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CA Foundation · Quantitative Aptitude · Index Numbers

A wholesale price index is calculated using a fixed basket of goods fixed in 2011. By 2024, many goods in the basket are rarely bought and several new products are widely used but not included. Which problem of index numbers does this illustrate?

This illustrates the problem of an outdated basket. When the items fixed in the base period no longer match what people actually buy, the index fails to reflect current consumption and becomes less meaningful. Circular test or choice of mean is not the issue here.

  1. AError due to sampling of the base year only
  2. BThe basket becoming outdated, so the index fails to reflect current consumptionCorrect
  3. CViolation of the circular test by the index
  4. DUse of the harmonic mean instead of the arithmetic mean

Explanation

A fixed basket becomes obsolete as new goods appear and old ones vanish. The index then no longer represents current buying patterns, which is a problem of selecting items and keeping the basket updated. The circular test and averaging issues are unrelated to what is described.

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