3 Marks Each

Question

State the merits and limitations of fixed base method.

Vidyadip · Accepted Answer

The merits and limitations of fixed base method are as follows :
Merits :

The base year is constant throughout the period of comparison.
As the base year remains constant, uniformity is maintained in the comparison of the relative changes in the values of variable.
This method is useful to compare the long term changes in the values of the variable.
It is easy to understand and simple to compute.

Limitations :

With change in time the taste, habits and fashion of consumers also changed and the items used by consumers will be changed. In this method the items which are not of much usage cannot be removed and the new items of usage cannot be considered.
It is not always possible to have a standard year with normal conditions as the base year. So the selection of base year is difficult.
If the base year is not selected appropriately, the reliability of the index number reduces.
It is not suitable to compare short term changes in the value of the variable.
It is not possible to make necessary change in determining weights of the items due to change in the quality of the items.
If the base year is a year of very remote past, the comparison of relative changes in the value of the variable cannot be considered appropriate.

Answer