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Limitations of Index Numbers
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- They are simply rough indications of the relative changes.
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The choice of representative commodities may lead to fallacious conclusions as they are based on samples.
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There may be errors in the choice of base periods or weights etc.
- Comparisons of changes in variables over long periods are not reliable.
- They may be useful for one purpose but not for other.
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They are specialized types of averages and hence are subject to all those limitations with which an average suffers from.
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