Economics 1 Marks Question

Consumer Price Index is used to calculate purchasing power of money and real wage.

100.

Consumer Price Index is also known as 'the cost of living index'.

Reference year is the year on the basis of which the comparisons are made. It is commonly referred to as base year.

Fisher's method is considered ideal for constructing index number because:

1. It satisfies factor reversal test.
2. It satisfies time reversal test.
3. It is based on different weights.

The steps for constructing cost of living index number or Consumer Price Index are:

1. Determining the class of people under study.
2. Conducting family budget enquiry.
3. Obtaining price quotations.

Quantity Index Numbers measure the changes in the physical volume of production, construction or employment.

Price Index Numbers measure and permit comparison of the prices of certain goods.

A Consumer Price Index for industrial workers measures general inflation.

Some of the widely used index numbers are Consumer Price Index (CPI), Wholesale Price Index (WPI), Industrial Production Index (IIP), Agricultural Production Index (API) etc.

Index numbers are devices for measuring differences in the magnitude of a group of related variables.

The current year is the year under study during the current period.

Index numbers are specialised average.

Consumer Price Index is used to calculate purchasing power of money and real wage.

Weighted index number gives different weights to different items according to their relative importance, whereas simple or unweighted index number gives equal importance to all the items.

An index number of 300 implies that, as compared to 2011-12, prices have risen by 200% (300-100) in 2015-16.

CPI is used to calculate the purchasing power of money and real wages.

Wholesale Price Index measures the changes in the price of goods which are traded in wholesale markets.

One problem faced while constructing an index number is the selection of the source of data.

The current year is the year under study during the current period.

Price index numbers are constructed to study the changes in the price levels of two time periods. Quantity index numbers are constructed to study the changes in the level of output of two time periods.

The retail prices used in the construction of Consumer Price Index vary from shop to shop, place to place and customer to customer. Therefore, it is difficult to prepare index number or consumer price index with such prices.

The value of non equitable treatment to the poor section of the society is compromised here. The rise in wholesale price index hurts more the poor and lower middle class as they have meager resources to run their life. Rise in prices of essential commodities will lead to sufferings for them.

Paasche's index number, because of its dependence on given year's weight, has distinct disadvantage that the weights are required to be revised and computed for each period, adding extra cost towards the collection of data.

An index number is a statistical device for measuring relative change in a group of related variables over different time period. Price index numbers are more commonly used. They measure relative change in prices over different time period.

The main difference between Simple Index Number and the Weighted Index Number is that in Simple Index Number all items are treated as having equal importance or weight; whereas in case of Weighted Index Number the relative importance of items is taken care of.

The major groups for which CPI numbers are constructed are enumerated below

1. The industrial workers.
2. The urban non-manual workers.
3. The agricultural labourers.

PPI measures price changes from the producer's perspective. It uses only basic prices including taxes, trade margins and transport costs.

An average family is one which consumes all the items near to their mean size.

Wholesale price index measures the relative change in the price of commodities traded on wholesale basis.