CHAPTER

Measures of Dispersion

measures, which seek to quantify

Studying this chapter should
variability of the data.
enable you to:
• know the limitations of averages;
Three friends, Ram, Rahim and
• appreciate the need of measures Maria are chatting over a cup of tea.
of dispersion; During the course of their
• enumerate various measures of conversation, they start talking about
dispersion; their family incomes. Ram tells them
• calculate the measures and that there are four members in his
compare them; family and the average income per
• distinguish between absolute member is Rs 15,000. Rahim says that
and relative measures. the average income is the same in his
family, though the number of members
1. INTRODUCTION is six. Maria says that there are five
members in her family, out of which
In the previous chapter, you have one is not working. She calculates that
studied how to sum up the data into the average income in her family too,
a single representative value. However, is Rs 15,000. They are a little surprised
that value does not reveal the since they know that Maria’s father is
variability present in the data. In this earning a huge salary. They go into
chapter you will study those details and gather the following data:
MEASURES OF DISPERSION 75

Family Incomes variation in values, your understan-

Sl. No. Ram Rahim Maria ding of a distribution improves
1. 12,000 7,000 0 considerably. For example, per capita
2. 14,000 10,000 7,000 income gives only the average income.
3. 16,000 14,000 8,000 A measure of dispersion can tell you
4. 18,000 17,000 10,000 about income inequalities, thereby
5. ----- 20,000 50,000
6. ----- 22,000 ------
improving the understanding of the
relative standards of living enjoyed by
Total income 60,000 90,000 75,000
Average income 15,000 15,000 15,000
different strata of society.
Dispersion is the extent to which
Do you notice that although the values in a distribution differ from the
average is the same, there are average of the distribution.
considerable differences in individual To quantify the extent of the
incomes? variation, there are certain measures
It is quite obvious that averages namely:
try to tell only one aspect of a (i) Range
distribution i.e. a representative size (ii) Quartile Deviation
of the values. To understand it better, (iii) Mean Deviation
you need to know the spread of values (iv) Standard Deviation
also.
Apart from these measures which
You can see that in Ram’s family.,
give a numerical value, there is a
dif ferences in incomes are
graphic method for estimating
comparatively lower. In Rahim’s
dispersion.
family, differences are higher and in
Range and Quartile Deviation
Maria’s family are the highest.
measure the dispersion by calculating
Knowledge of only average is
the spread within which the values lie.
insufficient. If you have another value
Mean Deviation and Standard
which reflects the quantum of
Deviation calculate the extent to
which the values differ from the
average.

2. MEASURES BASED UPON SPREAD OF

VALUES
Range
Range (R) is the difference between the
largest (L) and the smallest value (S)
in a distribution. Thus,
R=L–S
Higher value of Range implies
higher dispersion and vice-versa.
76 STATISTICS FOR ECONOMICS

Activities Quartile Deviation

Look at the following values: The presence of even one extremely
20, 30, 40, 50, 200 high or low value in a distribution can
• Calculate the Range. reduce the utility of range as a
• What is the Range if the value measure of dispersion. Thus, you may
200 is not present in the data
need a measure which is not unduly
set?
• If 50 is replaced by 150, what affected by the outliers.
will be the Range? In such a situation, if the entire
data is divided into four equal parts,
each containing 25% of the values, we
Range: Comments
Range is unduly affected by extreme get the values of Quartiles and
values. It is not based on all the Median. (You have already read about
values. As long as the minimum and these in Chapter 5).
maximum values remain unaltered, The upper and lower quartiles (Q3
any change in other values does not and Q 1, respectively) are used to
affect range. It can not be calculated calculate Inter Quartile Range which
for open-ended frequency distri-
is Q3 – Q1.
bution.
Inter -Quartile Range is based
Notwithstanding some limitations, upon middle 50% of the values in a
Range is understood and used distribution and is, therefore, not
frequently because of its simplicity. affected by extreme values. Half of
For example, we see the maximum the Inter -Quartile Range is called
and minimum temperatures of Quartile Deviation. Thus:
different cities almost daily on our TV Q3 - Q1
screens and form judgments about the Q .D . =
2
temperature variations in them.
Q.D. is therefore also called Semi-
Open-ended distributions are those Inter Quartile Range.
in which either the lower limit of the
lowest class or the upper limit of the Calculation of Range and Q.D. for
highest class or both are not ungrouped data
specified.
Example 1

