How The Index Numbers Are Constructed?
The construction of index number is quite a complicated process. The main steps required for its technical construction are purpose of index number, selection of commodities, selection of markets, price quotation, and choice of base period, selection of averages and choice of weight. The most important element which affects all other factors while constructing the index number is the fixation of object of index number. Of we do not have any purpose in mind, the selection of commodities, selection of markets and selection of base period is merely useless. The second is selection of commodities depends upon the object of index number. If the purpose of index number is to know the general tendency of price level then a large number of commodities will be selected and each commodity must represent one class of it. For the construction of an index number, it is necessary to include only those commodities which are most commonly used by the class of people for whom the index number is to be
