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11th Commerce Exam Booster

Index Number DPP-01

1. Index number are calculated in terms of 7. From the following data, construct an index for
(1) Percentage 2019 taking 2011 as base by the simple average of
(2) Data relatives method.
(3) Ratio Commodities A B C D E
(4) None of these Prices (2011) 50 40 80 100 20
Prices (2019) 70 60 100 120 20
2. Index numbers are very helpful in comparing the
economic conditions of a particular group of people 8. State any one feature of index numbers.
for ______ different periods.
(1) Three 9. Define base period.
(2) Two
(3) Four 10. What is difference between unweighted and
(4) None of these weighted index numbers?

3. Which is the symbol of the price of the current year? 11. What is meant by price relative?
(1) p0
(2) p1 12. From the following data, calculate price index
(3) p2 numbers for 2019 with 2011 as base by:
(4) None of these (i) Laspeyre’s Method, (ii) Paasche’s Method,
Current Year
Base Year(2011)
4. Which of the following index number is based on (2019)
Commodity
the assumption that all the commodities are of equal Price (₹) Quantity Price Quantity q1
importance? P0 q0 (₹) p1
(1) Weighted index number A 20 8 40 6
(2) Simple index number B 50 10 60 5
(3) Both (1) and (2) C 40 15 50 15
(4) None of the above D 20 20 20 25

5. How is price relative calculated? 13. Calculate the price index number by : (i) Laspeyre’s
method, (ii) Paashe’s method, (iii) Fisher’s ideal
6. The following are two sets of retail prices of a method:
typical family’s shopping basket. The data pertain to Base Year Current Year (2019-
retail prices during 2001 and 2007. (2011-12) 20)
Commodity
Price (in ₹) Price (₹) Price Value (Total Price Value (Total
Commodity (₹) Expenditure) (₹) Expenditure)
2001 2017 (p1)
Milk (1 litr) 18 20 A 2 200 3 300
Banana (1 dozen) 15 15 B 8 72 10 100
C 12 60 15 90
Butter (1 kg) 120 150
D 7 49 10 80
Bread (400 gm) 9 14
Calculate the simple aggregate price index for 2007
using 2001 as the base year.
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14. Calculate cost of living index, for the following 17. Write any three uses of index number especially in
data, using aggregate expenditure and family budget economics.
Method.
Prices (in ₹) Quantity in
Commodity 18. What methods are used for constructing consumer
2011 2019 units 2011
price Index number?
A 10 15 15
B 8 12 20
19. Which index number is used to calculate purchasing
C 20 24 10
power of money and real wage?
D 32 40 5
E 15 20 6
20. Name the major groups for whom the Consumer
F 12 18 2
Price Index numbers are constructed in India.
G 8 10 1

21. What does the Consumer Price Index for Industrial

15. Why are price and quantity index number
workers measure?
constructed?

22. Give the formula to compute index number by

16. Simple average of price relative method of
weighted average of price relative method.
computing index number suffers from certain
limitations. Enumerate those limitations.
23. Mention the formula for the construction of weighted
index number as given by Professor Irving Fisher.
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Answer Key
1. (1) 13. (With Discussion)
2. (2) 14. (With Discussion)
3. (2) 15. (With Discussion)
4. (2) 16. (With Discussion)
5. (With Discussion) 17. (With Discussion)
6. (With Discussion) 18. (With Discussion)
7. (With Discussion) 19. (With Discussion)
8. (With Discussion) 20. (With Discussion)
9. (With Discussion) 21. (With Discussion)
10. (With Discussion) 22. (With Discussion)
11. (With Discussion) 23. (With Discussion)
12. (With Discussion)
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Hints & Solutions

1. (1) 7. (H & S)
Price Index Number by Simple Average of
Relatives Method
2. (2)
Prices Prices Price Relatives
3. (2) in in P1
Commodities ×100
2011 2019
(₹) P0 (₹) p1 P0

4. (2) 70
A 50 70 ×100 =140
50
60
5. (H & S) B 40 60 ×100 =150
40
Price relative is computed with the help of the 100
C 80 100 ×100 =125
given formula 80
Price in Current Year 120
D 100 120 ×100 =120
Price Relative = ×100 100
Price in Base Year
20
E 20 20 ×100 =100
20
6. (H & S) P 
N=5   1 ×100  = 635
Calculation of Simple Aggregate Price Index  0
P 
Price (₹) Price (₹) P 
Commodity   1 ×100 
2001 (p0) 2007 (p1)
P01 =  0  = 635 =127
P
Milk (1 litre) 18 20
N 5
Banana (1 dozen) 15 15 The price index number of 127 shows the
Butter (1 kg) 120 150 increase of 27% in prices in the year 2019 as
Bread (400 gm) 9 14 compared to year 2011.
Price Index Number = 127.
p0 = 162 p1 = 199
Price Index for year 2007 with year 2001 as 8. (H & S)
base Index number are specialized averages.
 p1 199
P01 =  100   100  122.83 9. (H & S)
 p0 162
A base period is the reference date from
The price index number (122.83) reveals that which an index number is calculated.
there is a net increase of 22.83% in prices in
the year 2007, compared to the prices in the 10. (H & S)
year 2001. In unweighted index, different items are
Price Index Number = 122.83 given equal importance but in case of
weighted index, different weights are given
to different items.