Activity Calculate Range and Q.D. of the

following observations:
• Collect data about 52-week
20, 25, 29, 30, 35, 39, 41,
high/low of 10 shares from a
newspaper. Calculate the range 48, 51, 60 and 70
of share prices. Which stock is Range is clearly 70 – 20 = 50
most volatile and which is the For Q.D., we need to calculate
most stable? values of Q3 and Q1.
MEASURES OF DISPERSION 77

n +1 Range is just the dif ference

Q1 is the size of th value. between the upper limit of the highest
4
class and the lower limit of the lowest
n being 11, Q1 is the size of 3rd class. So Range is 90 – 0 = 90. For
value. Q.D., first calculate cumulative
As the values are already arranged frequencies as follows:
in ascending order, it can be seen that
Q1, the 3rd value is 29. [What will you Class- Frequencies Cumulative
Intervals Frequencies
do if these values are not in an order?] CI f c. f.
3( n + 1) 0–10 5 05
Similarly, Q3 is size of th 10–20 8 13
4
20–40 16 29
value; i.e. 9th value which is 51. Hence 40–60 7 36
Q3 = 51 60–90 4 40
Q3 - Q1 51 - 29 n = 40
Q .D . = = = 11
2 2 n th
Do you notice that Q.D. is the Q1 is the size of value in a
4
average difference of the Quartiles
continuous series. Thus it is the size
from the median. of the 10th value. The class containing
Activity the 10th value is 10–20. Hence Q1 lies
• Calculate the median and check in class 10–20. Now, to calculate the
whether the above statement is exact value of Q 1 , the following
correct. formula is used:
Calculation of Range and Q.D. for a n
cf
frequency distribution. Q1 = L + 4 ·i
f
Example 2
Where L = 10 (lower limit of the
For the following distribution of marks relevant Quartile class)
scored by a class of 40 students, c.f. = 5 (Value of c.f. for the class
calculate the Range and Q.D. preceding the Quartile class)
TABLE 6.1 i = 10 (interval of the Quartile
Class intervals No. of students
class), and
CI (f) f = 8 (frequency of the Quartile
0–10 5
class) Thus,
10–20 8 10 - 5
20–40 16 Q1 = 10 + · 10 = 16.25
40–60 7 8
60–90 4
3n th
40 Similarly, Q3 is the size of
4
78 STATISTICS FOR ECONOMICS

value; i.e., 30th value, which lies in to rich and poor, from the median of
class 40–60. Now using the formula the entire group.
for Q3, its value can be calculated as Quartile Deviation can generally be
follows: calculated for open-ended distribu-
tions and is not unduly affected by
3n
- c.f. extreme values.
Q3 = L + 4 i
f 3. M EASURES OF D ISPERSION FROM
30 - 29 AVERAGE
Q3 = 40 + 20
7 Recall that dispersion was defined as
Q3 = 42.87 the extent to which values differ from
their average. Range and Quartile
42.87 - 16.25 Deviation do not attempt to calculate,
Q.D. = = 13.31
2 how far the values are, from their
In individual and discrete series, Q1 average. Yet, by calculating the spread
of values, they do give a good idea
n +1 th about the dispersion. Two measures
is the size of value, but in a
4 which are based upon deviation of the
continuous distribution, it is the size values from their average are Mean
n th Deviation and Standard Deviation.
of value. Similarly, for Q3 and Since the average is a central
4
value, some deviations are positive
median also, n is used in place of
n+1. and some are negative. If these are
added as they are, the sum will not
reveal anything. In fact, the sum of
If the entire group is divided into
deviations from Arithmetic Mean is
two equal halves and the median
calculated for each half, you will have always zero. Look at the following two
the median of better students and the sets of values.
median of weak students. These Set A : 5, 9, 16
medians differ from the median of the Set B : 1, 9, 20
entire group by 13.31 on an average.
You can see that values in Set B
Similarly, suppose you have data
about incomes of people of a town. are farther from the average and hence
Median income of all people can be more dispersed than values in Set A.
calculated. Now if all people are Calculate the deviations from
divided into two equal groups of rich Arithmetic Mean amd sum them up.
and poor, medians of both groups can What do you notice? Repeat the same
be calculated. Quartile Deviation will with Median. Can you comment upon
tell you the average difference between the quantum of variation from the
medians of these two groups belonging calculated values?
MEASURES OF DISPERSION 79

Mean Deviation tries to overcome Mean Deviation which is simply the

this problem by ignoring the signs of arithmetic mean of the differences of
deviations, i.e., it considers all the values from their average. The
deviations positive. For standard average used is either the arithmetic
deviation, the deviations are first mean or median.
squared and averaged and then (Since the mode is not a stable
square root of the average is found. average, it is not used to calculate
We shall now discuss them separately Mean Deviation.)
in detail. Activities
• Calculate the total distance to be
Mean Deviation
travelled by students if the
Suppose a college is proposed for college is situated at town A, at
students of five towns A, B, C, D and town C, or town E and also if it
E which lie in that order along a road. is exactly half way between A and
Distances of towns in kilometres from E.
• Decide where, in you opinion,
town A and number of students in
the college should be establi-
these towns are given below: shed, if there is only one student
in each town. Does it change
Town Distance No.
from town A of Students
your answer?

A 0 90
Calculation of Mean Deviation from
B 2 150
C 6 100 Arithmetic Mean for ungrouped
D 14 200 data.
E 18 80
Direct Method
620
Steps:
Now, if the college is situated in
(i) The A.M. of the values is calculated
town A, 150 students from town B will
(ii) Difference between each value and
have to travel 2 kilometers each (a
the A.M. is calculated. All
total of 300 kilometres) to reach the dif ferences are considered
college. The objective is to find a positive. These are denoted as |d|
location so that the average distance (iii) The A.M. of these dif ferences
travelled by students is minimum. (called deviations) is the Mean
You may observe that the students Deviation.
will have to travel more, on an average, S |d|
if the college is situated at town A or i.e. M.D. =
n
E. If on the other hand, it is
somewhere in the middle, they are Example 3
likely to travel less. The average Calculate the Mean Deviation of the
distance travelled is calculated by following values; 2, 4, 7, 8 and 9.
80 STATISTICS FOR ECONOMICS

SX Where Σ |d| is the sum of absolute

The A.M. = =6 deviations taken from the assumed
n
mean.
X |d|
x is the actual mean.
2 4 A x is the assumed mean used to
4 2 calculate deviations.
7 1 Σ fB is the number of values below the
8 2 actual mean including the actual
9 3 mean.
12 Σ fA is the number of values above the
12 actual mean.
M.D.( X ) = = 2.4 Substituting the values in the
5
above formula:
Assumed Mean Method
11 + (6 - 7)(2 - 3) 12
M.D.( x ) = = = 2.4
Mean Deviation can also be calculated 5 5
by calculating deviations from an
assumed mean. This method is Mean Deviation from median for
adopted especially when the actual ungrouped data.
mean is a fractional number. (Take
care that the assumed mean is close Direct Method
to the true mean). Using the values in example 3, M.D.
For the values in example 3, from the Median can be calculated as
suppose value 7 is taken as assumed follows,
mean, M.D. can be calculated as (i) Calculate the median which is 7.
under: (ii) Calculate the absolute deviations
from median, denote them as |d|.
Example 4 (iii) Find the average of these absolute
X |d| deviations. It is the Mean
Deviation.
2 5
4 3 Example 5
7 0
[X-Median]
8 1
X |d|
9 2
2 5
11
4 3
In such cases, the following 7 0
formula is used, 8 1
S| d | + ( x - Ax )(S f B - S f A ) 9 2
M.D.( x ) = 11
n
MEASURES OF DISPERSION 81

M. D. from Median is thus, (iii) Multiply each |d| value with its
corresponding frequency to get
S | d | 11 f|d| values. Sum them up to get
M.D.( median ) = = = 2.2
n 5 Σ f|d|.
(iv) Apply the following formula,
Short-cut method
S f |d|
To calculate Mean Deviation by short M.D. ( x ) =
Sf
cut method a value (A) is used to
calculate the deviations and the Mean Deviation of the distribution
following formula is applied. in Table 6.2 can be calculated as
follows:
M.D.( Median )
S | d| + ( Median - A )(S f B - S f A ) Example 6
=
n
C.I. f m.p. |d| f|d|
where, A = the constant from which
10–20 5 15 25.5 127.5
deviations are calculated. (Other 20–30 8 25 15.5 124.0
notations are the same as given in the 30–50 16 40 0.5 8.0
assumed mean method). 50–70 8 60 19.5 156.0
70–80 3 75 34.5 103.5
Mean Deviation from Mean for 40 519.0
Continuous distribution S f | d | 519
M.D.( x ) = = = 12.975
TABLE 6.2 Sf 40
Profits of Number of
companies Companies Mean Deviation from Median
(Rs in lakhs) frequencies
Class-intervals TABLE 6.3
10–20 5 Class intervals Frequencies
20–30 8
20–30 5
30–50 16
30–40 10
50–70 8
40–60 20
70–80 3
60–80 9
40 80–90 6
50
Steps:
The procedure to calculate Mean
(i) Calculate the mean of the Deviation from the median is the
distribution. same as it is in case of M.D. from
(ii) Calculate the absolute deviations Mean, except that deviations are to
|d| of the class midpoints from the be taken from the median as given
mean. below:
82 STATISTICS FOR ECONOMICS

