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If an increase of $10\%\displaystyle in prices. The rise in wages is $20\% then the real wage has increased by

Select Your Answer (Keyboard: A, B, C, D)
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Correct Answer

✅ Option c — Less than $10\%$

All Options:

  • A$20\%$
  • B$10\%$
  • CLess than $10\%$
  • DMore than $10\%$

Detailed Solution & Explanation

Let the initial price level be P0=100\displaystyle P_0 = 100 and the initial wages be W0=100\displaystyle W_0 = 100. - Initial Real Wage: RW0=W0P0×100=100100×100=100RW_0 = W0P0\displaystyle \frac{W_0}{P_0} ×\displaystyle \times 100 = 100100\displaystyle \frac{100}{100} ×\displaystyle \times 100 = 100 After the changes: - Price level increases by $10\%$ $\implies P_1 = 100 ×\displaystyle \times 1.10 = 110$ - Wages increase by $20\%$ $\implies W_1 = 100 ×\displaystyle \times 1.20 = 120$ - New Real Wage: RW1=W1P1×100=120110×100≈109.09RW_1 = W1P1\displaystyle \frac{W_1}{P_1} ×\displaystyle \times 100 = 120110\displaystyle \frac{120}{110} ×\displaystyle \times 100 ≈\displaystyle \approx 109.09 The percentage increase in real wage is: Percentage Increase=RW1−RW0=109.09−100=9.09%Percentage Increase=RW1−RW0=109\displaystyle \text{Percentage Increase} = RW_1 - RW_0 = 109.09 - 100 = 9.09\% Since $9.09\%\displaystyle is less than $10\%, the real wage has increased by less than $10\%$. Hence, **Option C** is the correct answer.

About This Chapter: Index Numbers

Paper

Paper 3: Quantitative Aptitude

Weightage

4-6 Marks

Key Topics

Construction of Index Numbers, Time Series

This chapter covers Construction of Index Numbers, Time Series and is part of Paper 3: Quantitative Aptitude in the CA Foundation exam.

View Official ICAI Syllabus

Exam Strategy Tip

This topic carries 4-6 Marks weightage. Focus on understanding core concepts rather than memorizing.

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