There are no limitations of index numbers. (State True or False)
Answers
Answer: False
Explanation:
There are certain Limitations of Index Numbers:
Index number technique itself has certain limitations which have greatly reduced its usefulness:
(i) The index number are not hundred percent correct as many practical difficulties come into the way of its computation.
(ii) Index numbers does not apply for all purpose. For each and every purpose there is a different index numbers . For instance the change in the money value of the middle class cannot be measured with the cost-of-living index numbers of workers working in the factory.
(iii) They cannot be fully authentic while making international comparisons. These index numbers are constructed by different countries by using different items with different qualities and also different base years .
(iv) Index numbers fail to provide accurate information as it measures only the average change and reflects only broad trends.
(v) The quality of items is not kept in mind while constructing these numbers . As a result it is quite possible that a sudden uptick in the index is more to do with the improvement in the quality of a product and not because of a price rise .
Hope this helps.