Example 7 Calculation of Standard Deviation

for ungrouped data
C.I. f m.p. |d| f|d|
Four alternative methods are available
20–30 5 25 25 125
30–40 10 35 15 150 for the calculation of standard
40–60 20 50 0 0 deviation of individual values. All
60–80 9 70 20 180 these methods result in the same
80–90 6 85 35 210 value of standard deviation. These are:
50 665
(i) Actual Mean Method
S f |d| (ii) Assumed Mean Method
M.D.( Median ) =
Sf (iii) Direct Method
(iv) Step-Deviation Method
665
= = 13.3 Actual Mean Method:
50
Suppose you have to calculate the
Mean Deviation: Comments standard deviation of the following
Mean Deviation is based on all values:
values. A change in even one value 5, 10, 25, 30, 50
will affect it. It is the least when
calculated from the median i.e., it Example 8
will be higher if calculated from the
mean. However it ignores the signs X d d2
of deviations and cannot be 5 –19 361
calculated for open-ended distribu- 10 –14 196
tions. 25 +1 1
30 +6 36
50 +26 676
Standard Deviation 0 1270
Standard Deviation is the positive Following formula is used:
square root of the mean of squared
deviations from mean. So if there are S d2
s=
five values x1, x2, x3, x4 and x5, first n
their mean is calculated. Then
deviations of the values from mean are 1270
s= = 254 = 15.937
calculated. These deviations are then 5
squared. The mean of these squared
Do you notice the value from which
deviations is the variance. Positive
deviations have been calculated in the
square root of the variance is the
above example? Is it the Actual Mean?
standard deviation.
(Note that Standard Deviation is Assumed Mean Method
calculated on the basis of the mean For the same values, deviations may
only). be calculated from any arbitrary value
MEASURES OF DISPERSION 83

A x such that d = X – A x . Taking A x (This amounts to taking deviations

= 25, the computation of the standard from zero)
deviation is shown below: Following formula is used.

Example 9 S x2
s= - ( x )2
n
X d d2
4150
5 –20 400
or s = - (24 )2
10 –15 225 5
25 0 0
30 +5 25 or s = 254 = 15.937
50 +25 625
Standard Deviation is not affected
–5 1275
by the value of the constant from
which deviations are calculated. The
Formula for Standard Deviation value of the constant does not figure
2
in the standard deviation formula.
S d2 Sd Thus, Standard Deviation is
s= -
n Łn ł Independent of Origin.

2
1275 -5 Step-deviation Method
s= - = 254 = 15.937
5 Ł 5 ł If the values are divisible by a common
factor, they can be so divided and
The sum of deviations from a value
other than actul mean is not equal standard deviation can be calculated
to zero from the resultant values as follows:

Example 11
Direct Method
Since all the five values are divisible
Standard Deviation can also be by a common factor 5, we divide and
calculated from the values directly, get the following values:
i.e., without taking deviations, as
shown below: x x' d d2
5 1 –3.8 14.44
Example 10 10 2 –2.8 7.84
25 5 +0.2 0.04
X x2 30 6 +1.2 1.44
50 10 +5.2 27.04
5 25
10 100 0 50.80
25 625
(Steps in the calculation are same
30 900
50 2500 as in actual mean method).
The following formula is used to
120 4150
calculate standard deviation:
84 STATISTICS FOR ECONOMICS

S d2 Standard Deviation is not

s= ·c independent of scale. Thus, if the
n values or deviations are divided by
x a common factor, the value of the
x’ = common factor is used in the
c formula to get the value of Standard
c = common factor Deviation.
Substituting the values,
50.80 Standard Deviation in Continuous
s= 5 frequency distribution:
5
Like ungrouped data, S.D. can be
s = 10.16 · 5 calculated for grouped data by any of
s = 15.937 the following methods:
(i) Actual Mean Method
Alternatively, instead of dividing
(ii) Assumed Mean Method
the values by a common factor, the
(iii) Step-Deviation Method
deviations can be divided by a
common factor. Standard Deviation
Actual Mean Method
can be calculated as shown below:
For the values in Table 6.2, Standard
Example 12
Deviation can be calculated as follows:
x d d' d2
Example 13
5 –20 –4 16
10 –15 –3 9
(1) (2) (3) (4) (5) (6) (7)
25 0 0 0
CI f m fm d fd fd2
30 +5 +1 1
50 +25 +5 25 10–20 5 15 75 –25.5 –127.5 3251.25
20–30 8 25 200 –15.5 –124.0 1922.00
–1 51 30–50 16 40 640 –0.5 –8.0 4.00
50–70 8 60 480 +19.5 +156.0 3042.00
Deviations have been calculated 70–80 3 75 225 +34.5 +103.5 3570.75
from an arbitrary value 25. Common
40 1620 0 11790.00
factor of 5 has been used to divide
deviations. Following steps are required:
1. Calculate the mean of the
2
S d ’2 Sd’ distribution.
s= ·c
n Ł n ł Sfm 1620
x= = = 40.5
Sf 40
2
51 -1 2. Calculate deviations of mid-values
s= - ·5 from the mean so that
5 Ł5 ł
d = m - x (Col. 5)
s = 10.16 · 5 = 15.937 3. Multiply the deviations with their
MEASURES OF DISPERSION 85

corresponding frequencies to get 4. Multiply ‘fd’ values (Col. 5) with ‘d’

‘fd’ values (col. 6) [Note that Σ fd values (col. 4) to get fd2 values (col.
= 0] 6). Find Σ fd2.
4. Calculate ‘fd 2 ’ values by 5. Standard Deviation can be
multiplying ‘fd’ values with ‘d’ calculated by the following
values. (Col. 7). Sum up these to formula.
get Σ fd2. 2
Sfd2 Sfd
5. Apply the formula as under: s= -
n Ł n ł
Sfd2 11790
s= = = 17.168 2
n 40 11800 20
or s = -
40 Ł40 ł
Assumed Mean Method or s = 294.75 = 17.168
For the values in example 13,
standard deviation can be calculated Step-deviation Method
by taking deviations from an assumed In case the values of deviations are
mean (say 40) as follows: divisible by a common factor, the
calculations can be simplified by the
Example 14
step-deviation method as in the
(1) (2) (3) (4) (5) (6) following example.
CI f m d fd fd2
10–20 5 15 -25 –125 3125 Example 15
20–30 8 25 -15 –120 1800
30–50 16 40 0 0 0 (1) (2) (3) (4) (5) (6) (7)
50–70 8 60 +20 160 3200 CI f m d d' fd' fd'2
70–80 3 75 +35 105 3675
10–20 5 15 –25 –5 –25 125
40 +20 11800 20–30 8 25 –15 –3 –24 72
30–50 16 40 0 0 0 0
The following steps are required: 50–70 8 60 +20 +4 +32 128
1. Calculate mid-points of classes 70–80 3 75 +35 +7 +21 147
(Col. 3) 40 +4 472
2. Calculate deviations of mid-points
from an assumed mean such that Steps required:
d = m – A x (Col. 4). Assumed 1. Calculate class mid-points (Col. 3)
Mean = 40. and deviations from an arbitrarily
3. Multiply values of ‘d’ with chosen value, just like in the
corresponding frequencies to get assumed mean method. In this
‘fd’ values (Col. 5). (note that the example, deviations have been
total of this column is not zero taken from the value 40. (Col. 4)
since deviations have been taken 2. Divide the deviations by a common
from assumed mean). factor denoted as ‘C’. C = 5 in the
86 STATISTICS FOR ECONOMICS

above example. The values so Set A 500 700 1000

obtained are ‘d'’ values (Col. 5). Set B 100000 120000 130000

3. Multiply ‘d'’ values with Suppose the values in Set A are

corresponding ‘f'’ values (Col. 2) to the daily sales recorded by an ice-
obtain ‘fd'’ values (Col. 6). cream vendor, while Set B has the
daily sales of a big departmental store.
4. Multiply ‘fd'’ values with ‘d'’ values Range for Set A is 500 whereas for Set
to get ‘fd'2’ values (Col. 7) B, it is 30,000. The value of Range is
5. Sum up values in Col. 6 and Col. much higher in Set B. Can you say
7 to get Σ fd' and Σ fd'2 values. that the variation in sales is higher
for the departmental store? It can be
6. Apply the following formula. easily observed that the highest value
2 in Set A is double the smallest value,
Sfd ¢2 Sfd ¢
s = - ·c whereas for the Set B, it is only 30%
Sf Ł Sf ł higher. Thus absolute measures may
2
give misleading ideas about the extent
472 4 of variation specially when the
or s = - ·5
40 Ł40 ł averages differ significantly.
Another weakness of absolute
or s = 11.8 - .01 · 5 measures is that they give the answer
in the units in which original values
s = 11.79 · 5 are expressed. Consequently, if the
or
s = 17.168 values are expressed in kilometers, the
dispersion will also be in kilometers.
Standard Deviation: Comments
However, if the same values are
Standard Deviation, the most widely expressed in meters, an absolute
used measure of dispersion, is based measure will give the answer in meters
on all values. Therefore a change in
and the value of dispersion will appear
even one value affects the value of
standard deviation. It is independent
to be 1000 times.
of origin but not of scale. It is also To overcome these problems,
useful in certain advanced statistical relative measures of dispersion can be
problems. used. Each absolute measure has a
relative counterpart. Thus, for Range,
there is Coefficient of Range which is
5. ABSOLUTE AND RELATIVE MEASURES
calculated as follows:
OF DISPERSION
L- S
All the measures, described so far, are Coefficient of Range =
absolute measures of dispersion. They L+ S
calculate a value which, at times, is where L = Largest value
difficult to interpret. For example, S = Smallest value
consider the following two data sets: Similarly, for Quartile Deviation, it
MEASURES OF DISPERSION 87

is Coefficient of Quartile Deviation be compared even across different

which can be calculated as follows: groups having different units of
Coefficient of Quartile Deviation measurement.
Q3 - Q 1 7. LORENZ CURVE
= rd
Q3 + Q 1 where Q3=3 Quartile The measures of dispersion
Q1 = 1st Quartile discussed so far give a numerical
For Mean Deviation, it is value of dispersion. A graphical
Coefficient of Mean Deviation. measure called Lorenz Curve is
Coefficient of Mean Deviation = available for estimating dispersion.
M.D.( x ) M.D.( Median ) You may have heard of statements like
or ‘top 10% of the people of a country
x Median
Thus if Mean Deviation is earn 50% of the national income while
calculated on the basis of the Mean, top 20% account for 80%’. An idea
it is divided by the Mean. If Median is about income disparities is given by
used to calculate Mean Deviation, it such figures. Lorenz Curve uses the
is divided by the Median. information expressed in a cumulative
For Standard Deviation, the manner to indicate the degree of
relative measure is called Coefficient variability. It is specially useful in
of Variation, calculated as below: comparing the variability of two or
Coefficient of Variation more distributions.
Given below are the monthly
Standard Deviation incomes of employees of a company.
= · 100
Arithmetic Mean TABLE 6.4
It is usually expressed in Incomes Number of employees
percentage terms and is the most
0–5,000 5
commonly used relative measure of 5,000–10,000 10
dispersion. Since relative measures 10,000–20,000 18
are free from the units in which the 20,000–40,000 10
values have been expressed, they can 40,000–50,000 7

Example 16

Income Mid-points Cumulative Cumulative No. of Comulative Comulative

limits mid-points mid-points as employees frequencies frequencies as
percentages frequencies percentages
(1) (2) (3) (4) (5) (6) (7)
0–5000 2500 2500 2.5 5 5 10
5000–10000 7500 10000 10.0 10 15 30
10000–20000 15000 25000 25.0 18 33 66
20000–40000 30000 55000 55.0 10 43 86
40000–50000 45000 100000 100.0 7 50 100
88 STATISTICS FOR ECONOMICS

Construction of the Lorenz Curve from line OC has the highest

Following steps are required. dispersion.

