PRC-2 · Chapter 9 · Question 9 of 60
When constructing an index using the 'Simple Aggregate Method', what is a major structural flaw?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) It gives disproportionate influence to items with naturally high unit prices.
Explanation
The simple aggregate method merely sums prices. Therefore, an item measured in tonnes costing Rs. 50,000 will overwhelmingly dominate the index compared to an item measured in grams costing Rs. 50, completely ignoring their relative importance.
More Indices MCQs
- Q11In standard index construction, why do economists occasionally perform a process known as 'base shifting'?
- Q12What does a Quantity Index measure?
- Q13If the Laspeyres index for a dataset is 120 and the Paasche index is 125, what is the approximate Fisher's Ideal Index?
- Q14A fundamental characteristic of the Laspeyres Index is that it tends to:
- Q15What is the primary formula representing a Value Index?