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Page 1
Class 11th Statistics

07 INDEX NUMBERS
INDEX

Chapter 7: Index Numbers

Concepts Covered:
1. Index Numbers
➢ Meaning
➢ Characteris琀椀cs of Index numbers
➢ Types of Index numbers
• Price Index
• Quan琀椀ty Index
• Value Index
2. Methods of Construc琀椀ng Index numbers
➢ Construc琀椀on of simple Index numbers
• Simple Aggregate method
• Simple Average of price rela琀椀ves’ method
➢ Construc琀椀on of Weighted Index numbers
• Weighted Average of Price related method
• Weighted Aggrega琀椀ve method (a) Lapser’s Method, (b) Paasche's Method and (c) Fisher's
Method (this method is ideal because: -)
3. Consumer Price Index or Cost of Living Index number
➢ Meaning
➢ Construc琀椀on of Consumer Price Index
4. Wholesale Price Index
➢ Meaning
5. Industrial produc琀椀on Index
➢ Meaning
➢ Construc琀椀on
6. Sensex
7. Purpose of Construc琀椀ng Index number
➢ Uses
➢ Problems in Construc琀椀on of Index numbers
8. In昀氀a琀椀on and Index numbers
9. Mind Map
(Colourful & Interac琀椀ve/ Complete All Concept Covered)
10. Asser琀椀on Reason Ques琀椀ons
(An asser琀椀on is a simple statement, whereas a reason gives a detailed explana琀椀on about that
given statement.)
11. Case Study Ques琀椀ons
(A scenario in a par琀椀cular professional context which students are expected to analyse and
respond to, guided by speci昀椀c ques琀椀ons posed concerning the situa琀椀on.)
Page 2
Class 11th Economics (Statistics)

07 INDEX NUMBERS
INDEX NUMBERS

INDEX NUMBERS
Meaning
Index numbers are most commonly used in the study of the economic
status of a par琀椀cular region. As men琀椀oned, the index number de昀椀nes
the level of a variable rela琀椀ve to the level in a par琀椀cular period of 琀椀me
span. These index numbers serve as a measure to study the change in the
e昀昀ects of all the factors that cannot be measured or es琀椀mated on a direct
basis.

Thus, Index numbers occupy an important place due to their e昀케cacy in measuring the extent of
economic changes across a s琀椀pulated period. It helps to study such changes' e昀昀ects due to factors
that cannot be directly measured.

Characteris琀椀cs of Index numbers

The main highligh琀椀ng features of index numbers are men琀椀oned as below–

• It is a special category of average for measuring rela琀椀ve changes in such instances where
absolute measurement cannot be undertaken.
• Index number only shows the tenta琀椀ve changes in factors that may not be directly measured.
It gives a general idea of the rela琀椀ve changes.
• The method of index number measure alters from one variable to another related variable.
• It helps in the comparison of the levels of a phenomenon concerning a speci昀椀c date and to
that of a previous date.
• It is representa琀椀ve of a special case of averages especially for a weighted average.
• Index numbers have universal u琀椀lity. The index that is used to ascertain the changes in price
can also be used for industrial and agricultural produc琀椀on.

Types of Index numbers

There are various types of index numbers that have par琀椀cular usage. We will study
the types of Index numbers to know the same. This sec琀椀on which is related to the types of
Index numbers will help the students to understand the importance of each type in regard
to the task which is prac琀椀ced for.

Price Index

A price index number is used to measure how price alters across a period. It will indicate the rela琀椀ve
value and not the absolute value. The Consumer Price Index (CPI) and Wholesale Price Index (WPI)
are major examples of a price index.
Page 3
Class 11th Economics (Statistics)

07 INDEX NUMBERS
INDEX NUMBERS

Quan琀椀ty Index

A quan琀椀ty index number is used to measure changes in the volume or quan琀椀ty of goods that are
produced, consumed, and sold within a s琀椀pulated period. It shows the rela琀椀ve change across a
period for par琀椀cular quan琀椀琀椀es of goods. Index of Industrial Produc琀椀on (IIP) is an example of Quan琀椀ty
Index.

Value Index

A value index number is formed from the ra琀椀o of the aggregate value for a par琀椀cular period with
that of the aggregate value that is found in the base period. The value index is u琀椀lized for inventories,
sales, and foreign trade, among others.
Page 4
Class 11th Economics (Statistics)

07 INDEX NUMBERS
METHODS OF CONSTRUCTING INDEX NUMBERS

METHODS OF CONSTRUCTING INDEX NUMBERS

Construc琀椀on of simple Index numbers
Simple Aggregate method

A method in which the aggregate prices of all the selected commodi琀椀es

in the current year are expressed as the aggregate price of all the
commodi琀椀es in the base year is known as Simple Aggrega琀椀ve Method. It is
the simplest method to construct index number. The formula for construc琀椀ng
index number is:
∑ P1
P01 = × 100
P0
Example:
From the following data, construct Index Numbers for 2018-2019, taking 2010-2011 as the base
year by using the Simple Aggregate Method.
Commodity ₹
Price in 2010 – 2011 ( )
₹
Price in 2018 – 2019 ( )
�㔈 �㔈

Milk 50 70

Juice 30 40

Shake 70 90

Smoothie 100 150

Solution:

C Price in 2010 – 2011(₹) (�㔏ÿ ) Price 2018 – 2019 (₹) (�㔏Ā )

Milk 50 70
Juice 30 40
Shake 70 90
Smoothie 100 150

∑ Po = 250 ∑ P1 = 350

Price Index for year 2018-2019 with year 2010-2011 as the base:
Page 5
Class 11th Economics (Statistics)

07 INDEX NUMBERS
METHODS OF CONSTRUCTING INDEX NUMBERS

∑ P1 350
P01 = × 100 = × 100 = 140
P0 250
The value of the Price Index (140) reveals that in the year 2018-2019, there is a net increase of 40%
in the prices of given commodi琀椀es as compared to the year 2010-2011.
Simple Average of price rela琀椀ves method

This index number is an improvement over the previous method, as it is not a昀昀ected by the unit in
which the prices of the commodi琀椀es are quoted. The formula for construc琀椀ng index number is:
P1
∑( × 100)
po
P01 =
N
Example:

From the following data, construct Index Numbers for 2018-2019, taking 2010-2011 as the base year
by using Simple Average of Price Rela琀椀ves Method.

Commodity ₹
Price in 2010 – 2011 ( ) Price in 2018 – 2019 ( )
₹
�㔈 �㔈

Milk 50 70

Juice 30 40

Shake 70 90

Smoothie 100 150

Solution:

Commodity Price in 2010 – Price 2018 – 2019 Price rela琀椀ves

�㔏Ā
Āÿÿ
�㔏ÿ
2011(₹) (�㔏ÿ ) (₹) (�㔏Ā )
Milk 50 70 1401
Juice 30 40 133.33
Shake 70 90 128.57
Smoothie 100 150 150

∑ Po = 250 ∑ P1 = 350

P1
∑( × 100) 551.9
po
P01 = = = 137.9
N 4
Page 6
Class 11th Economics (Statistics)

07 INDEX NUMBERS
METHODS OF CONSTRUCTING INDEX NUMBERS

The Price Index Number (137.9) shows that there is an increase of 37.9% in the prices of commodi琀椀es
in the year 2018-2019 as compared in the year 2010-2011.

Construc琀椀on of Weighted Index numbers

Weighted Average of Price related method

Under this method, the base year prices of the commodi琀椀es are taken as the
basis to calculate the price rela琀椀ves for the current year. The calculated price
rela琀椀ves are then mul琀椀plied by their respec琀椀ve weights of the items. A昀琀er that, the
products determined are added up and divided by the sum of weights. The formula
for construc琀椀ng index number is:
∑ RW
P01 =
∑W
Example:

Use Weighted Rela琀椀ves Method and determine the index number from the following data for the
year 2019 with 2008 as the base year.

Commodity Weighted Price in 2008 (₹) Price 2019 (₹)

A 50 10 15

B 25 3 7

C 38 8 20

D 15 4 12

Commodity Weighted Price in 2008 Price 2019 Value R(

�㔏Ā
× RW
�㔏ÿ
(₹) (₹) Weighted
Āÿÿ)
(W )�㔏ÿ �㔪ÿ
A 50 10 15 500 150 75,000

B 25 3 7 75 300 22,500

C 38 8 20 304 250 76,000

D 15 4 12 60 300 18,000
Page 7
Class 11th Economics (Statistics)

07 INDEX NUMBERS
METHODS OF CONSTRUCTING INDEX NUMBERS

∑w ∑ RW
= 939 = 1,91,500

Weighted Average of Price Rela琀椀ves

∑ RW 1,91,500
P01 = = 203.9
∑W 939
The Index Number of 204 shows that there is an increase of 104% in the prices in the year 2019 as
compared to the year 2008.

