BIJU P MPGT ECONOMICS KV 2 KOCHI Correlationmeaning

BIJU P MPGT ECONOMICS KV 2 , KOCHI

Correlationmeaning Ø Ø Ø Correlation studies and measures the direction and intensity of relationship among variables. The degree of relationship between two variables is measured by correlation analysis. ‘Correlation means that between two series or groups of data there exists casual connection. ”According to W. I. King Examples: 1. Relationship between –Price of the commodity and its demand. 2. Relationship between Price of the commodity and its supply.

Correlation Importance OR Significance of correlation 1. Study of relationship between Variables : It enables us to make our decision for the future course of action. 2. Helps us in understanding economic behaviour : As Price & demand, Price & supply, Income & expenditure

Types of correlation Three important ways of classifying correlation are: ü Positive and negative correlation ü Simple, partial and multiple. ü Linear and non-linear Positive correlation: When the variables move together in the same direction. Example : Increase in demand of a commodity tends to increase the prices of commodity. Negative correlation: When the variables move together in opposite directions. Example: Supply of a commodity increases the price of that commodity comes down.

Simple, partial and multiple correlation Simple correlation: When only two variables are studied it is simple correlation. When the relationship between two variable is studied and of these two variable One is in dependent and the other is non-dependent, then such correlations called simple correlation. E. g. - Relation between income and expenditure Partial correlation: When correlation of two variables are studied, keeping other variables constant. E. g. -Crop yield depends upon so many factors such as sufficient rainfall, amount of fertilizers, HYV seeds. If we study only the relation between amount of rainfall, crops yield keeping other factor constant is known as partial correlation.

Multiple correlation : When more than two variables are studied to determine the correlation. Example : The effect of rainfall, manure, water, etc. to increase the productivity of what are simultaneously studied.

Linear and non- linear correlation Linear correlation: When the amount of change in one variable tends to bear constant change in other variable. X Y 5 20 80 10 40 60 15 60 20 80 Y 40 20 5 10 15 X 20

Non- linear correlation When the amount of change in one variable does not bear any ratio with other variable. X Y 20 10 40 15 60 25 80 30 100 40 40 Y 30 25 15 10 20 40 60 X 80 100

Degrees of Correlation Description Positive Negative Perfect Correlation +1 (-) 1 High Correlation Between +0. 75 and +1 Between - 0. 75 and -1 Moderate Correlation Between +0. 25 and 0. 75 Between - 0. 25 and - 0. 75 Low correlation Between 0 and 0. 25 Between 0 and - 0. 25 No Correlation 0 0 Note : Correlation will not be more than 1 it may be up to (. 89) or (. 99) calculated result must vary between – 1 to +1.

BIJU PM PGT ECONOMICS KV 2, KOCHI