Page 226 - DCOM203_DMGT204_QUANTITATIVE_TECHNIQUES_I

Unit 10: Index Number

10.13 Review Questions Notes

1. What are index numbers? Discuss their uses?

2. Examine various steps in the construction of an index number.
3. “Index numbers are barometers of economic activity“. Explain the meaning of this
statement.

4. “An index number is a specialised type of average“. Explain.
5. Distinguish between average type and aggregative type of index numbers. Discuss the
nature of weights used in each case.
6. Explain the role of weighing in the construction of an index number. What are commonly
proposed weighing schemes ?
7. Distinguish between simple and weighted index numbers. Explain ‘weighted aggregative’
and ‘weighted average of relatives’ methods for the construction of index numbers.

8. Explain the role of weighing in the construction of an index number of prices. What are the
commonly proposed weighing schemes?

8. “In the construction of index numbers the advantages of geometric mean are greater than
those of arithmetic mean “. Discuss.
9. If we wish to calculate an average of price relatives of commodities, each of which is
regarded as being of equal importance, which average would you use: Arithmetic Mean,
Geometric Mean or Harmonic Mean? Explain, why?

10. Show that the Laspeyres’s index has an upward bias and the Paasche’s index has a downward
bias. Under what conditions the two index numbers will be equal?

11. Show that Laspeyres price index number can be written as a weighted average of price
relatives. What are the weights?
12. “Index numbers are used to measure the changes in some magnitude that is not capable of
being directly observed “. Explain this statement and point out the uses and limitations of
index numbers.
13. Distinguish between fixed base and chain base methods of index number construction.
What are the advantages and disadvantages of the two methods?
14. Explain the meaning of circular test. Discuss the use of this test in the construction of chain
base index numbers.

15. What are time reversal and factor reversal tests? Under what conditions these tests are
satisfied by Laspeyres’s and Paasche’s index numbers ?

16. Calculate price index of 2011 with 2007 as base from the following data by:
(a) Simple aggregative method
(b) Laspeyres’s method

(c) Paasche’s method
(d) Fisher’s ideal index method

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