10. What does a consumer price index for industrial workers measure?
Solution:
Consumers Prince Index measures the average change in retail price over time in prices of a given basket of goods and services consumed by an industrial worker generally. In India, the CPI for Industrial workers is published by Labour Bureau, Shimla.
Consumer Price Index is now considered as the most appropriate indicator of general inflation to show the most accurate impact of price rise on the cost of living. The items included in CPI for industrial workers are food, pan, supari, tobacco, fuel and lighting, housing, clothing and miscellaneous expenses. Food has the largest/highest weight. Food being the most important category a rise in food price will have a significant impact on CPI.
11. What is the difference between a price index and a quantity index?
Solution:
Price Index:
- Price Index measures the general changes in prices of goods.
- It takes into account the prices of the commodity of the base year as well as of the current year.
- It is measured by two methods i.e.,
- Simple Aggregate Method
- Simple Average of Price Relative Method
Quantity Index:
- Quantity Index measures changes in the level of output or physical volume of production in the economy.
- It takes into consideration the weights of goods assigned according to the quantity.
- It is calculated by two methods, i.e.,
- Weighted Average of Price Relative method
- Weighted Aggregate Method.
12. Is the change in any price reflected in a price index number?
Solution:
No, the change in any price is not reflected in a price index as the prices of all goods and services do not change at the same rate. In fact, only the relative change or the percentage change in the price level is reflected in the price index number.
13. Can the CPI for urban non-manual employees represent the changes in the cost of living of the President of India?
Solution:
The CPI for the urban non-manual employees cannot represent the changes in the cost of living of the President of India. This is because of the fact that the consumption basket of the non-manual employees consists of different items than those of the consumption basket of the President of India.
