Following are the prices of commodities in the years 2011-12 and 2022-23. Calculate the price index using the price relatives method.

a) Price Index = (Price in 2022-23) / (Price in 2011-12) * 100

b) Price Index = (Price in 2011-12) / (Price in 2022-23) * 100

c) Price Index = [(Price in 2022-23) - (Price in 2011-12)] / (Price in 2011-12) * 100

d) Price Index = [(Price in 2011-12) - (Price in 2022-23)] / (Price in 2022-23) * 100

The price index is determined by the ratio of the price of the basket of commodities in the current year to the price in the base year, multiplied by 100. Using the price relatives method:

[tex]\[ \text{Price Index} = \left( \frac{P_{\text{current}}}{P_{\text{base}}} \right) \times 100 \][/tex]

Where:

[tex]$ P_{\text{current}} $[/tex] is the price in the current year (2022-23),
[tex]$ P_{\text{base}} $[/tex] is the price in the base year (2011-12).

Substituting the given values:

[tex]\[ \text{Price Index} = \left( \frac{650}{500} \right) \times 100 = 130 \][/tex]

A price index of 130 indicates a 30% increase in the overall price level of the basket of commodities from the base year to the current year. This suggests inflation or an increase in the average price of the selected goods and services over the specified period.

Understanding the price index is crucial for assessing inflationary trends, as it provides insights into the relative changes in the cost of living or the purchasing power of currency over time. In this case, a price index of 130 signifies a notable increase in the cost of the specified basket of commodities between 2011-12 and 2022-23.

So correct option is A) 130

Question:

In the year 2011-12 and 2022-23, the prices of commodities were recorded for the purpose of calculating the price index using the price relatives method. If the price of a basket of commodities was $500 in 2011-12 and $650 in 2022-23, what is the price index for the given period?

A) 130

B) 110

C) 120

D) 105