Weighted Aggrega琀椀ve method (a) Laspeyre9s Method, (b) Paasche9s Method and (c) Fisher9s
Method (this method is ideal because: -)

This method involves assigning weights to di昀昀erent items and obtaining weighted aggregate of the
prices instead of 昀椀nding a simple aggregate of prices. Some important methods of construc琀椀ng
Weighted Aggrega琀椀ve Index are as follows:

a) Laspeyre9s Method
The method of calcula琀椀ng Weighted Index Numbers under which the base year quan琀椀琀椀es are
used as weights of di昀昀erent items is known as Laspeyre’s Method. The formula for Laspeyre’s
Price Index is:
∑ P1 q0
Laspeyre’s Method Price Index(P01 ) = ∑ P0 q0
× 100
b) Paasche9s Method

The method of calcula琀椀ng Weighted Index Numbers under which the current year’s quan琀椀琀椀es
are used as weights of di昀昀erent items is known as Paasche’s Method. The formula for Paasche’s
Price Index is:
∑ P1 q1
Paasche’s Method Price Index(P01 ) = ∑ P0 q1
× 100

c) Fisher9s Method

The method of calcula琀椀ng Weighted Index Numbers under which the combined techniques
of Paasche and Lapsers are used is known as Fisher’s Method. In other words, both the base
year and current year’s quan琀椀琀椀es are used as weights. The formula for Fisher’s Price Index is:
∑ P1 q0 ∑ P1 q1
Fisher’s Method Price Index(P01 ) = √ ∑ ×∑ × 100
P0 q0 P0 q1

Fisher8s formula is called the ideal because of the following reasons:

• It is based on geometric mean which is considered best for construc琀椀ng index numbers.
Page 8
Class 11th Economics (Statistics)

07 INDEX NUMBERS
METHODS OF CONSTRUCTING INDEX NUMBERS

• It ful昀椀ls both the 琀椀me reversal and factor reversal tests.

• It takes into account both current year as well as base year prices and quan琀椀琀椀es.
• It is free from bias.
Page 9
Class 11th Economics (Statistics)

07 INDEX NUMBERS
CONSUMER PRICE INDEX OR COST OF LIVING INDEX NUMBER

CONSUMER PRICE INDEX OR COST OF LIVING INDEX NUMBER

Meaning
The index re昀氀ec琀椀ng the average increase in the cost of the commodi琀椀es
consumed by a class of people and helping them maintain the same standard of living
in the current year as in the base year is known as Consumer Price Index (CPI). The main
aim behind their design is the measurement of the e昀昀ects of change in the prices of a
basket of goods and services on the purchasing power of a speci昀椀c sec琀椀on of society
during the current period with respect to the base period. Other names for Consumer
Price Index are Cost of Living Index Numbers, Price of Living Index Numbers, and Retail
Price Index Numbers.

Construc琀椀on of Consumer Price Index

Step 1: Determina琀椀on of the scope and coverage of the Index

The 昀椀rst step to construc琀椀ng CPI is deciding the speci昀椀c class of people for whom the index numbers
are intended. This class of people includes government employees, industrial workers, middle-
income or low-income class people, etc. Besides the class of people, the 昀椀rst step also includes
clearly marking the coverage (geographical area like rural, city, town, urban, etc.)

Step 2: Family Budget Enquiry

The next step involves conduc琀椀ng a family budget enquiry. It is done by randomly selec琀椀ng a sample
of adequate number of representa琀椀ve families from the selected class of people for whom the index
is designed. The enquiry conducted should be held in a normal period of economic stability.

In simple terms, Family Budget Enquiry helps in determining how much an average family of the class
selected spends on the consump琀椀on of di昀昀erent commodi琀椀es. The commodi琀椀es are classi昀椀ed under
昀椀ve major groups: viz., Clothing, Food, House Rent, Fuel and Lightning, and Miscellaneous. These
major groups are sub-divided into smaller groups termed sub-groups. For example, the major group
Food is sub-divided into pulses, milk and milk products, fruits, vegetables, cereals, etc. Usually, these
sub-groups are further divided into smaller parts, so that the commodi琀椀es included in them can be
men琀椀oned individually. However, only the commodi琀椀es, which are consumed by a group are
included in the index numbers.

Step 3: Obtaining Price Quota琀椀ons

The last step of construc琀椀ng CPI is collec琀椀ng retail prices. This step is very di昀케cult and important
because the retail prices of di昀昀erent commodi琀椀es vary from place to place, shop to shop, and even
customer to customer.
Page 10
Class 11th Economics (Statistics)

07 INDEX NUMBERS
CONSUMER PRICE INDEX OR COST OF LIVING INDEX NUMBER

There cannot be one formula for collec琀椀ng retail prices; however, while collec琀椀ng the following
men琀椀oned broad principles may be observed:

• The retail price should be that which is actually charged by the customers.
• It should relate to a 昀椀xed list of items and there should be pre昀椀xed quality speci昀椀ca琀椀ons for
these items.
• Discount provided for cash payment and interest rate for the payment should also be taken
into considera琀椀on.
• In this period of price control or ra琀椀oning, illegal prices are openly charged to the customers.
Hence, along with controlled prices, these prices should be taken into account.
• As the most essen琀椀al component of cost-of-living indices consists of prices of commodi琀椀es, it
is necessary to pay considerable a琀琀en琀椀on to the methods used for price collec琀椀on and to the
price collec琀椀on personnel.
• For conversion of prices into index numbers, it is required to weigh the prices or their rela琀椀ves
because the rela琀椀ve importance of di昀昀erent items for di昀昀erent classes of people is not the
same.
Page 11
Class 11th Economics (Statistics)

07 INDEX NUMBERS
WHOLESALE PRICE INDEX

WHOLESALE PRICE INDEX

Meaning

The two most prac琀椀cal and widely used metrics used to assess market in昀氀a琀椀on in a country are the
Wholesale Price Index and the Consumer Price Index. The WPI concentrates on the wholesale level,
whereas the CPI concept concentrates on the retail level.

The Wholesale Price Index is an indicator that tracks changes in wholesale product prices. This index
measures changes in the average price of commodi琀椀es traded in bulk. Unlike the retail price at which
individual customers purchase items from the market, the Wholesale Price Index (WPI) relies on the
average price a trader needs to pay when purchasing items wholesale.
Page 12
Class 11th Economics (Statistics)

07 INDEX NUMBERS
INDUSTRIAL PRODUCTION INDEX

INDUSTRIAL PRODUCTION INDEX

Meaning
The index number of industrial produc琀椀on is prevailing these days. The changes in
the level of industrial produc琀椀on across many industries are measured by the index
number of industrial produc琀椀on. Simply put, it measures an increase or decrease in a
country’s industrial output rela琀椀ve to the base year.

Characteris琀椀cs of Index Number of Industrial Produc琀椀on

• The index number indicates changes in the rate of produc琀椀on.

• The base year for the current series is 2011-2012 in India.
• These index 昀椀gures can be used to predict the growth of the economy’s industrial produc琀椀on.
• The output of some industries may increase whereas others’ output might decline during a
given period.
• These are designed to evaluate changes in the level of industrial produc琀椀on across a given
period with respect to a base period.
• It evaluates changes in produc琀椀on volume rather than produc琀椀on value.

Construc琀椀on
Construc琀椀on of the Index number of Industrial Produc琀椀on involves the following steps:

1. Classi昀椀ca琀椀on of Industries:
First of all, to the construct Index number of Industrial Produc琀椀on, the industries
are categorized into:
a) Mining Industries: Petroleum, coal, aluminium, iron ore, etc.
b) Metallurgical Industries: Rolling mills, iron, steel, etc.
c) Mechanical Industries: Aeroplanes, ships, locomo琀椀ves, etc.
d) Industries related to the Excise Du琀椀es: Tabacco, sugar, match, etc.
e) Tex琀椀le Industries: Jute, silk, co琀琀on, woollen, etc.
f) Miscellaneous: Soap, chemicals, glass, cement, etc.
2. Collec琀椀on of Sta琀椀s琀椀cs or Data Related to Industrial Produc琀椀on:
The next step includes the collec琀椀on of data rela琀椀ng to the above-men琀椀oned industries. The data
can be collected either monthly, quarterly, or annually.
3. Assigning Weightages:
Weights are assigned based on the rela琀椀ve importance of certain industries. The weights are
determined by the value of respec琀椀ve industries’ net output and how much they contribute to
the na琀椀onal income.
Page 13
Class 11th Economics (Statistics)

07 INDEX NUMBERS
SENSEX

SENSEX
Stock Exchange Sensi琀椀ve Index (SENSEX) is the oldest stock exchange in India and
is also termed BSE (Bombay Stock Exchange). It is a free 昀氀oat, economy-weighted
index of 30 昀椀nancially sound and very well-established organisa琀椀ons listed on BSE.
These 昀椀rms are also branded as blue-chip companies in India. The 30 cons琀椀tuent
corpora琀椀ons that are among the most successful and highest traded stocks are
representa琀椀ves of various industries in India. SENSEX mirrors the Indian stock market movements.
Page 14
Class 11th Economics (Statistics)

07 INDEX NUMBERS
PURPOSE OF CONSTRUCTING INDEX NUMBER

PURPOSE OF CONSTRUCTING INDEX NUMBER

Uses
Purpose of construc琀椀ng index number of prices is to know the rela琀椀ve change or
percentage in the price level over 琀椀me. A rising general price level over 琀椀me is a
pointer towards in昀氀a琀椀on, while a falling general price level over 琀椀me is a pointer
towards de昀氀a琀椀on.

Purpose of construc琀椀ng index number of quan琀椀ty is to know rela琀椀ve change

or percentage change in the quantum or volume of output of di昀昀erent goods
and services. A rising index of quan琀椀ty suggests a rising level of economic ac琀椀vity and vice-versa.

Problems in Construc琀椀on of Index numbers

The following problems are faced in the construc琀椀on of index number:

1. De昀椀ni琀椀on of the purpose:

There is no 昀椀xed purpose of an index number as every index number has its own par琀椀cular uses
and limita琀椀ons. Hence, it is important to know what is to be measured and how these measures
are to be used.
2. Selec琀椀on of the base period:

When comparison is to be made between di昀昀erent 琀椀me periods or di昀昀erent places some points
of references is to be iden琀椀昀椀ed, this is called the base year. This base year should not be too for
or too distant. It should be free from all sorts of abnormali琀椀es or irregular 昀氀uctua琀椀ons like
earthquakes, 昀氀oods, tsunamis etc.

3. Selec琀椀on of items:

Collec琀椀on of data is the main problem in construc琀椀ng index number, as there is a large variety of
goods and prices. If the number of the commodi琀椀es is too large, a choice of some representa琀椀ve
items has to be made. On the other hand, inclusion of too few items would make the index
number unrepresenta琀椀ve of the whole. Hence, items should be selected as per the relevance of
the index. The number of items to be included in the index should neither be too small or to be
large.

4. Selec琀椀on of the sources of data:

The sources of data are sca琀琀ered over a large geographical region. Hence, one has to face the
problem of reliability and comparability of data. So for selec琀椀ng the reliable data, authen琀椀c
sources should be used.

5. Price quota琀椀ons:
Page 15
Class 11th Economics (Statistics)

07 INDEX NUMBERS
PURPOSE OF CONSTRUCTING INDEX NUMBER

The prices of commodi琀椀es vary from place to place. So it is not possible to obtain price quota琀椀ons
from all the places. Therefore, a selec琀椀on of representa琀椀ve place and persons should be made.
Page 16
Class 11th Economics (Statistics)

07 INDEX NUMBERS
INFLATION AND INDEX NUMBERS

INFLATION AND INDEX NUMBERS

A tool used to get an idea of the broad price changes in the economy over a period
is called the in昀氀a琀椀on index number. To understand the in昀氀a琀椀on index
number, understanding the index ra琀椀o number is important. Index
numbers represent the ra琀椀o between the cost values of one item to
the cost value of another item. The index number model is used in
many economics and 昀椀nances, such as the stock market, wage levels, and
labour yields.

There are several methods to calculate the index number, but every method should be
interpreted carefully and precisely. The choice of formula largely depends on the ques琀椀on of
interest. An in昀氀a琀椀on index number is used to track the in昀氀a琀椀on rate, and it also measures
changes in the general cost level over a while. It is called in昀氀a琀椀on when the cost level rises.
Page 18
Class 11th Economics

07 INDEX NUMBERS
ASSERTION REASON

ASSERTION REASON
Chapter 8 Index Numbers
Question 1:

Directions: For two statements are given-one labelled Assertion (A) and the other labelled
Reason (R). Select the correct answer to these questions from the codes (a), (b), (c) and (d)
as given below:

Assertion: Index numbers are used to measure changes in the value of a variable over
time.

Reason: Index numbers provide a relative measure of change by comparing the variable's
value with its base period value.

a. Both A and R are true and R is the correct explanation of A

b. Both A and R are true but R is not the correct explanation of A
c. A is true but R is false
d. A is false but R is true
Answer: Both A and R are true and R is the correct explanation of A

Question 2:

Directions: For two statements are given-one labelled Assertion (A) and the other labelled
Reason (R). Select the correct answer to these questions from the codes (a), (b), (c) and (d)
as given below:

Assertion: A Laspeyres price index tends to overestimate the cost of living because it uses
fixed weights.

Reason: Fixed weights in the Laspeyres index do not account for changes in consumer
preferences.

a. Both A and R are true and R is the correct explanation of A

b. Both A and R are true but R is not the correct explanation of A
c. A is true but R is false
d. A is false but R is true
Answer: Both A and R are true but R is not the correct explanation of A

Question 3:
Page 19
Class 11th Economics

07 INDEX NUMBERS
ASSERTION REASON

Directions: For two statements are given-one labelled Assertion (A) and the other labelled
Reason (R). Select the correct answer to these questions from the codes (a), (b), (c) and (d)
as given below:

Assertion: The Fisher's Ideal index is considered the most accurate index number formula.
Reason: The Fisher's Ideal index takes into account changes in both quantity and price.
a. Both A and R are true and R is the correct explanation of A
b. Both A and R are true but R is not the correct explanation of A
c. A is true but R is false
d. A is false but R is true

Answer: A is true but R is false

Question 4:

Directions: For two statements are given-one labelled Assertion (A) and the other labelled
Reason (R). Select the correct answer to these questions from the codes (a), (b), (c) and (d)
as given below:

Assertion: The Paasche price index is based on current year quantities and base year
prices.

Reason: The Paasche index is used to calculate the average price of goods and services in a
given year.

a. Both A and R are true and R is the correct explanation of A

b. Both A and R are true but R is not the correct explanation of A
c. A is true but R is false
d. A is false but R is true
Answer: A is true but R is false

Question 5:

Directions: For two statements are given-one labelled Assertion (A) and the other labelled
Reason (R). Select the correct answer to these questions from the codes (a), (b), (c) and (d)
as given below:

Assertion: The Laspeyres index is biased towards overestimating price changes when the
prices of goods and services increase over time.

Reason: The Laspeyres index uses base year quantities and current year prices.
Page 20
Class 11th Economics

07 INDEX NUMBERS
ASSERTION REASON

a. Both A and R are true and R is the correct explanation of A

b. Both A and R are true but R is not the correct explanation of A
c. A is true but R is false
d. A is false but R is true

Answer: A is true but R is false

Page 21
Class 11th Economics

07 INDEX NUMBERS
CASE STUDY

CASE STUDY
Chapter 8 Index Numbers
Question 1:

The government of a country wants to analyse the trend in the prices of essen琀椀al commodi琀椀es
over the past 昀椀ve years. They have collected the following data:

Year Price Index

2018 100
2019 108
2020 115
2021 122
2022 130

1. Calculate the percentage increase in the price level from 2018 to 2022.
2. Iden琀椀fy the base year in the given data.
3. What does the price index of 130 in the year 2022 indicate?

i. What is the percentage increase in the price level from 2018 to 2022?

a. 20%
b. 25%
c. 30%
d. 35%

ii. Which year is considered as the base year in the given data?

a. 2018
b. 2019
c. 2020
d. 2021

iii. The percentage increase in the price level from 2019 to 2022 is:

a. 15%
b. 18%
c. 20%
d. 22%
Page 22
Class 11th Economics

07 INDEX NUMBERS
CASE STUDY

iv. The correlation coefficient ranges from:

a. Deflation
b. Inflation
c. Stable prices
d. No change in prices

v. What is the price index for the year 2020?

a. 105
b. 110
c. 115
d. 120
Answer:

i. (c) 30%
ii. (a) 2018
iii. (b) 18%
iv. (b) Inflation
v. (c) 115
Question 2:
An investor wants to analyse the performance of a stock over the past three years. The stock
prices at the beginning and end of each year are given below:

Year Price (Beginning) Price (End)

2019 $ 50 $ 60
2020 $ 60 $ 70
2021 $ 70 $ 75

1. Calculate the price index for each year, considering 2019 as the base year.

2. Interpret the price index for the year 2021.

i. What is the price index for the year 2020?

a. 110
b. 115
c. 116.67
Page 23
Class 11th Economics

07 INDEX NUMBERS
CASE STUDY

d. 120

ii. What is the percentage increase in the stock price from 2019 to 2021?

a. 5%
b. 7%
c. 10%
d. 14%

iii. Which year shows the highest price index?

a. 2019
b. 2020
c. 2021
d. Cannot be determined.

iv. What does a price index of less than 100 indicate?

a. Inflation
b. Deflation
c. Stable prices
d. No change in prices

v. Which year shows the highest percentage increase in stock price compared to the base
year?

a. 2020
b. 2021
c. Both 2020 and 2021
d. None of the above
Answer:

i. (c) 116.67
ii. (b) 7%
iii. (a) 2019
iv. (b) Deflation
v. (b) 2021
 Chapter – 7
Index Numbers
Question 1: An index number which accounts for the relative
importance of the items is known as
(i) weighted index
(ii) simple aggregative index
(iii) simple average of relatives
Answer:
An index number which accounts for the relative importance of
the items is known as weighted index.
An index number in which different items of the series are
accorded weight age according to their relative importance is
known as Weighted Index Numbers. It is the weighted average of
the prices of different goods.
Question 2: In most of the weighted index numbers the weight
pertains to:
(i) base year
(ii) current year
(iii) both base and current year
Answer:
In most of the weighted index numbers, the weight pertains
to current year.
In the Weighted Method of calculating index numbers, different
goods are accorded weights according to the quantity brought.
Laspeyre's method uses base year's quantities as weights,
Paasche's method uses current year's quantities as weights and
Fisher’s method uses both base year as well as current year's
quantities as base.
Question 3: The impact of change in the price of a commodity
with little weight in the index will be:
(i) small
(ii) large
(iii) uncertain
Answer:
The impact of change in the price of a commodity with little
weight in the index will be small.
A lesser important commodity is assigned lower weight as it
would not have a significant effect of price change.
Question 4: A consumer price index measures changes in:
(i) retail prices
(ii) wholesale prices
(iii) producers prices
Answer:
A consumer price index measures changes in retail prices.
Consumer Price Index (CPI) is used to measure changes in the
cost of living in which the retail prices of consumer goods and
services are obtained. It measures the average changes in the
retail prices.
Question 5: The item having the highest weight in consumer
price index for industrial workers is:
(i) Food
(ii) Housing
(iii) Clothing
Answer:
The item having the highest weight in consumer price index for
industrial workers is food.
The weight schemes in CPI for Industrial Workers include food,
pan, supari, tobacco, fuel and lighting, housing, clothing, and
miscellaneous expenses. The food being the most important
component has the highest weight. It implies that the food price
changes have a significant impact on the CPI.
Question 6: In general, inflation is calculated by using.
(i) wholesale price index
(ii) consumer price index
(iii) producers' price index
Answer:
In general, inflation is calculated by using Wholesale Price
Index.
Wholesale Price Index measures the relative changes in the prices
of the commodities traded in the wholesale markets. It assesses
situations of overall demand and supply in the market. It focuses
on the rate of inflation in the economy.
Question 7: Why do we need an index number?
Answer:
An index number is a statistical device that is used to measure the
changes in the related variables. Its importance is explained in the
following points:
1. To measure change in the price level
Index numbers measure and compare prices of different
commodities with the help of Wholesale Price Index (WPI). It is
widely used to measure the level of inflation in an economy.
2. To study a change in the standard of living
Index numbers help to assess the living standard of people. Cost
of living index measures the relative cost of living over time. If
the index number has a low value, then it implies that people have
low standard of living and vice-versa.
3. Useful in planning and decision making
Index numbers serve as the most important tool for business
communities for drafting various plans and designing various
policies. It is useful for the government and the planners to work
out inflation rate with the help of consumer price index.
4. To determine the level of production
Index number of Industrial Production measures changes in the
physical volume of production. Also, the production index is an
important indicator to ascertain the output level.
5. To help the government in framing policy.
Index numbers are of great help to the government to frame fiscal
and monetary policies. The government formulates policies
regarding inflation, trade, income, salaries and allowances.
Question 8: What are the desirable properties of the base period?
Answer:
The base period should have the following desirable properties:
1. The base year should not be either too short or too long: It
should not be either less than a month or more than a year for
calculation purpose.
2. The base year should not belong to too near or too
far: Statisticians compare the current year's conditions with the
conditions in the base year. So, if the base year is too far from the
current year, then the comparison becomes meaningless.
Similarly, if the base year is too near to the current year, then
comparison fails to capture the change in the taste, preferences,
fashion, etc. Thus, in order to conduct a meaningful comparison,
the base year should not be either too far or too near to the current
year.
3. The base year should be so selected that the data for the
same should be available: The data for a year should be
available in order to regard that particular year to be the base
year. This enables one to draw conclusions, inferences and for
making comparisons.
4. The base period should be constantly updated: The base
year should be constantly updated due to the changes in taste,
preferences and fashion otherwise; the comparison becomes
misleading or inconclusive.
Question 9: Why is it essential to have different CPI for different
categories of consumers?
Answer:
The Consumer Price Index (CPI) in India includes the following
three components:
1. CPI for Industrial Workers.
2. CPI for Urban Non-manual Employees.
3. CPI for Agricultural Labourers.
The three CIPs are calculated on regular basis to get the aggregate
effect of the changes in retail prices. While the CPI for industrial
workers and agricultural labourers are calculated and published
by Labour Bureau, Shimla, the CPI for the urban non-manual
employees is calculated and published by the Central Statistical
Organisation (CSO). The rationale behind carrying out separate
calculation of CPI for industrial and agricultural labourers and
CPI for urban non-manual employees is that the consumption
baskets of the former group (i.e. industrial workers and
agricultural labourers) differs significantly from that of the later
(i.e. urban non-manual employees). Thus, as the consumption
pattern differs among the two groups and to assess the impact of
the price change on the consumption pattern, CPI is calculated
separately for each group.
Question 10: What does a consumer price index for industrial
workers measure?
Answer:
A Consumer Price Index for Industrial Workers measures the
impact of changes in the retail prices on the cost of living of
industrial workers. In a country like India, CPI for industrial
workers is estimated and published by the Labour Bureau, Shimla
taking 1982 as the base year for the current series. In India, CPI
for industrial workers is the most popular index and is used by the
government to regulate Dearness Allowance (D.A.) to compensate
its employees against the price rise.
The weight schemes in CPI for Industrial Workers include food,
pan, supari, tobacco, fuel and lighting, housing, clothing, and
miscellaneous expenses. Food being the most important
component has the highest weight. Thus, it implies that the food
price changes have a significant impact on the CPI.
Question 11: What is the difference between a price index and a
quantity index?
Answer:
Price Index Quantity Index
Price Index Number is calculated Quantity Index Number is calculated
1. by two methods, namely 1. by two methods, namely
Weighted Average of Price
a. Simple Aggregative Method a. Relative Method
Simple Average of Price
b. Relative Method b. Weighted Aggregative Method.
Price Index number is also known Quantity Index Number is also
2. as Unweighted Index Number 2. known as Weighted Index Number.
Price Index Number takes into
account the prices of the Quantity Index takes into
commodity of the base year as consideration the weights of goods
3. well as of the current year. 3. assigned according to the quantity.
Question 12: Is the change in any price reflected in a price index
number?
Answer:
No, the change in any price is not reflected in a price index
number. In fact, only the relative change or the percentage change
in the price level is reflected in the price index number. Index
numbers of prices are not simply a statement of prices at different
dates, but they present the estimates of relative changes in the
prices over the years with reference to a particular base year.
Question 13: Can the CPI number for urban non-manual
employees represent the changes in the cost of living of the
President of India?
Answer:
The CPI for the urban non-manual employees cannot represent the
changes in the cost of living of the President of India. This is
because the consumption basket of the non-manual employees
consists of different items than those of the consumption basket
of President of India. In fact, in India CPI for industrial workers
is the most popular index. This is used by the government to
regulate Dearness Allowance (D.A.) to compensate its employees
against the price rise. Hence, the CPI for the industrial workers
cannot represent the changes in the cost of living of the President
of India.
Question 14: The monthly per capita expenditure incurred by
workers for an industrial centre during 1980 and 2005 on the
following items are given below. The weights of these items are
75, 10, 5, 6 and 4 respectively. Prepare a weighted index number
for cost of living for 2005 with 1980 as the base.
Items Price in 1980 Price in 2005
Food 100 200
Clothing 20 25
Fuel and Lighting 15 20
House rent 30 40
Misc. 35 65

Answer:
Price Price
in in
1980 2005 Weight
Items P0 P1 W RW

Food 100 200 75 15,000

Clothing 20 25 10 1,250
Fuel and
Lighting 15 20 5 666.65
House
Rent 30 40 6 799.98
Misc. 35 65 4 742.84

Question 15: Read the following table carefully and give your
comments.
INDEX OF INDUSTRIAL PRODUCTION BASE
1993 - 94
Weight (in
Industry %) 1996 - 97 2003 - 2004
General Index
Mining and 100 130.8 189.0
Quarrying 10.73 118.2 146.9
Manufacturing 79.58 133.6 196.6
Electricity 10.69 122.0 172.6
Answer:
The following conclusions can be made by analysing the above
table.
1. Manufacturing Industry has the highest weight of 79.58% as
compared to the Mining and Quarrying and Electricity Industries
that accounts for 10.73% and 10.69% respectively.
2. The production of Manufacturing Industry is higher than that of
the Mining and Quarrying and Electricity Industries in both the
years 1996-97 and 2003-04.
3. Mining and Quarrying has the least growth performance while
that of the Manufacturing Industry is the highest.
4. The General Index is comparatively higher in the year 2003-04
than 1996-97.
Question 16: Try to list the important items of consumption in
your family.
Answer:
The following items constitute the total consumption needs of our
family
(i) Food (ii) Clothing
(iii) Electricity (iv) House Rent
(v) Transportation (vi) Entertainment and Recreation
(vii) Education (viii) Miscellaneous expenses

Question 17: If the salary of a person in the base year is Rs 4,000

per annum and the current year salary is Rs 6,000, by how much
should his salary be raised to maintain the same standard of living if
the CPI is 400?
Answer:
Base CPI = Rs 100
Current CPI = Rs 400
Base Year Salary = Rs 4,000
Current Year Salary = Rs 6,000

Thus,
his salary should be Rs 16,000. Therefore, in the current year his
salary should increase by Rs 10,000 (i.e. Rs 16,000 - Rs 6,000) so
as to maintain the same level of living in the current year as that
of the base year.
Question 18: The consumer price index for June, 2005 was 125.
The food index was 120 and that of other items 135. What is the
percentage of the total weight given to food?
Answer:
 Items Index Weights WI
Food 120 W1 120 W1
Other Items 135 W2 135 W2

Let the total weight = 100

W1 denotes weight of food
W2 denotes weight of food other items
So, W1 + W2 = 100 (i)
CPI = 125

12500 = 120 W1 + 135 W2 (ii)

Subtracting equations (ii) from (i)
13500 = 135 W1 + 135 W2
12500 = 120 W1 + 135 W2
– – –
1000 = 15 W1

Substituting the value of W1 in the equation (i)

W1 + W2 = 100
Or, 66.67 + W2 = 100
W2 = 33.33
Percentage of total weights given to food is 66.67% and other
items is 33.33%
Question 19: An enquiry into the budgets of the middle class
families in a certain city gave the following information;
Expenses on items Food Fuel Clothing Rent Misc.
35% 10% 20% 15% 20%
Price (in Rs) in 2004 1500 250 750 300 400
Price (in Rs) in 1995 1400 200 500 200 250
What is the cost of living index of 2004 as compared with 1995?
Answer:
Price Price
Weight in 1995 in 2004
Items W P0 P1 WR

Food 35 1400 1500 3,749.90

Fuel 10 200 250 1,250

Clothing 20 500 750 3,000

Rent 15 200 300 2,250

Misc. 20 250 400 3,200

Cost of Living Index = 134.50

Thus, the prices rose by 34.50% during 1995 and 2004.
Question 20: Record the daily expenditure, quantities bought and
prices paid per unit of the daily purchases of your family for two
weeks. How has the price change affected your family?
Answer:
Week I

Potato Onion
Pri
ce Pric
(pe e Total
r Quant Expendit (per Quanti Expendit Expendit
kg) ity ure kg) ty ure ure
Days PWI QWI PWI QWI PWI QWI PWI QWI (Rs)
Monday 10 1 10 20 1 20 30
Tuesday 9 1 9 19 1 19 28
Wednes
day 11 1 11 21 1 21 32
Thursda
y 12 15 18 20 1 20 38
Friday 8 1 8 19 2 38 46
Saturday 10 2 20 18 15 27 47
Sunday 9 1 9 20 1 20 29
Week II
Potato Onion
Pri
ce
(pe Pric
r e Total
kg) Quant Expendit (per Quanti Expendit Expendit
PWI ity ure kg) ty ure ure
Days I QWII PWII QWII PWII QWII PWII QWII (Rs)
Monday 9 1 9 20 1 20 29
Tuesday 10 1.5 15 22 1.5 33 48
Wednes
day 12 1 12 21 1 21 33
Thursda
y 10 1 10 19 1 19 29
Friday 11 2 22 18 1 18 40
Saturday 12 1 12 20 1 20 32
Sunday 10 1 10 22 1.5 33 43

The household on Monday of week one (WI) spend Rs 30, by

buying 1 kg of Potato and 1kg of Onion at Rs 10 and Rs 20 per kg
respectively, whereas, the price of Potato on Monday of the week
second (WII) has reduced from Rs 10 to Rs 9 resulting in the
reduction in the expenditure incurred by the household.
Therefore, we can conclude that the decrease in price leads to
decrease in expenditure given the quantity purchased. We can
also analyze that the price and quantity purchased by the
household shares a negative relationship with each other.
Question 21: Given the following data:
CPI of
Industrial CPI of Agricultural
Workers Labourers WPI
Year (1982 = 100) (1986-87 = 100) (1993-94 = 100)
1995–96 313 234 121.6
1996–97 342 256 127.2
1997–98 366 264 132.8
1998–99 414 293 140.7
1999–00 428 306 145.3
2000–01 444 306 155.7
2001–02 463 309 161.3
2002–03 482 319 166.8
2003–04 500 331 175.9

Source: Economic Survey, Government of India, 2004-2005

(i) Comment on the relative values of the index numbers.
(ii) Are they comparable?
Answer:
(i) From the year 1995-96 to 2003-04, CPI of industrial workers is the
highest while the wholesale price index is the lowest. It is important
to mention here that different index numbers have different base
years. For the industrial workers it is 1982 = 100, for agricultural
labourers it is 1986-87 = 100 and for WPI it is 1993-94 = 100.
(ii) Different index numbers are not comparable because they have
different base year.
Question 22: The monthly expenditure (Rs.) of a family on some
important items and the Goods and Services Tax (GST) rates
applicable to these items is as follows:
 Monthly Expense
Item GST Rate %
(Rs)
Cereals 1500 0
Eggs 250 0
Fish, Meat 250 0
Medicines 50 5
Biogas 50 5
Transport 100 5
Butter 50 12
Babool 10 12
Tomato Ketchup 40 12
Biscuits 75 18
Cakes, Pastries 25 18
Branded Garments 100 18
Vacuum Cleaner, 1000 28
Car
Calculate the average tax rate as far as this family is concerned.
Answer:
Monthly GST Rate % (X) WX
Expenditure (w)
Cereals 1500 0 0
Eggs 1500 0 0
Fish, Meat 250 0 0
Medicines 50 5 2.5
Biogas 50 5 2.5
Transport 100 5 5
Butter 50 12 6
Babool 10 12 1.2
Tomato Ketchup 40 12 4.8
Biscuits 75 18 13.5
Cakes, Pastries 25 18 4.5
Branded 100 18 18
Garments
Vacuum Cleaner, 1000 28 280
Car
Total 3500 338
The average tax rate for this family:
Page 1
Class 11th Economics (Statistics)

