CA Foundation · Quantitative Aptitude · Index Numbers
The price relatives (current year on base year = 100) of three commodities are 120, 150 and 90. Using the simple average of price relatives method with the arithmetic mean, what is the price index?
The index is 120. Using the arithmetic mean of price relatives, add 120, 150 and 90 to get 360 and divide by 3 items. The option 360 is wrong because it forgets to divide by the number of commodities.
- A120Correct
- B125
- C110
- D360
Explanation
Simple average of price relatives = (120 + 150 + 90)/3 = 360/3 = 120. The value 360 is the sum of the relatives and was not divided by the number of items, which is the mistake in that option.
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