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Parity Price is a price which maintains the ratio of prices received and paid through farmers at the same ratio as in a base year. Parity price of, state, corn, is a price of corn which keeps farmers as well off relatively as they were in the specified base year (the average of prices in years 1920 -1914). If farmers received the parity price for corn, the ratio of prices received by farmers for that corn to prices paid by farmers would always be similar as it was in the base year. For illustration, say the base year price of corn was $3 a bushel and the price paid by farmers for the composite of manufactured goods was $4. If the price of manufactured goods increases to $6 a bushel (an increase of 50%), the parity price of corn as well increases by 50% to $4.50 in this hypothetical illustration.

Macroeconomics, Economics

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