CA Foundation · Quantitative Aptitude · Index Numbers
The factor reversal test requires that the product of a price index and the corresponding quantity index, with the roles of price and quantity interchanged, should equal which of the following?
The product of the price index and the quantity index (formed by interchanging p and q in the same formula) must equal the true value ratio Σp1q1 / Σp0q0. This is the factor reversal test. It is different from time reversal, where the product is 1.
- AThe ratio Σp1q1 / Σp0q0, the true value ratioCorrect
- BThe ratio Σp0q0 / Σp1q1
- CThe square root of Σp1q0 / Σp0q1
- DExactly 1
Explanation
Factor reversal requires P01 × Q01 = Σp1q1 / Σp0q0, the ratio of total values in the current and base years. Option 'Exactly 1' is the condition of the time reversal test, so it is wrong here. Fisher's ideal index satisfies the factor reversal test.
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