measuring device for price levels in terms of an index number of 100. The price of a commodity or service is linked to another price or a cumulative average of prices determined from a historical base period. Subsequent changes in both price levels are reflected in an index number on a scale of 100. Parity price devices are employed frequently by the federal government for social and economic objectives. Farm price support programs are examples of such uses.
price for a commodity or service that is pegged to another price or to a composite average of prices based on a selected prior period. As the two sets of prices vary, they are reflected in an index number on a scale where 100 is parity.
price for a commodity or service that is pegged to another price or to a composite average of prices based on a selected prior period. As the two sets of prices vary, they are reflected in an index number on a scale of 100. For example, U.S. farm prices are pegged to prices based on the purchasing power of farmers in the period from 1910 to 1914. If the parity ratio is below 100, reflecting a reduction in purchasing power to the extent indicated, the government compensates the farmer by paying a certain percentage of parity, either in the form of a direct cash payment, in the purchase of surplus crops, or in a nonrecourse loan.
The concept of parity is also widely applied in industrial wage contracts as a means of preserving the real value of wages.
