Question

state two uses and two limitation of index number?

Answer 1

Limitations of Index Numbers


 

They are simply rough indications of the relative changes.

The choice of representative commodities may lead to fallacious conclusions as they are based on samples.

There may be errors in the choice of base periods or weights etc.

Comparisons of changes in variables over long periods are not reliable.

They may be useful for one purpose but not for other.

They are specialized types of averages and hence are subject to all those limitations with which an average suffers from.

Answer 2

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INDEX NUMBER :- The method of measuring the difference in the value of group of related variables.

THERE ARE TWO TYPES OF INDEX NUMBER :-

• Simple.

• Weighted.

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• Measure of value of money.

• Knowledge of living standard.

• Knowledge of dearness allowance.

• Knowledge about production.

• Useful to business man.

• Useful to government.

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• Not complete truth.

• International comparison not possible.

• Difference of time.

• Limited use.

• Defects in weightage.

• Lack of retail price index.