Question

The following are one group index numbers and the group weights for the Ahmedabad

workers for the month of January 2020. Construct the cost of living index number:

Item Index No. Weights

Food 277 58

Rent 107 12

Clothing 322 10

Fuel & Lighting 283 7

Misc. 335 4​

Answer 1

Answer:

Theoretical Tests for Index Numbers:

According to Dr. Irvin Fisher, a good index number is required to satisfy the theoretical tests given below:

(a)   Time Reversal Test: This test may be stated as follows:

“If the time subscripts of a price (or quantity) index number formula be interchanged, the resulting price (or quantity) index formula should be reciprocal of the original formula”

The Fisher’s and Marshall-Edgeworth’s formulae satisfy the ‘Time Reversal Test’.

Explanation: