CBSE Class 11 Economics Introduction to index numbers Assignment

Points to remember

-- An index number is a statistical device for measuring changes in the magnitude of a group of related variables.

* Features of Index Numbers

-- Index numbers are expressed in terms of percentages. However, percentage sign (%) is never used.

-- Index numbers are relative measurement of group of data.

-- Index numbers offer a precise measurement of the quantitative change in the concerned variables over time.

-- Index numbers shows changes in terms of averages.

* Types of Index numbers

(i) Wholesale price index (WPI)

(ii) Consumer price index (CPI) or

Cost of living index

(iii) Index of industrial production (IIP)

(iv) Index of Agricultural production (IAP)

(v) Sensex

* Methods of constructing index numbers 

--Simple aggregative method :  

Here, P_o1 = Price index of the current year
∑P₁ = Sum of the prices of the commodities in the current year
∑P_o = Sum of the prices of the commodites in the base year.
-Current year : Current year is the year for which average change is to be measured or index number is to be calculated.
-Base Year : Base year is the year of reference from which e want to measure extent of change in the current year. The index number of base year is generally assumed to be 100.

-- Simple average of price Relatives method : 

Here,
Po1 = Index number for the current year
W = Weight
R = Price relatives i.e.  P1/Po X 100
-- Weighted Aggregative method
(i) Laspeyre’s Method : 

(ii) Wholesale price index (WPI) : WPI
Indicate the change in the general price level.
(iii) Index of industrial production (IIP) :
IIP is used to measure the relative increase or decrease in the level of industrical production. 

Here, q1 = Level of production in the current year
qo = Level of production in the base year
W = Weight
(iv) Index of agricultured production (IAP) :
IAP is used to study the rise and fall of the yield of principal crops from one period to other period.
(v) Sensex : Sensex is the short form of Bombay stock exchange sensitive index with 1978-79 as base. It is the benchmark index for the Indian stock market. It consists of 30 stocks which represent 13 sectors of the economy and the companies listed are the leaders in their respective industries.

* Problems in construction of index numbers
(i) Purpose of index number
(ii) Selection of base year
(iii) Selection of items.
(iv) Selection of the prices of items.
(v) Selection of method of weighting
(vi) Selection of sources of data
(vii) Choice of an average.

* Problems in construction of index numbers
(i) Purpose of index number
(ii) Selection of base year
(iii) Selection of items.
(iv) Selection of the prices of items.
(v) Selection of method of weighting
(vi) Selection of sources of data
(vii) Choice of an average. A₂ - A₁ X 100/A1
Here, A₁ = WPI for week first (1)
A₂ = WPI for week second (2)

VERY SHORT ANSWER TYPE QUESTIONS.

Question. What do you mean by index numbers?
Answer: An index number is a statistical device for measuring changes in the magnitude of a group of related variables.

Question. State two categories of price index jumbers.
Answer: (a) Simple index numbers
(b) Weighted index numbers.

Question. Define base year.
Answer: Base year is the year of reference from which we want to measure extent of change in the current year.

Question. Name the consumer groups for which CPI is computed.
Answer: There the three consumer group for which CPI is computed :
(i) CPI for industrial worker
(ii) CPI for urban non manual employees
(iii) CPI for agricultural labourers.

Question. What is price relative?
Answer: A price relative is the percentage ratio of the value of a variable in the current year to its value in the base year.

Question. Give Laspeyre’s formula for weighted index number.
Answer: Po1 = ∑P₁q_o/∑P_oq_o x 100

Question. Where can we get some important index numbers such as CPI, WPI IIP etc.?
Answer: Economic survey

Question. Write the formula for calculating index of industrial production.
Answer: 

Question. How many types of CPI are constructed in India?
Answer: There are three types of CPI.
(i) CPI (IW)
(ii) CPI (UNME)
(iii) CPI (AL)

Question. Define current year.
Answer: Current year is the year for which average change is to be measured or index number is to be calculated.

Question. What is the difference between simple index number and weighted index numbers?
Answer: In simple index number, all items of the series are accorded equal weightage or importance but in weighted index number different items of the series are accorded different weightage, depending upon their relative importance.

Question. Give the formula to calculate the rate of inflation.
Answer: Rate of inflation = A2 - A1/A1 X 100
Here, A₁ = WPI for week first (1)
A₂ = WPI for week second (2)

Question. Which sign is used to indicate the price index number?
Answer: p01

Question. What does wholesale price index indicate?
Answer: WPI indicates the change in the general price level.

Question. Give Paasche’s formula for weighted index number.
Answer: p₀₁ = ∑P₁q₁/∑P₀q₁ x 100

Question. Which index number is known as cost of living index?
Answer: Consumer price index (CPI)

Question. Mention the weight of primary articles in wholesale price index.
Answer: 22.02 % (or) 22%

Question. In how many groups all the commodities are classified for WPI?
Answer: Three

Question. Mention the weightage of different groups in index of industrial production.
Answer: Groups Weightage
(i) Mining 10.47
(ii) Manufacturing 79.36
(iii) Electricity 10.17

Question. Which index number is generally used to measure inflation?
Answer: Wholesale price index number

Question. Which change is measured in consumer price index?
Answer: Retail prices

Question. Which item having the highest weight in CPI for industrial worker?
Answer: Food

Question. In which index number there is a relative importance of the items?
Answer: Weighted index numbers.