Answer to Question #142772 in Economics for bobby

Question

Why do we use standard deviation as a measure in estimating income convergence or divergence? 

and also

Why do we use the natural logarithm of a workers income as opposed to just the income?

Answer 1

The price of a particular transaction is a random value and depends on many factors (certain circumstances, the ability to negotiate, the degree of awareness of the buyer, the organization of the auction, etc.). Moreover, it may depend on what price is accepted as a starting price in negotiations. Therefore, the prices of completed transactions cannot be taken as the true value of the market value, and, therefore, the difference between the estimated estimate and the price of the actual transaction cannot be considered as a measure of error.

The natural logarithm is the time it takes to grow to a certain level, therefore, it is a more accurate measure of wages.