Final answer:
An analyst should understand how an index is weighted to determine if it's appropriate for a particular purpose, considering that indexes like the S&P 500 and Dow Jones use different weighting methods, which affects their representation of market movements.
Step-by-step explanation:
To judge whether an index is appropriate for a particular purpose, the analyst should know how the index is weighted. For instance, the S&P 500 Index is a weighted average market capitalization of the firms selected to be in the index. This means that larger companies have a greater impact on the index movement than smaller companies. On the other hand, the Dow Jones Industrial Average is a price weighted average of 30 industrial stocks, which means companies with higher stock prices have more influence on the index's performance. Understanding these weightings can help an analyst determine if the index is a good representative sample for the market sector or economic measure they are trying to assess.