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Economics · Class 12 Commerce

Ch 7Index Numbers — Class 12 Economics, concept-first.

Everyday economic reporting — "the cost of living rose by 6% this year," "industrial output grew 4.2%," "share prices fell 300 points" — is describing change in a group of DIFFERENT items (dozens of consumer goods, dozens of industries, dozens of listed companies) using a SINGLE summary number.

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Key concepts

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Consumer Price Index — Construction and Uses

The Consumer Price Index (Cost of Living Index) measures the average change in retail prices of a fixed basket consumed by a specific class of consumers.

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Chapter contents

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1

Meaning and Definition of Index Numbers

Everyday economic reporting — "the cost of living rose by 6% this year," "industrial output grew 4.2%," "share prices fell 300 points" — is describing change in a group of DIFFERENT items (dozens of c…

2

Features and Types of Index Numbers

Features of index numbers. 1. Specialised averages. An ordinary average (mean, median) summarises values of the SAME kind expressed in the SAME unit; an index number is a special average that summaris…

3

Construction of a Price Index — Unweighted Methods

The simplest price index methods give every commodity in the group EQUAL importance, regardless of how much of it is actually bought — this is why they are called unweighted (simple) methods.

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Construction of a Price Index — Weighted Methods

A student's family does not spend equally on rice and on matchsticks — a genuinely realistic price index must give more IMPORTANCE (weight) to commodities that account for a larger share of actual spe…

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Tests of Adequacy — Why Fisher's Index Is Called "Ideal"

A price index formula can be judged against certain purely ARITHMETIC consistency checks, independent of which actual numbers go into it.

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The Consumer Price Index (Cost of Living Index) — Meaning and Construction

The Consumer Price Index (CPI), also called the Cost of Living Index Number, measures the average change in the retail prices of a FIXED basket of goods and services actually consumed by a specific cl…

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Difficulties in Constructing Index Numbers, and Their Importance in Economics

Difficulties in constructing index numbers. 1. Choice of the base year. The base year should be a "normal" year, free of abnormal events (war, famine, a sudden boom/slump) — a genuinely normal year is…

Exercises

+Show 3 questions3 questions
  1. Q12State the steps involved in constructing a Consumer Price Index, and explain briefly how the Aggregate Expenditure Method differs from the F…Free
  2. Q13Explain any four genuine difficulties involved in constructing index numbers.Preview
  3. Q14Explain the importance of index numbers in economics, with special reference to the Consumer Price Index.Preview

Sample & Board Papers

Sample papers and previous-year board questions for this subject.

+Show 21 questions21 questions
  1. Q1Assertion and reasoning question: Assertion (A): The index number considers all factors. Reasoning (R): The index number is based on samples…Preview
  2. Q2Distinguish between: Price Index and Quantity Index.Preview
  3. Q3Explain the meaning of index number.Preview
  4. Q4Find the odd word out: Types of Simple Index Number: (a) Laspeyre’s Price Index Number (b) Price Index Number (c) Quantity Index Number (d)…Preview
  5. Q5Distinguish between s imple index numbers and weighted index numbers.Preview
  6. Q6Index numbers are very significant/important in economics. (a) Agree (b) DisagreePreview
  7. Q7Read the given passage and answer the questions: | Index Number is a technique of measuring changes in a variable or group of related variab…Preview
  8. Q8Statements that highlight the significance of index numbers. Index numbers are useful for making future predictions. Index numbers help in t…Preview
  9. Q9Distinguish between: Price Index and Quantity Index.Preview
  10. Q10State with reasons whether you agree or disagree with the following statement. There are many types of index numbers. (a) Agree (b) DisagreePreview
  11. Q11Observe the following table and answer the questions given below it: | Commodities | Prices in 2006 (in ₹) (Base Year) P _0 | Prices in 2006…Preview
  12. Q12The Price Index number is used ______. (a) to measure the general changes in the prices of goods. (b) as a geographical tool. (c) to measure…Preview
  13. Q13Distinguish between quantity index number and value index number.Preview
  14. Q14Calculate the price index number from the given data: | Commodity | A | B | C | D | | --- | --- | --- | --- | --- | | Price in 2005 (₹) | 6…Preview
  15. Q15State with reason whether you agree or disagree with the following statement: Index numbers are free from limitations. (a) Agree (b) Disagre…Preview
  16. Q16Complete the correlation: ______ : Base year price : : P _1 : Current year pricePreview
  17. Q17Find the odd word: Types of Index Numbers: Selection Index Number, Price Index number, Value Index Number, Quantity Index NumberPreview
  18. Q18Statements that are incorrect in relation to index numbers - Index number is a geographical tool. Index numbers measure changes in the air p…Preview
  19. Q19Identify and explain the following concepts: Gopal collected information about output of rice, wheat, cotton and jowar produced in 2016 and…Preview
  20. Q20Distinguish between s imple index numbers and weighted index numbers.Preview
  21. Q21Calculate Price Index Number from the given data: | Commodity | A | B | C | D | | --- | --- | --- | --- | --- | | Price in 2015 (₹) | 6 | 16…Preview

More questions

+Show 11 questions11 questions
  1. Example 1Define an index number. State any three features of index numbers.Free
  2. Example 2Distinguish between a Price Index Number, a Quantity Index Number and a Value Index Number, giving the formula for each.Free
  3. Example 3From the following data for four commodities, calculate the price index number by the Simple Aggregative Method. | Commodity | Base Year Pri…Free
  4. Example 4Using the same four-commodity data as Example 3 (A: p0=10, p1=15; B: p0=8, p1=10; C: p0=5, p1=6; D: p0=12, p1=14), calculate the price index…Preview
  5. Example 5The following table gives base-year and current-year prices and quantities for four commodities. Calculate the price index number by Laspeyr…Preview
  6. Example 6Using the same data as Example 5 (A: p0=10,q0=20,p1=15,q1=18; B: p0=8,q0=30,p1=10,q1=25; C: p0=5,q0=50,p1=6,q1=55; D: p0=12,q0=15,p1=14,q1=1…Preview
  7. Example 7Using the Laspeyres index (L = 127.59) and Paasche index (P = 127.41) already found in Examples 5 and 6, calculate Fisher's Ideal Price Inde…Preview
  8. Example 8Using the same data as Examples 5–7, calculate the price index number by the Weighted Average of Price Relatives Method, using weight w = p0…Preview
  9. Example 9For the same four-commodity data (Examples 5–8), verify the Factor Reversal Test for Fisher's Ideal Index — that is, check whether the Fishe…Preview
  10. Example 10A worker's family budget enquiry gives the following group weights and price relatives for the current year over the base year. Calculate th…Preview
  11. Example 11Fisher's Ideal Index is called "ideal" mainly because it: (a) always gives the smallest possible index value (b) is the easiest formula to c…Preview