7. The price of an item increased by 4.5 times
in the current year as compared to the base
year. What will be the price index number?
(a) 45 (b) 450 (c) 550 (d) 350
Answers
Answer:
Every index starts with a base value in its base year. This base value will be equated to the price of the item for which the index is being calculated.
For example, let’s calculate price index value of petrol price taking base year as 2005. Let the base value be 10 points for 2005. The average petrol price in the years 2005 was ~ Rs.40. In 2018, the average price is ~ Rs.80. So, the petrol price has doubled. Hence our index value will also double in the year 2018. Thus, our petrol price index would become 20 points for year 2018.
Let’s take an example to explain your query. Let’s assume the base value to be 100 points (you can take 1, 10, 1000 or any value of your choice). It’s given that the price of an item increased by 4.5 times. So, if the base value was 100, it will increase by 4.5 times, i.e. 450 points.
Hence the price index in the current year would become 550 points (100 + 450 points).
There could be a common mistake in understanding & you might end up calculating price index value as 450 points; but that would be incorrect answer in this case since it’s mentioned that the price of an item increased “by” 4.5 times & not increased “to” 4.5 times.
Hope this helps.
Answer:
450
Step-by-step explanation: