Question

Q3

a)

i) state 3 uses of index numbers

ii) State 2 limitations of index numbers

b)

The prices and quantities (in Kg) of four food items ( gari, milk, sugar, and rice) purchased by an individual household in a typical month in 2010, and 2015 are given in the following table

Food item 2010 2015

Price (GHS) Quantity (Kg) Price (GHS) Quantity (Kg)

Gari 300 6 410 10

Rice 810 5 420 14

Milk 280 4 1250 4

sugar 240 3 350 8

Using 2010 as the base year, compute and interpret

i)Laspeyres index numbers

ii)Pasche’s index numbers

Fisher’s index numbers, for 2015   

Answer 1

(a) (i) three uses of index numbers seperated by comma are given bow

Index numbers are used to measure the difference in relative changes from time to time, Index numbers are used to calculate dearness allowance of employees, Index numbers are helpful in forecasting future economic trends, index numbers of import prices and export prices are used to measure the changes in the trade of a country.

2 limitations are

Index numbers come out as a result of samples which are intentional sometimes and hence there are chances of errors

There are various formulae for calculating index numbers and each of them suffers formulae error.