Question

What are the merits and demerits of the fixed base index method

Answer 1

Answer:

Explanation:

In fixed base method, a particular year is generally chosen arbitrarily and the prices of the subsequent years are expressed as relatives of the price of the base year. Sometimes instead of choosing a single year as the base, a period of a few years is chosen and the average price of this period is taken as the base year’s price. The year which is selected as a base should be a normal year, or in other words, the price level in this year should neither be abnormally low nor abnormally high. If an abnormal year is chosen as the base, the price relatives of the current year calculated on its basis would give misleading conclusions. For example, a year in which war was at its peak, say the year 1965, is chosen as a base year; thus the comparison of the price level of the subsequent years to the price of 1965 is bound to give misleading conclusions as the price level in 1965 was abnormally high.

In order to remove the difficulty associated with the selection of a normal year, the average price of a few years is sometimes taken as the base price. The fixed base method is used by the government in the calculation of national index numbers.

Read more: https://www.emathzone.com/tutorials/basic-statistics/fixed-base-method.html#ixzz63TpEZtqk

Answer 2

In the fixed base methods, the base  does not change and it remains the same throughout the series. There can be few additions and subtractions over a period of time

Explanation:

Merits

• The advantage of this method is that over a period of time there can be new additions of items and the obsolete items are removed
• The fixed base index method is very effective since there is change in the base year every year and one is able to compare the previous year with the current year.

Demerit

• The problem with this method is that in case there is no data available for a specific year it is not possible to find the result of the chain index number for the next year
• If while computing there is an error in the calculation then that error would impact the other links and it will compute incorrect result for the year

To know more about obsolete items

What is meaning of obsolete?

https://brainly.in/question/13076732