State with reasons whether you agree or disagree : Index numbers have limitations.

Answer: I agree with the statement.

Index numbers are useful, but they have the following limitations:

1. Based on samples: only a few items are selected, so they may not represent all items.
2. Changes in quality of goods over time are not reflected.
3. Changes in tastes and habits of people make base-year weights outdated.
4. Difficulty in choosing the base year: a normal year is hard to find.
5. Misuse: they can be manipulated by a wrong choice of base year, items or weights.
6. Limited use: an index made for one purpose cannot be used for another.
7. Only approximate: they show average changes, not exact changes.

Hence index numbers have limitations.