Prices and Cost of Living — Important Questions

Extra payment to compensate for price rise

Dearness Allowance (DA) is an additional payment given to compensate for rising prices. Step 1: Government and some organizations provide DA to their employees when inflation occurs. Step 2: When prices rise by a certain percentage, DA is increased proportionally. Step 3: This helps maintain employees' purchasing power despite inflation. Step 4: DA ensures that workers can afford the same standard of living even when costs increase, unlike people with truly fixed incomes who don't receive such compensation.

125

When base year is 100 and prices rise by 25%, the new index value becomes 125. Step 1: Price index uses base year as reference point with value 100. Step 2: A 25% increase means prices are now 25% higher than the base year. Step 3: Calculate: 100 + (25% of 100) = 100 + 25 = 125. Step 4: This means if you spent Rs. 100 in base year, you'd need Rs. 125 for same goods now, showing the impact of price rise on purchasing power.

Consumer Price Index

CPI stands for Consumer Price Index. Step 1: It measures changes in prices of goods and services that consumers buy for daily use. Step 2: CPI tracks retail prices of selected consumer items like food, clothing, housing, transportation. Step 3: Different CPIs exist for different groups - industrial workers, urban employees, agricultural laborers. Step 4: It helps measure inflation's impact on different consumer groups and is used to calculate DA and revise wages.

Increasing individual salaries directly

Government doesn't directly increase individual salaries to regulate prices. Step 1: PDS provides essential goods at subsidized rates to control market prices. Step 2: MSP helps farmers and regulates crop prices in markets. Step 3: Import-export policies control supply and demand of goods. Step 4: However, government cannot directly increase everyone's salary - this is done by employers. Government only sets DA for its own employees and minimum wages for certain sectors, but doesn't control all individual salaries.