Business Mathematics and Basic Statistics · Class 12 Commerce
Ch 8Index Numbers — Class 12 Business Mathematics and Basic Statistics, concept-first.
An index number is a special kind of average that measures the relative change in some economic quantity — most commonly price, but also quantity, or value — between one time period (called the base period) and another (called the current period).
Key concepts
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Simple Aggregate Method
The Simple Aggregate Method builds a price index by adding the base-year prices of all included commodities to get , adding their current-year prices to get , and computing .
Most relevant Q&A
Chapter contents
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Introduction to Index Numbers
An index number is a special kind of average that measures the relative change in some economic quantity — most commonly price, but also quantity, or value — between one time period (called the base p…
Simple Aggregate Method
The simplest way to combine the prices of several commodities into one index number is to add up all their base-year prices, add up all their current-year prices, and compare the two totals.
Weighted Aggregate Method
The Weighted Aggregate Method corrects the Simple Aggregate Method's main weakness by attaching a weight to each commodity before adding — a number reflecting how much of that commodity is actually co…
Cost of Living Index (Family Budget Method)
While the Weighted Aggregate Method weights the AGGREGATE prices, the Cost of Living Index — also called the Family Budget Method — takes a slightly different route: it first converts each commodity's…
Comparing the Three Methods
The three methods can give noticeably different index numbers for the very same set of commodities, because each one distributes "importance" among the commodities differently:
More questions
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- Example 1The base-year (2020) and current-year (2024) prices of four commodities consumed by a household are given below. Compute the Simple Aggregat…Free
- Example 2Using the same four commodities and prices as before, and taking the base-year (2020) quantities consumed by the household as weights, compu…Free
- Example 3A household spends on four items as shown below. The base-year (2020) and current-year (2024) prices are given, along with the percentage of…Preview
- Example 4Two commodities P and Q are consumed by a household. Their prices in the base year (2021) and current year (2024) are given below, along wit…Preview
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- Q5Three commodities A, B and C have the following base-year and current-year prices. Compute the Simple Aggregate price index number. | Commod…Free
- Q6Using the same commodities A, B and C as before, with base-year quantities 4, 6 and 10 units respectively as weights, compute the Weighted A…Free
- Q7The following data relates to a household's spending on four items. Compute the Cost of Living Index for the current year. | Item | $p_0$ (R…Preview
- Q8Three commodities X, Y and Z are consumed by a household. Compute the price index number for 2024 by (a) the Simple Aggregate Method and (b)…Preview