Index Numbers — Economics STD 11 Commerce — Question

The Fisher's index number is called ideal index number due to the following characteristics.

1. It is based on the GEOMETRIC MEAN which is theoretically considered as the best average of constructing index numbers.
2. It takes into account both current and base year prices as quantities.
3. It satisfies both time reversal and factor reversal test which are suggested by Fisher.
4. The upward bias of Lasperey's index number and downward bias of Paasche's index number are balanced to a great extent.
5. Irving Fisher has considered two important properties which an index number should satisfy. These are tests of reversibility.

Time reversal test.

Factor reversal test.

If an index number satisfies these two tests it is said to be an ideal index number. Fisher's formula satisfies both these tests. (You will read about these tests in detail in higher classes.)