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Index Numbers — Economics STD 11 Commerce — Question

CBSE BoardEnglish MediumSTD 11 CommerceEconomicsIndex Numbers3 Marks
Question
Explain simple aggregative method for the construction of index numbers. Explain its merits and demerits.
✓

Answer

Simple aggregative method: This is the simplest method of constructing index numbers. When this method is used to construct a price index number the total of current year prices for the various commodities in question is divided by
the total of the base year prices and the quotient is multiplied by $100$. Symbolically $P_{01} = \frac{\sum\text{p}_1}{\sum\text{p}_0}\times100$
Where $P_0$ are the base year prices
$P_1$ are the current year prices.
$P_{01}$ is the price index number for the current year with reference to the base year.
Merits: It is simple to calculate and easy to understand. It gives a rough idea of change.
Demerits: The units used in the prices or quantity quotations have a great influence on the value of index.
No considerations are given to the relative importance of the commodities. Importance of some commodities can be increased by manipulating the units of these items.

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