07 INDEX NUMBERS
INDEX NUMBERS

(Practice Sheet)
1 What is the primary func琀椀on of index numbers in economic analysis?
A. To provide absolute measurements of B. To measure rela琀椀ve changes in economic
economic variables variables over 琀椀me
C. To calculate weighted averages of D. To determine the maximum value of
economic variables economic variables
2 Which characteris琀椀c of index numbers allows for the comparison of the levels of a
phenomenon between speci昀椀c dates?
A. Index numbers are used for weighted B. Index numbers represent a special
averages category of average
C. Index numbers measure rela琀椀ve D. Index numbers vary in method depending
changes in factors that can't be directly on the variable measured
measured
3 Which type of index measures changes in the volume or quan琀椀ty of goods produced,
consumed, or sold within a speci昀椀c 琀椀me frame?
A. Price Index B. Quan琀椀ty Index
C. Value Index D. Consumer Price Index (CPI)
4 The Consumer Price Index (CPI) is an example of which type of index in economic
analysis?
A. Quan琀椀ty Index B. Value Index
C. Price Index D. Industrial Produc琀椀on Index
5 In economic analysis, a Value Index is formed by comparing:
A. The aggregate value for the current B. The Consumer Price Index (CPI) with the
period with that of the base period Wholesale Price Index (WPI)
C. The quan琀椀ty of goods produced with the D. The price of a speci昀椀c commodity with the
quan琀椀ty of goods consumed average price of all commodi琀椀es
6 What is the primary purpose of index numbers in economic analysis?
7 List two characteris琀椀cs of index numbers.
8 Explain the use of a Price Index in economic analysis. Provide an example of a commonly used
price index.
9 What does a Quan琀椀ty Index measure, and why is it important in economic analysis?
10 De昀椀ne a Value Index and provide an example of its applica琀椀on in economic analysis.
Page 1
Class 11th Economics (Statistics)

07 INDEX NUMBERS
METHODS OF CONSTRUCTING INDEX NUMBERS

(Practice Sheet)
1 What is the primary di昀昀erence between the Simple Aggregate Method and the Simple
Average of Price Rela琀椀ves Method for construc琀椀ng index numbers?
A. Simple Average uses weighted price B. Simple Aggregate is not a昀昀ected by the
rela琀椀ves, while Simple Aggregate uses unit of prices, while Simple Average is.
unweighted prices.
C. Simple Average considers the change in D. Simple Aggregate provides more accurate
quan琀椀琀椀es, while Simple Aggregate does results than Simple Average.
not.
2 Which method of construc琀椀ng index numbers assigns weights based on current year
quan琀椀琀椀es?
A. Simple Aggregate Method B. Simple Average of Price Rela琀椀ves Method
C. Laspeyre's Method D. Paasche's Method
3 Why is the Weighted Average of Price Rela琀椀ves Method important in construc琀椀ng index
numbers?
A. It is the simplest method B. It considers both base year and current
year quan琀椀琀椀es
C. It is not a昀昀ected by the unit of prices D. It provides unbiased results
4 Which method of construc琀椀ng index numbers combines both base year and current year
quan琀椀琀椀es as weights?
A. Laspeyre's Method B. Paasche's Method
C. Fisher's Method D. Simple Aggregate Method
5 What is the signi昀椀cance of Fisher's Method in construc琀椀ng index numbers?
A. It provides a simple and easy-to-calculate B. It is free from bias
index
C. It uses current year quan琀椀琀椀es as weights D. It is the only method used for construc琀椀ng
index numbers
6 Explain the Simple Aggregate Method of construc琀椀ng index numbers. Provide an example
using price data for two years.
7 Describe the Simple Average of Price Rela琀椀ves Method for construc琀椀ng index numbers. How
is it di昀昀erent from the Simple Aggregate Method?
8 What is the Weighted Average of Price Rela琀椀ves Method for construc琀椀ng index numbers, and
why is it important?
9 Explain the di昀昀erences between Laspeyre's Method and Paasche's Method in construc琀椀ng
Weighted Aggrega琀椀ve Price Index numbers.
10 Why is Fisher's Method considered ideal for construc琀椀ng index numbers?
Page 1
Class 11th Economics (Statistics)

07 INDEX NUMBERS
CONSUMER PRICE INDEX OR COST OF LIVING INDE

(Practice Sheet)
1 What is another term commonly used for the Consumer Price Index (CPI)?
A. Price Index B. Retail Price Index
C. Cost of Living Index D. Economic Index
2 In the construc琀椀on of the Consumer Price Index (CPI), which step involves randomly
selec琀椀ng a sample of representa琀椀ve families from the selected class of people?
A. Step 1: Determina琀椀on of scope and B. Step 2: Family Budget Enquiry
coverage
C. Step 3: Obtaining Price Quota琀椀ons D. None of the above
3 Which major groups are typically included in the classi昀椀ca琀椀on of commodi琀椀es for CPI
calcula琀椀on?
A. Electronics, Clothing, Food, Cars, and B. Food, Clothing, House Rent, Fuel and
Educa琀椀on Ligh琀椀ng, Miscellaneous
C. Technology, Entertainment, Healthcare, D. None of the above
Housing, and Transporta琀椀on
4 What is the primary purpose of collec琀椀ng retail prices in the CPI construc琀椀on process?
A. To es琀椀mate the total consump琀椀on B. To determine the quality speci昀椀ca琀椀ons of
expenditure of families commodi琀椀es
C. To assess the impact of discounts on D. To measure changes in the cost of living
prices
5 Which of the following is NOT a step in the construc琀椀on of the Consumer Price Index
(CPI)?
A. Determining the scope and coverage B. Conduc琀椀ng a family budget inquiry
C. Obtaining price quota琀椀ons D. Calcula琀椀ng the na琀椀onal income
6 What is the primary purpose of the Consumer Price Index (CPI), also known as the Cost of
Living Index?
7 Describe the steps involved in the construc琀椀on of the Consumer Price Index (CPI).
8 Why is the Family Budget Enquiry an essen琀椀al step in construc琀椀ng the Consumer Price Index?
9 What are the major groups typically considered in the classi昀椀ca琀椀on of commodi琀椀es for CPI
calcula琀椀on?
10 Why is collec琀椀ng retail prices a challenging but crucial step in construc琀椀ng the Consumer
Price Index?
Page 1
Class 11th Economics (Statistics)

07 INDEX NUMBERS
WHOLESALE PRICE INDEX

(Practice Sheet)
1 What does the Wholesale Price Index (WPI) primarily measure?
A. Retail product prices B. Wholesale product prices
C. Consumer spending pa琀琀erns D. Consumer sa琀椀sfac琀椀on
2 How does the Wholesale Price Index (WPI) di昀昀er from the Consumer Price Index (CPI)?
A. WPI focuses on individual customer B. WPI measures changes in retail-level
purchases, while CPI tracks wholesale prices, while CPI tracks changes in
prices. wholesale prices.
C. WPI operates in the retail market, while D. WPI and CPI are essen琀椀ally the same and
CPI operates in the wholesale market. interchangeable.
3 What type of pricing does the Wholesale Price Index (WPI) rely on?
A. Average retail prices B. Average wholesale prices
C. Individual customer prices D. None of the above
4 Where is the Wholesale Price Index (WPI) most applicable in terms of market
transac琀椀ons?
A. Individual retail purchases B. Online shopping
C. Wholesale bulk transac琀椀ons D. Interna琀椀onal trade
5 Why is the Wholesale Price Index (WPI) considered an important economic indicator?
A. It helps track consumer spending B. It assesses consumer sa琀椀sfac琀椀on with
pa琀琀erns products
C. It provides insights into wholesale price D. It measures changes in individual
changes, which can impact overall customer prices.
in昀氀a琀椀on.
6 What is the primary purpose of the Consumer Price Index (CPI), also known as the Cost of
Living Index?
7 Describe the steps involved in the construc琀椀on of the Consumer Price Index (CPI).
8 Why is the Family Budget Enquiry an essen琀椀al step in construc琀椀ng the Consumer Price Index?
9 What are the major groups typically considered in the classi昀椀ca琀椀on of commodi琀椀es for CPI
calcula琀椀on?
10 Why is collec琀椀ng retail prices a challenging but crucial step in construc琀椀ng the Consumer
Price Index?
Page 1
Class 11th Economics (Statistics)