1. Calculate class mid-points and

find cumulative totals as in Col. 3
in the example 16, given above.
2. Calculate cumulative frequencies
as in Col. 6.
3. Express the grand totals of Col. 3
and 6 as 100, and convert the
cumulative totals in these columns
into percentages, as in Col. 4 and 7.
4. Now, on the graph paper, take the
cumulative percentages of the
variable (incomes) on Y axis and
cumulative percentages of
frequencies (number of employees)
on X-axis, as in figure 6.1. Thus
each axis will have values from ‘0’
to ‘100’.
5. Draw a line joining Co-ordinate 8. CONCLUSION
(0, 0) with (100,100). This is called Although Range is the simplest to
the line of equal distribution calculate and understand, it is unduly
shown as line ‘OC’ in figure 6.1. affected by extreme values. QD is not
6. Plot the cumulative percentages of affected by extreme values as it is
the variable with corresponding based on only middle 50% of the data.
cumulative percentages of However, it is more dif ficult to
frequency. Join these points to get interpret M.D. and S.D. both are based
the curve OAC. upon deviations of values from their
average. M.D. calculates average of
Studying the Lorenz Curve deviations from the average but
OC is called the line of equal ignores signs of deviations and
distribution, since it would imply a therefore appears to be unmathema-
situation like, top 20% people earn tical. Standard Deviation attempts to
20% of total income and top 60% earn calculate average deviation from
60% of the total income. The farther mean. Like M.D., it is based on all
the curve OAC from this line, the values and is also applied in more
greater is the variability present in the advanced statistical problems. It is
distribution. If there are two or more the most widely used measure of
curves, the one which is the farthest dispersion.
MEASURES OF DISPERSION 89

Recap
• A measure of dispersion improves our understanding about the
behaviour of an economic variable.
• Range and Quartile Deviation are based upon the spread of values.
• M.D. and S.D. are based upon deviations of values from the average.
• Measures of dispersion could be Absolute or Relative.
• Absolute measures give the answer in the units in which data are
expressed.
• Relative smeasures are free from these units, and consequently can
be used to compare different variables.
• A graphic method, which estimates the dispersion from shape
of a curve, is called Lorenz Curve.

EXERCISES

1. A measure of dispersion is a good supplement to the central value in

understanding a frequency distribution. Comment.
2. Which measure of dispersion is the best and how?
3. Some measures of dispersion depend upon the spread of values whereas
some calculate the variation of values from a central value. Do you agree?
4. In a town, 25% of the persons earned more than Rs 45,000 whereas 75%
earned more than 18,000. Calculate the absolute and relative values of
dispersion.
5. The yield of wheat and rice per acre for 10 districts of a state is as under:
District 1 2 3 4 5 6 7 8 9 10
Wheat 12 10 15 19 21 16 18 9 25 10
Rice 22 29 12 23 18 15 12 34 18 12
Calculate for each crop,
(i) Range
(ii) Q.D.
(iii) Mean Deviation about Mean
(iv) Mean Deviation about Median
(v) Standard Deviation
(vi) Which crop has greater variation?
(vii) Compare the values of different measures for each crop.
6. In the previous question, calculate the relative measures of variation and
indicate the value which, in your opinion, is more reliable.
7. A batsman is to be selected for a cricket team. The choice is between X
and Y on the basis of their five previous scores which are:
90 STATISTICS FOR ECONOMICS

X 25 85 40 80 120
Y 50 70 65 45 80
Which batsman should be selected if we want,
(i) a higher run getter, or
(ii) a more reliable batsman in the team?
8. To check the quality of two brands of lightbulbs, their life in burning
hours was estimated as under for 100 bulbs of each brand.
Life No. of bulbs
(in hrs) Brand A Brand B
0–50 15 2
50–100 20 8
100–150 18 60
150–200 25 25
200–250 22 5
100 100

(i) Which brand gives higher life?

(ii) Which brand is more dependable?
9. Averge daily wage of 50 workers of a factory was Rs 200 with a Standard
Deviation of Rs 40. Each worker is given a raise of Rs 20. What is the
new average daily wage and standard deviation? Have the wages become
more or less uniform?
10. If in the previous question, each worker is given a hike of 10 % in wages,
how are the Mean and Standard Deviation values affected?
11. Calculate the Mean Deviation about Mean and Standard Deviation for the
following distribution.
Classes Frequencies
20–40 3
40–80 6
80–100 20
100–120 12
120–140 9
50
12. The sum of 10 values is 100 and the sum of their squares is 1090. Find
the Coefficient of Variation.