Page 2 - Home Assignment-Index No

In selecting items, the following points are to be kept in
mind:

(a) The items should be representative of the tastes, habits and
customs of the people.
(b) Items should be recognizable,
(c) Items should be stable in quality over two different periods and

places.
(d) The economic and social importance of various items should be
considered

3. Collection of Prices:
After selecting the commodities, the next problem is
regarding the collection of their prices:
a) From where the prices to be collected;

(b) Whether to choose wholesale prices or retail prices;
(c) Whether to include taxes in the prices or not etc.
While collecting prices, the following points are to be noted:
(a) Prices are to be collected from those places where a particular

commodity is traded in large quantities.
(b) Published information regarding the prices should also be utilised,
(c) In selecting individuals and institutions who would supply price
quotations, care should be taken that they are not biased.

(d) Selection of wholesale or retail prices depends upon the type of
index number to be prepared. Wholesale prices are used in the
construction of general price index and retail prices are used in the
construction of cost-of-living index number.

4. Selection of Average:
Since the index numbers are, a specialised average, the fourth problem
is to choose a suitable average. Theoretically, geometric mean is the

best for this purpose. But, in practice, arithmetic mean is used because
it is easier to follow.

5. Selection of Weights:

Generally, all the commodities included in the construction’ of index
numbers are not of equal importance. Therefore, if the index numbers