Question
Give the limitations of simple aggregative method of computing index number.
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Answer
Although computation of index number is quite simple while using this method, yet it is not ordinarily used because of the following limitations:
- All items are given equal weightage.
- This measure of index number is influenced by the items which are highly priced.
- This method is affected with the change in the unit of measurement. For example, index number computed when price of wheat is expressed in per kg, will be different from the index number computed when the price of wheat is expressed in per quintal.
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