define index number? discuss the problem in construction of index number?
Answers
Problems in the Construction of Index Numbers: Selecting the purpose of the index number : There cannot be any all-purpose index. For example, if an index number is to measure consumers prices, then it must not include or cover wholesale prices. ... Index number for the base period or year is always taken to be 100.
Index Number:-
Index numbers are intended to measure the degree of economic changes over time. These numbers are values stated as a percentage of a single base figure. ... Index numbers are usually applied in statistical device to measure the combined fluctuations in a group related variables.
Problems:-
1. Difficulties in the Selection of the Base Period.
2. Difficulties in the Selection of Commodities.
3. Difficulties in the Collection of Prices.
4. Arbitrary Assigning of Weights.
5. Difficulty of Selecting the Method of Averaging.
6. Difficulties Arising from Changes Overtime.