11. (H & S)
Price relative refers to percentages of current
prices with reference to base year prices.
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12. (H & S)
Construction of Price Index Numbers 14. (H & S)
Commodity
Base Year (2011) Current Year (2019)
Price (₹) Quantity (₹) Price (₹) Quantity p0q0 p0q1 p1q0 p1q1
Aggregate Expenditure Method
A 20 8 40 6 160 120 320 240
Aggregate
B 50 10 60 5 500 250 600 300 Price (in ₹) Quantity
Expenditure
C 40 15 50 15 600 600 750 750
Commodity (units)
D 20 20 20 25 400 500 400 500 2011 2019
p0q0 = p0q1 = p1q0 = p1q1 =
(2011) q0 p0q0 P1q0
p0 p1
1,660 1,470 2,070 1,790
A 10 15 15 150 225
(i) Laspeyre’s Method B 8 12 20 160 240
C 20 24 10 200 240
 p1q 0 2,070 D 32 40 5 160 200
P01 = ×100 = ×100 =124.69
 p0 q 0 1,660 E 15 20 6 90 120
F 12 18 2 24 36
(ii) Paasche’s Method G 8 10 1 8 10
p0q0 p1q0
 p1q1 1,790
P01 = ×100 = ×100 =121.77 = 792 = 1,071
 p0 q1 1,470
Consumer Price Index for the year 2019
 p1q 0 1,071
13. (H & S) = ×100 = ×100 =135.22
 p0 q 0 792
Construction of Price Index Numbers
Base Year (2011)
Current Year Family Budget Method
(2019-20)
Commodity Price (in ₹) Price Relatives Quantity
Price Quantity Price Quantity
p0q0 p0q1 p1q0 p1q1 Commodity 2011 2019  P1  (2011) (p0q0) W RW
(₹) p0 (₹) q0 (₹) p1 q1
 × 100  R q0
A 2 10 3 100 200 200 300 300 p0 p1  P0 
B 8 9 10 10 72 80 90 100 A 10 15 150 15 150 22,500
B 8 12 150 20 160 24,000
C 12 5 15 6 60 72 75 90
C 20 24 120 10 200 24,000
D 7 7 10 8 49 56 70 80 D 32 40 125 5 160 20,000
p0q0 p0q1 p1q0 p1q1 E 15 20 133.33 6 90 12,000
= 381 = 408 = 535 = 570 F 12 18 150 2 24 3,600
G 8 10 125 1 8 1,000
W = 792 RW = 1,07,100

(i) Laspeyre’s Method Consumer Price Index (CPI) for the year
2019
 p1q 0 535
P01 = ×100 = ×100 =140.42  RW 1,07,100
 p0 q 0 381 =   135.22
W 790
(ii) Paashe’s Method
It shows that there is an increase of 35.22% in
 p1q1 570 prices in the year 2019 as compared to year
P01 = ×100 = ×100 =139.70
 p0 q1 408 2011.
(iii) Fisher’s Method CPI by Aggregate Expenditure and Family
Budget Method = 135.22
 p1q0  p1q1
P01 =  ×100
 p0 q 0  p0 q1
15. (H & S)
535 570 Price index numbers are constructed to study
=  ×100 =140.05
381 408 the changes in the price levels of two time
(i) Laspeyre’s = 140.42; periods. Quantity index numbers are
(ii) Paasche’s =139.70; constructed to study the changes in the level
of output of two time periods.
(iii) Fisher’s = 140.05
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16. (H & S) (ii) Family Budget Method This method

This method is not affected by change in the computes CPI on the basis of family
units of measurement or by extreme values. budget, using the given formula.
However, it suffers from the following  IW
Consumer Price Index =
limitations. W
(i) This method also gives equal weights 19. (H & S)
to all the items and thus ignores their
Consumer Price Index is used to calculate
relative importance in the group.
purchasing power of money and real wage.
(ii) This method uses arithmetic mean for
computing average, which is not
suitable for study of index numbers. 20. (H & S)
The major groups for which CPI numbers are
constructed are enumerated below
17. (H & S)
(i) The industrial workers
Uses of index number are
(ii) The urban non-manual workers
(i) Index numbers are helpful in
measuring the purchasing power i.e., (iii) The agricultural labourers
value of the money.
(ii) These numbers are used to measure 21. (H & S)
level of economic activities like import, A Consumer Price Index for industrial
export, production, population, etc. workers measures general inflation.
(iii) These numbers are helpful in
evaluating economic policy e.g., index 22. (H & S)
number helps in knowing the effect of As per this method,
export policy on export.  IW
Index number = , Where
W
18. (H & S)
IW = Sum of products of price relatives and
There are two methods of constructing weights
Consumer Price Index number
W = Sum of weights
(i) Aggregative Method This is the most
popular method for constructing
Consumer Price Index number, and is 23. (H & S)
computed with the help of the  p1q 0  p1q1
following formula. P01 =   100
 p0 q 0  p0q1
 p1q 0
Consumer Price Index =  100
 p0 q 0

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