state the basic difficulty in constructing index number
a. selection of commodities
b. selelcting of base year
c. selection of price
d. all of these
Answers
Explanation:
The following problems are faced in the construction of index number:
1. Definition of the purpose : There is no fixed purpose of an index number as every index number has its own particular uses and limitations. Hence, it is important to know what is to be measured and how these measures are to be used.
2. Selection of the base period : When comparison is to be made between different time periods or different places some points of references is to be identified, this is called the base year. This base year should not be too for or too distent. It should be free from all sorts of abnormalities or irregular fluctuations like earthquakes, floods, tsunamis etc.
3. Selection of items : Collection of data is the main problem in constructing index number, as there is a large variety of goods and prices. If the number of the commodities is too large, a choice of some representative items has to be made. On the other hand, inclusion of too few items would make the index number unrepresentative of the whole. Hence, items should be selected as per the relevance of the index. The number of items to be included in the index should neither be too small or to be large.
4. Selection of the sources of data : The sources of data are scattered over a large geographical region. Hence, one has to face the problem of reliability and comparability of data. So for selecting the reliable data, authentic sources should be used.
5. Price quotations : The prices of commodities vary from place to place. So it is not possible to obtain price quotations from all the places. Therefore, a selection of representative place and persons should be made.
6. Choice of an average: For constructing an index number any average can be used.
7. System of weighing : In order to give each commodity a reasonable importance, appropriate weights should be assigned.
8. Choice of method : There are various methods of constructing index numbers such as the aggregative method or the price relative method
Answer:
a. selection of commodities
Explanation:
Collection of data is the main problem in constructing index number, as there is a large variety of goods and prices. If the number of the commodities is too large, a choice of some representative items has to be made.