07 INDEX NUMBERS
INDUSTRIAL PRODUCTION INDEX

(Practice Sheet)
1 What is the primary purpose of the Industrial Produc琀椀on Index?
A. To measure changes in the rate of B. To calculate changes in the GDP
industrial produc琀椀on
C. To assess consumer spending pa琀琀erns D. To determine changes in retail prices
2 In India, what is the base year for the current series of the Industrial Produc琀椀on Index?
A. 2005-2006 B. 2010-2011
C. 2011-2012 D. 2015-2016
3 How is the rela琀椀ve importance of industries determined when construc琀椀ng the Industrial
Produc琀椀on Index?
A. Based on the number of employees in B. Randomly assigned weights
each industry
C. Based on the value of each industry's net D. Equal weight is assigned to all industries
output and its contribu琀椀on to na琀椀onal
income
4 What aspect of industrial produc琀椀on does the Industrial Produc琀椀on Index primarily
evaluate?
A. Produc琀椀on value B. Changes in GDP
C. Changes in produc琀椀on volume D. Changes in retail prices
5 Why is the classi昀椀ca琀椀on of industries important when construc琀椀ng the Industrial
Produc琀椀on Index?
A. It determines the base year for the index B. It helps with GDP calcula琀椀ons
C. It allows for a detailed analysis of D. It has no impact on the index construc琀椀on
changes in produc琀椀on across di昀昀erent
sectors
6 What does the Industrial Produc琀椀on Index measure, and how does it do so?
7 What is the base year for the current series of the Industrial Produc琀椀on Index in India?
8 What is the primary purpose of the Industrial Produc琀椀on Index, and how can it be used in
economic analysis?
9 Why is it important to classify industries when construc琀椀ng the Industrial Produc琀椀on Index?
10 What does the Industrial Produc琀椀on Index evaluate: produc琀椀on volume or produc琀椀on value?
Page 1
Class 11th Economics (Statistics)

07 INDEX NUMBERS
SENSEX

(Practice Sheet)
1 What is the SENSEX primarily associated with in India?
A. Currency exchange rates B. Real estate market
C. Stock market D. Commodity trading
2 How many cons琀椀tuent corpora琀椀ons are included in the SENSEX?
A. 10 B. 20
C. 30 D. 50
3 What type of companies are typically included as cons琀椀tuents in the SENSEX?
A. Start-up companies B. Financially sound and well-established
organiza琀椀ons
C. Government-owned enterprises D. Non-pro昀椀t organiza琀椀ons
4 Which stock exchange in India is associated with the SENSEX?
A. Na琀椀onal Stock Exchange (NSE) B. Calcu琀琀a Stock Exchange (CSE)
C. Bombay Stock Exchange (BSE) D. Madras Stock Exchange (MSE)
5 What methodology is used to calculate the SENSEX?
A. Market capitaliza琀椀on-weighted B. Equal-weighted
C. Free 昀氀oat, economy-weighted D. Price-weighted
6 What is the SENSEX, and which stock exchange in India is it associated with?
7 How many cons琀椀tuent corpora琀椀ons are included in the SENSEX, and what type of
companies are they?
8 What is the methodology used to calculate the SENSEX?
9 What does the SENSEX mirror in the context of the Indian 昀椀nancial market?
Page 1
Class 11th Economics (Statistics)

07 INDEX NUMBERS
PURPOSE OF CONSTRUCTING INDEX NUMBER

(Practice Sheet)
1 What does a rising general price level over 琀椀me indicate in the context of an index
number of prices?
A. De昀氀a琀椀on B. Economic stagna琀椀on
C. In昀氀a琀椀on D. Stabiliza琀椀on
2 Why is it important for the base year to be free from irregular 昀氀uctua琀椀ons or
abnormali琀椀es?
A. To ensure economic growth B. To facilitate interna琀椀onal comparisons
C. To establish a point of reference for D. To measure consumer sen琀椀ment
comparisons
3 What is the purpose of selec琀椀ng representa琀椀ve items for inclusion in an index number?
A. To increase the number of items for B. To make the index number
be琀琀er accuracy unrepresenta琀椀ve
C. To ensure relevance to the purpose of D. To eliminate the need for a base year
the index
4 Why is the selec琀椀on of reliable data sources important in construc琀椀ng an index number?
A. To increase the number of commodi琀椀es B. To improve the representa琀椀veness of the
index
C. To ensure accuracy and comparability of D. To eliminate the need for price quota琀椀ons
data
5 What is the primary purpose of construc琀椀ng an index number of prices?
6 What does a rising index of quan琀椀ty indicate?
7 Why is the selec琀椀on of the base period crucial in construc琀椀ng an index number?
8 What is a challenge faced in the selec琀椀on of items for construc琀椀ng an index number?
Page 1
Class 11th Economics (Statistics)

07 INDEX NUMBERS
INFLATION AND INDEX NUMBERS

(Practice Sheet)
1 What is the primary purpose of an in昀氀a琀椀on index number in economics?
A. Tracking changes in the stock market B. Measuring wage levels
C. Gauging broad price changes in the D. Es琀椀ma琀椀ng labor yields
economy
2 What does an index number represent in the context of economics and 昀椀nance?
A. The absolute cost value of an item B. The ra琀椀o between the cost values of two
items
C. The rate of economic growth D. The value of currency exchange rates
3 Why is the choice of formula important when calcula琀椀ng an index number?
A. It determines the base year B. It a昀昀ects the precision of the index
C. It changes the purpose of the index D. It eliminates the need for interpreta琀椀on
4 When is a rise in the cost level considered "in昀氀a琀椀on"?
A. When the cost level remains unchanged B. When the cost level decreases
C. When the cost level rises D. When the cost level 昀氀uctuates
5 What is the purpose of an in昀氀a琀椀on index number in economics?
6 What does an index number represent in the context of economics and 昀椀nance?
7 Why is it important to choose the appropriate formula when calcula琀椀ng an index number?
8 When is a rise in the cost level referred to as "in昀氀a琀椀on"?
Page 1
Class 11th Economics (Statistics)

07 INDEX NUMBERS
INDEX NUMBERS

(Answers Key)
1 To measure rela琀椀ve changes in economic variables over 琀椀me
2 Index numbers represent a special category of average
3 Quan琀椀ty Index
4 Price Index
5 The aggregate value for the current period with that of the base period
6 Index numbers are primarily used to measure rela琀椀ve changes in economic variables over
琀椀me when absolute measurements are not feasible.
7 Two characteris琀椀cs of index numbers are:
• They represent a special category of average for measuring rela琀椀ve changes.
• They allow the comparison of the levels of a phenomenon between speci昀椀c dates.
8 A Price Index is used to measure how prices change over 琀椀me. For example, the Consumer
Price Index (CPI) is a widely used price index that measures the rela琀椀ve change in consumer
prices for a basket of goods and services over 琀椀me.
9 A Quan琀椀ty Index measures changes in the volume or quan琀椀ty of goods produced,
consumed, or sold over a speci昀椀c period. It is important in economic analysis to understand
how the quan琀椀ty of goods has changed, separate from price changes. An example is the
Index of Industrial Produc琀椀on (IIP).
10 A Value Index is formed by comparing the aggregate value for a speci昀椀c period with the
aggregate value in a base period. It is used in various economic contexts, such as
measuring changes in inventories, sales, and foreign trade.
Page 1
Class 11th Economics (Statistics)

07 INDEX NUMBERS
METHODS OF CONSTRUCTING INDEX NUMBERS

(Answers Key)
1 Simple Average uses weighted price rela琀椀ves, while Simple Aggregate uses unweighted
prices.
2 Paasche's Method
3 It considers both base year and current year quan琀椀琀椀es
4 Fisher's Method
5 It is free from bias
6 The Simple Aggregate Method involves expressing the aggregate prices of selected
commodi琀椀es in the current year as the aggregate price of all commodi琀椀es in the base year.
For example, to construct an index number for 2018-2019 with 2010-2011 as the base year,
you sum up the prices of all commodi琀椀es in both years and use the formula: P01 =
(∑P1 )
× 100. Then, you calculate the percentage change.
P0

