1.

In Measuring Changes in the Value of Money:

Index numbers are used to measure changes in the value of money. A study of the rise or fall in
the value of money is essential for determining the direction of production and employment to
facilitate future payments and to know changes in the real income of different groups of people
at different places and times. As pointed out by Crowther, “By using the technical device of an
index number, it is thus possible to measure changes in different aspects of the value of money,
each particular aspect being relevant to a different purpose.”

2. In Cost of Living:
Cost of living index numbers in the case of different groups of workers throw light on the rise or
fall in the real income of workers. It is on the basis of the study of the cost of living index that
money wages are determined and dearness and other allowances are granted to workers. The cost
of living index is also the basis of wage negotiations and wage contracts.

3. In Analyzing Markets for Goods and Services:

Consumer price index numbers are used in analyzing markets for particular kinds of goods and
services. The weights assigned to different commodities like food, clothing, fuel, and lighting,
house rent, etc., govern the market for such goods and services.

4. In Measuring Changes in Industrial Production:

Index numbers of industrial production measure increase or decrease in industrial production in a
given year as compared to the base year. We can know from such as index number the actual
condition of different industries, whether production is increasing or decreasing in them, for an
industrial index number measures changes in the quantity of production.
5. In Internal Trade:

The study of indices of the wholesale prices of consumer and industrial goods and of industrial
production helps commerce and industry in expanding or decreasing internal trade.

6. In External Trade:
The foreign trade position of a country can be accessed on the basis of its export and import
indices. These indices reveal whether the external trade of the country is increasing or
decreasing.
7. In Economic Policies:
Index numbers are helpful to the state in formulating and adopting appropriate economic
policies. Index numbers measure changes in such magnitudes as prices, incomes, wages,
production, employment, products, exports, imports, etc. By comparing the index numbers of
these magnitudes for different periods, the government can know the present trend of economic
activity and accordingly adopt price policy, foreign trade policy and general economic policies.

8. In Determining the Foreign Exchange Rate:

Index numbers of wholesale price of two countries are used to determine their rate of foreign
exchange. They are the basis of the purchasing power parity theory which determines the
exchange rate between two countries on inconvertible paper standard.

Types of index number

Price Index Numbers

Price index numbers measure the relative changes in the price of a commodity between two
periods. Prices can be either retail or wholesale.

Quantity Index Numbers

These index numbers are considered to measure changes in the physical quantity of goods
produced, consumed or sold for an item or a group of items.
Limitations of the index number

1. They are simply rough indications of the relative changes

2. The choice of representative commodities may lead to fallacious conclusions as they are
based on samples.
3. There may be errors in the choice of base periods or weights, etc.
4. Comparisons of changes in variables over long periods are not reliable.
5. They may be useful for one purpose but not for another.
 6. They are specialized types of averages and hence are subject to all those limitations
which an average suffers from.
advantages of forecasting

Q2

valuable insight

gets you into the habit of looking at past and real-time data to predict future demand. And in
doing so, you’ll be able to anticipate demand fluctuations more effectively. But more than that,
it’ll give you insight into your company’s health and provide you with an opportunity to course-
correct or make adjustments.

learn from past mistakes

You don’t start from scratch after each forecast. Even if your prediction was nowhere close to
what ended up coming to pass, it gives you a starting point. It’s common to review where and
why things didn’t happen the way you predicted. Your forecasts should eventually improve. But
more than that, you’ll get into the habit of reflecting upon past performance as a whole. And self-
reflection can be a powerful driver of company growth.
It can decrease costs

When done right, anticipating demand will help you tweak your processes to increase efficiency
all along the supply chain. Because you’re better able to predict what customers will want and
when they’ll want it, you may also be able to decrease excess inventory levels, thus increasing
overall profitability.
Q3

Disadvantages of forecasting

1. Forecasts are never 100% accurate

 Let’s face it: it’s hard to predict the future. Even if you have a great process in place and
forecasting experts on your payroll, your forecasts will never be spot on. Some products and
markets simply have a high level of volatility. And in general, there is just an endless number of
factors that influence demand.

2. It can be time-consuming and resource-intensive

 Forecasting involves a lot of data gathering, data organizing, and coordination. Companies
typically employ a team of demand planners who are responsible for coming up with the
forecast. But in order to do this well, demand planners need substantial input from the sales and
marketing teams. In addition, it’s not uncommon for processes to be manual and labor-intensive,
thus taking up a lot of time. Fortunately, if you have the right technology in place, this is much
less of an issue.

3. It can also be costly

 On a related note, hiring a team of demand planners is a significant investment. When you add
to that the cost of using good quality tools, upfront costs can add up. But investing in advanced
software, high-quality talent and solid forecasting processes is just that: an investment. We’re
confident you’ll see a return when all of that is done right. 

Importance of quantitative techniques in business

The following are the important reasons or functions of Quantitative techniques

1. To facilitate the decision making process.

2. to provide tools for scientific research.

3. To select an appropriate strategy.

4. To help in reduction of cost.

5. To have proper deployment of resources.

6. To help in minimizing the time required for completing the task

Limitations of quantitative research

1.It followed the methodology of spatial science and thus reduced the subject to space geometry.
The man and environment relationship cannot be properly established by the mechanistic models
designed with the help of quantitative techniques.

2. The advocates of quantitative revolution pleaded for the language of geometry. Geometry is
not an acceptable language to explain the man and environment relationship—the main theme of
human geography.

3. The models and theories developed on the basis of empirical data exclude the normative
questions like beliefs, taboos, emotions, attitudes, desires, hopes, fears, likes and dislikes,
prejudices and aesthetic values. This is mainly being done to make the study objective and
scientific. In the real world, in the interrelationships of man and environment, and decision
making processes, the normative questions and social, moral, religious and ethical values have a
close bearing. In fact, in any economic activity and in the decision making process about the
utilization of resources, people are largely governed by their religious, moral, cultural and social
values. It is because of these values that dairying is not developing among the Khasias
(Meghalaya) and Lushais (Mizoram) of the north-east India. In fact, taking milk is a taboo in
these tribes. The Muslims, all over the world hate piggery, and the Sikhs dislike the cultivation
of tobacco. By excluding the normative questions the study may be objective, but it gives only a
parochial picture of the man and environment relationship.

4.The advocates of quantitative techniques in geography focused on ‘locational analysis’. The

main weakness of the locational analysis is that it promotes capitalism. In a capitalistic society,
there is exploitation of human and environmental resources (land, water, forest and minerals)

which makes the rich richer and the poor poorer.

5. With the development of sophisticated machinery and automation, there is less scope of

employment. Thus, it leads to unemployment and it is a system of wasteful production. The

assumption that man is a ‘rational person’ who always tries to optimize his profit has also been

criticized.

6. In the real world location decisions are seldom if ever optimal in the sense of maximizing
profits or minimizing resources used. In the opinion of Simon, man, in a limited number of

alternative, chooses one that is broadly satisfactory rather than optimal. In most of the cases the

satisfying model applies and man takes decisions about the utilization of his resources to satisfy

his aspirations and desires.

7. The assumption that man has ‘infinite knowledge’ of his space or environment (resources) has

also been criticized. The knowledge about a resource changes as the new technology develops.

Hence, say that he has a full knowledge about his environment.