Consider the following statements:
A. Cost of living at two different cities can be compared with volume index.
B. When the prices of rice are to be compared we use price index.
C. In Laspeyre’s price index number weight is considered as price in current year.
D. Purchasing power of money can be assessed through consumer price index.
E. Fisher Index number is called ideal index number.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → B, D and E only
A price index compares prices, a volume (quantity) index compares quantities, and the consumer price index (cost of living index) measures the change in the cost of a fixed basket of goods. Laspeyres’ index uses the base-year quantities \(q_0\) as weights:
\( \displaystyle P_{01}^{L} = \frac{\sum p_1 q_0}{\sum p_0 q_0} \times 100 \)
So cost of living is compared through a price (consumer price) index, Laspeyres’ weights are base-year quantities, and Fisher’s index is the ideal index.
Checking the statements
(A) Cost of living at two different cities can be compared with volume index. — Incorrect. Cost of living depends on prices, so it needs a consumer price index, not a volume index.
(B) When the prices of rice are to be compared we use price index. — Correct. Comparing prices is exactly what a price index does.
(C) In Laspeyre’s price index number weight is considered as price in current year. — Incorrect. The weights are the base-year quantities \(q_0\), not current-year prices.
(D) Purchasing power of money can be assessed through consumer price index. — Correct. Purchasing power of money \(= \frac{100}{\text{CPI}}\), the reciprocal of the consumer price index.
(E) Fisher Index number is called ideal index number. — Correct. Fisher’s index satisfies both the time reversal and the factor reversal tests, so it is called the ideal index.
Note: This topic was not in the CUET 2026 syllabus.