Measurement of price instability
Instability is measured through two approaches viz.
i) Graphical approach
ii) Quantitative approach
Graphical approach:
In the graphical presentation we draw scatter diagrams by taking prices on Y axis time on X-axis and plot the points and draw the curve Nining the plotted points on X, Y plane. Such curves show upward and downward movement in the price of that commodity. If there are more irregular movements on the curves for a connodity, we say that price of that commodity is instable. This is illustrated for the commodity, we say that price of that commodity is instable. This illustrated for commodities A and B in Fig.l.
The graph indicates that commodity A is having more fluctuation over commodity B.
Quantitative approach:
Here we use statistical tools like range, standard deviation and coefficient of variation. The difference between the highest price and the lowest price is called range.
Standard Deviation (SD) Coefficient of variation (CV) = X 100 Mean of price variable
Greater the CV, more would be the price instability. The CV of price beyond 5 per cent indicates instability and call for price stabilization measures.
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