Q.The price of an item increased by 4.5 times in the current year as compared to the base year. What will be the price index number?

A simple index treats every commodity as equally important. The simple aggregative method is $P_{01}=\frac{\Sigma p_1}{\Sigma p_0}\times100$ — quick, but dominated by high-priced items and unit-dependent. The simple average of price relatives method first converts each commodity to a relative $\frac{p_1}{p_0}\times100$ and then averages these relatives, $P_{01}=\frac{\Sigma(\text{r …