7 The Simple Average of Price Rela琀椀ves Method calculates price rela琀椀ves (

P1
× 100) for each
P0
commodity, averages them, and then computes the index number. It is di昀昀erent from the
Simple Aggregate Method as it is not a昀昀ected by the unit in which prices are quoted, making
it a more versa琀椀le method for construc琀椀ng index numbers.
8 The Weighted Average of Price Rela琀椀ves Method mul琀椀plies price rela琀椀ves by their
respec琀椀ve weights and then calculates the index number. It's important because it considers
the signi昀椀cance of di昀昀erent items by assigning weights, providing a more accurate
representa琀椀on of changes in the overall value.
9 Laspeyre's Method uses base year quan琀椀琀椀es as weights, while Paasche's Method uses
current year quan琀椀琀椀es as weights. Laspeyre's is a 昀椀xed-weight method, while Paasche's is a
current-weight method. They provide di昀昀erent perspec琀椀ves on price changes.
10 Fisher's Method is considered ideal because it combines both Laspeyre's and Paasche's
methods, taking into account both base year and current year quan琀椀琀椀es as weights. It uses
the geometric mean, ful昀椀lls 琀椀me reversal and factor reversal tests, and is free from bias.
Page 1
Class 11th Economics (Statistics)

07 INDEX NUMBERS
CONSUMER PRICE INDEX OR COST OF LIVING INDE

(Answers Key)
1 Cost of Living Index
2 Step 2: Family Budget Enquiry
3 Food, Clothing, House Rent, Fuel and Ligh琀椀ng, Miscellaneous
4 To measure changes in the cost of living
5 Calcula琀椀ng the na琀椀onal income
6 The primary purpose of CPI is to measure the average increase in the cost of commodi琀椀es
consumed by a speci昀椀c class of people and assess how it impacts their ability to maintain
the same standard of living as in the base year.
7 The steps in construc琀椀ng CPI include determining the scope and coverage, conduc琀椀ng a
family budget inquiry, and obtaining price quota琀椀ons. These steps help gather data on how
much a representa琀椀ve class of people spends on di昀昀erent commodi琀椀es and their
corresponding retail prices.
8 The Family Budget Enquiry helps determine the consump琀椀on pa琀琀erns of a selected class of
people, including their spending on various commodi琀椀es. This informa琀椀on is crucial for
calcula琀椀ng CPI accurately.
9 The major groups o昀琀en include Clothing, Food, House Rent, Fuel and Ligh琀椀ng, and
Miscellaneous. These are further subdivided into smaller groups and individual commodi琀椀es
based on consump琀椀on pa琀琀erns.
10 Collec琀椀ng retail prices is challenging because they can vary widely based on loca琀椀on, shop,
and customer. However, it's crucial because CPI relies on accurate price data to measure
changes in the cost of living for a speci昀椀c class of people.
Page 1
Class 11th Economics (Statistics)

07 INDEX NUMBERS
WHOLESALE PRICE INDEX

(Answers Key)
1 Cost of Living Index
2 Step 2: Family Budget Enquiry
3 Food, Clothing, House Rent, Fuel and Ligh琀椀ng, Miscellaneous
4 To measure changes in the cost of living
5 Calcula琀椀ng the na琀椀onal income
6 The Wholesale Price Index primarily focuses on tracking changes in wholesale product
prices, while the Consumer Price Index concentrates on retail-level prices.
7 The key di昀昀erence is that the WPI measures changes in the average price of commodi琀椀es
traded in bulk, whereas the CPI tracks changes in the average price paid by individual
customers for retail-level purchases.
8 The WPI measures changes in the average price of commodi琀椀es traded in bulk. It is
calculated based on the average price that traders pay when buying items wholesale.
9 The WPI primarily operates in the wholesale market, where bulk quan琀椀琀椀es of goods are
bought and sold.
10 The WPI is important for assessing market in昀氀a琀椀on because it provides insights into price
changes at the wholesale level, which can have signi昀椀cant impacts on retail prices and
overall in昀氀a琀椀on.
Page 1
Class 11th Economics (Statistics)

07 INDEX NUMBERS
INDUSTRIAL PRODUCTION INDEX

(Answers Key)
1 To measure changes in the rate of industrial produc琀椀on
2 2011-2012
3 Based on the value of each industry's net output and its contribu琀椀on to na琀椀onal income
4 Changes in produc琀椀on volume
5 It allows for a detailed analysis of changes in produc琀椀on across di昀昀erent sectors
6 The Industrial Produc琀椀on Index measures changes in the rate of industrial produc琀椀on in a
country rela琀椀ve to a base year. It evaluates changes in produc琀椀on volume across various
industries.
7 The base year for the current series of the Industrial Produc琀椀on Index in India is 2011-2012.
8 The Industrial Produc琀椀on Index is designed to assess changes in the level of industrial
produc琀椀on over 琀椀me. It can be used to predict the growth of a country's industrial
produc琀椀on and evaluate changes in produc琀椀on volume.
9 Classifying industries is important because it allows for a more detailed analysis of changes
in industrial produc琀椀on across di昀昀erent sectors, such as mining, metallurgical, mechanical,
and others.
10 The Industrial Produc琀椀on Index evaluates changes in produc琀椀on volume rather than
produc琀椀on value.
Page 1
Class 11th Economics (Statistics)

07 INDEX NUMBERS
SENSEX

(Answers Key)
1 Stock market
2 30
3 Financially sound and well-established organiza琀椀ons
4 Bombay Stock Exchange (BSE)
5 Free 昀氀oat, economy-weighted
6 The SENSEX, also known as the Stock Exchange Sensi琀椀ve Index, is associated with the
Bombay Stock Exchange (BSE), which is the oldest stock exchange in India. It is an index that
re昀氀ects the movements of the Indian stock market.
7 The SENSEX includes 30 cons琀椀tuent corpora琀椀ons, which are 昀椀nancially sound and well-
established organiza琀椀ons listed on the BSE. These companies are o昀琀en referred to as blue-
chip companies in India.
8 The SENSEX is calculated using a free 昀氀oat, economy-weighted methodology. This means
that the index takes into account the market capitaliza琀椀on and free 昀氀oat of the 30
cons琀椀tuent companies.
9 The SENSEX mirrors the movements and trends of the Indian stock market, providing insights
into the overall performance of the market.
Page 1
Class 11th Economics (Statistics)

07 INDEX NUMBERS
PURPOSE OF CONSTRUCTING INDEX NUMBER

(Answers Key)
1 In昀氀a琀椀on
2 To establish a point of reference for comparisons
3 To ensure relevance to the purpose of the index
4 To ensure accuracy and comparability of data
5 The primary purpose of construc琀椀ng an index number of prices is to measure the rela琀椀ve
change or percentage change in the price level over 琀椀me. It helps in iden琀椀fying in昀氀a琀椀on
(rising price level) or de昀氀a琀椀on (falling price level) trends.
6 A rising index of quan琀椀ty indicates an increase in the quantum or volume of output of
di昀昀erent goods and services, sugges琀椀ng a higher level of economic ac琀椀vity.
7 The selec琀椀on of the base period is crucial because it serves as a point of reference for making
comparisons between di昀昀erent 琀椀me periods or places. The base year should be neither too
distant nor too recent, and it should be free from irregulari琀椀es or abnormal 昀氀uctua琀椀ons.
8 The challenge in selec琀椀ng items for construc琀椀ng an index number lies in the large variety
of goods and prices available. It's important to choose representa琀椀ve items that are
relevant to the purpose of the index. The number of items included should strike a balance
between being too few or too many.
Page 1
Class 11th Economics (Statistics)

07 INDEX NUMBERS
INFLATION AND INDEX NUMBERS

(Answers Key)
1 Gauging broad price changes in the economy
2 The ra琀椀o between the cost values of two items
3 It a昀昀ects the precision of the index
4 When the cost level rises
5 The purpose of an in昀氀a琀椀on index number in economics is to gauge broad price changes in
the economy over a speci昀椀c period, helping to track the in昀氀a琀椀on rate and measure changes
in the general cost level.
6 An index number represents the ra琀椀o between the cost values of one item to the cost value
of another item. It is used in various economic and 昀椀nancial applica琀椀ons, including the stock
market, wage levels, and labor yields.
7 It is important to choose the appropriate formula when calcula琀椀ng an index number because
the choice of formula depends on the speci昀椀c ques琀椀on of interest. Di昀昀erent formulas may
yield di昀昀erent results, so precision in interpreta琀椀on is crucial.
8 A rise in the cost level is referred to as "in昀氀a琀椀on." In昀氀a琀椀on signi昀椀es an increase in the general
price level over 琀椀me.
Page 1
Class 11th Statistics
)
07 INDEX NUMBERS
MIND MAP

MIND MAP