Question

State the difference between a Simple Index Number and a Weighted Index Number.

Hint:

Simple index → No weights Weighted index → Includes importance (weights)

Answer 1

Concept: Index numbers measure changes in variables such as prices or quantities over time. They can be constructed either without weights (simple) or with importance assigned to items (weighted).
Difference between Simple and Weighted Index Numbers: \begin{center} \begin{tabular}{|c|c|c|} \hline
Feature &
Simple Index Number &
Weighted Index Number
\hline Definition & No weights assigned to items & Weights assigned based on importance
\hline Importance of items & All items treated equally & Different importance to different items
\hline Accuracy & Less accurate & More accurate and realistic
\hline Complexity & Easy to calculate & More complex calculations
\hline Use & Preliminary analysis & Economic and policy analysis
\hline Example & Simple price index & CPI, WPI, Cost of Living Index
\hline \end{tabular} \end{center}
Explanation:
Simple Index Number: Constructed by taking a simple average of price relatives without considering the relative importance of commodities.
Weighted Index Number: Assigns weights to items according to their importance (e.g., consumption level), giving a more reliable measure of change.