ECONOMICS: AN INTRODUCTION

MEANING, FEATURES AND IMPORTANCE OF STATISTICS

Meaning of Economics: Economics is a study of how people and society choose to employ
scarce resources that could have alternative uses in order to produce various commodities that
satisfy their wants and to distribute them for consumption among various persons and groups
in society.
According to Alfred Marshall, ‘Economics is a study of man in the ordinary business of
life. It enquires how he gets his income and how he uses it.’

All human activities can broadly be divided into two categories-

i) Economic Activities
ii) Non-Economic Activities

Economic Activities refer to those activities, which are undertaken to earn a living. For
example, worker working in a factory, shopkeeper selling goods in his shop, doctor attending
to patients in his clinic, etc.
Economic activities are concerned with all those activities, which are concerned with the
Production, Consumption and Distribution of goods and services, which are not available
free.

Non-Economic Activities refer to those activities, which are not concerned with creation of
money or wealth. For example, housewife cooking food for her family or teacher teaching her
own son, etc.
In non-economic activities, there is no expectation of any kind of monetary reward or benefit.
They are inspired by sentimental reasons and are performed out of love, sympathy,
sentiments, patriotism, etc.

Quantitative and Qualitative Variables

The variables which can be expressed in numerical terms are known as quantitative
variables. For example, marks of student, number of literates in country, heights of people,
etc.
Variables which cannot be expressed in numerical terms are known as qualitative variables.
For example, honesty, beauty, intelligence, etc.
Qualitative expressions are not statistics unless they are assigned numerical equivalents. So,
they can be ranked according to the quality of their attributes. For example, we may assign
Rank No. 1 to most intelligent, Rank 2 to the second best, and so on. The ranks may be used
as numerical measurements for the purposes of statistical analysis.

Meaning of Statistics
Statistics has been defined differently by different writers from time to time, emphasizing
precisely the meaning, scope and limitations of the subject. Some authorities have define
statistics as statistical data
(Plural Sense), whereas others as statistical methods ( Singular Sense).

Statistics in Plural Sense, it means a collection of numerical facts.

Statistics in plural sense, statistics refers to aggregates of facts, affected to a marked extent
by multiplicity of causes, numerically expressed, enumerated or estimated according to
reasonable standards of accuracy, collected in a systematic manner for predetermined purpose
and placed in relation to each other.
Features of Statistics in the Plural Sense

1. Aggregates of facts: A singular number doesn’t constitute statistics. No conclusion can be

drawn from it. It is only the aggregate number of facts that is called statistics, as the same can
be compared and conclusion can be drawn from them.

2. Numerically expressed: Statistics are expressed in terms of numbers, qualitative concepts

like small or big, rich or poor, beautiful or ugly etc. are not called statistics because it has no
statistical sense. However, if it is stated that height of Ram is 6ft. & that of Shyam is 5ft. then
these numerical will be called statistics.

3. Affected by Multiplicity of causes: Statistics are not affected by any single factor but are
influenced by many factors. Eg: 30% rise in prices may have been due to several causes like
reduction in supply, increase in demand, shortage of power, rise in wages, rise in taxes etc.

4. Reasonable accuracy: A reasonable degree of accuracy must be kept in view while

collecting statistical data. This accuracy depends on the purpose of investigation, its nature,
size and available resources.

5. Pre-determined purpose: Statistics are collected with some pre-determined objective.

Any information collected without any definite purpose will only be a numerical value and
not statistics.

6. Collected in a systematic manner: Statistics should be collected in a systematic manner.

Before collecting them, a plan must be prepared. No conclusion can be drawn from statistics
collected in haphazard manner.

Statistics in Singular Sense

It refers to the study of statistical methods. It is defined as a science of collection,
organization, presentation, analysis and interpretation of numerical data.

Stages of statistical study and related statistical tools.

Statistical Study Statistical Tools
1. Collection of data. 1. Census or sample techniques.
2. Organization of data. 2. Array of data and tally bars.
3. Presentation of data. 3. Table, graph, diagram.
4. Analysis of data. 4. Percentages, averages, correlation
and regression coefficient.
5. Interpretation of data.
5. Magnitude of percentages, average
and the degree of relationship
between different economic
variable.

Importance of statistics in economics

1. Quantitative expression of economic problem: Consider any problem, be it the problem

of unemployment, the problem of price rise or the problem of shrinking export. The first task
of the economist is to understand its magnitude through its quantitative expression.
2. Inter-sectoral and inter-temporal comparisons: Inter sectoral comparisons means,
comparisons across different sectors of the economy. Eg : to know the magnitude of
unemployment across rural and urban sectors of the economy.
Inter temporal comparison means, understanding of change in the magnitude of the problem
over time. This would mean making a comparison over different plan periods of the rural and
urban unemployment.

3. Economic-forecasting: Economists does forecasting through statistical studies. By the

term forecasting we do not mean some astrological predictions. We only mean to assess and
ascertain the future course of certain events which are of economic significance.

4. Formulation of Policies: It is through statistical investigation that the finance minister

gets a feedback on the tax- paying capacity of the people and revenue needs of the
government. Accordingly, tax rates are fixed to get maximum possible revenue with
minimum possible discomfort to the people.

5. Statistics in Economic Planning: Economic planning is indispensable for achieving faster

rate of growth through the best use of nation’s resources. At every stage of economic
planning, there is need for figures and statistical methods. Using statistical techniques, it is
possible to assess the amounts of various resources available in the economy and accordingly
determine whether the specified rate of growth is sustainable or not.
Statistical analysis of data regarding an economy may reveal certain crucial areas, like
increasing rate of inflation, which may require immediate attention.
So, it is rather impossible to think of a situation where economic planning can be done
without the use of statistical techniques.

Statistics and Government

1. Government must consider statistics before formulating policies- In order to avoid
any obstacle in the promotion of economic development, statistics like taxes, wealth,
trade , employment etc must be considered.
2. Statistics is indispensable for all important functions of the ministries of the
state- Different ministries take into account statistics to plan and implement policies.
Eg Ministry of planning
3. Statistics are used to study the impact of government policies- Statistics are not
only used to analyse economic problems such as unemployment, poverty,
disinvestment, price control but also the impact of government policies such as
demonitisation.
4. Statistics provide knowledge of future trend- Knowledge of trends is based on past
and present years data which can be obtained by surveys. Eg.- Production policy of
2010 depends on consumption recorded in the past and recent years which decides
expected level of consumption in 2010.

Limitations of Statistics
1. Study of Numerical Facts only – Statistics studies only such facts as can be
expressed in numerical terms. It doesn’t study qualitative phenomena like honesty,
friendship etc.

2. Study of Aggregates only – Statistics study only the aggregates of quantitative facts.
It does not study any particular unit.
 3. Homogeneity of Data, an essential Requirement – To compare data, it is essential
that statistics are uniform in quality. Data of different qualities and kinds cannot be
compared.

4. Results are true only on averages – Most statistical findings are true only as
averages. They express only the tendencies.

5. Can be used only by Experts – Statistics can be used only by those persons who
have special knowledge of statistical methods.

FUNCTIONS OF STATISTICS
1. STATISTICS SIMPLIFIES COMPLEX DATA: With the help of statistics a mass of
data can be presented in such a manner that they become easy to understand. For eg:
the complex data may be presented as tools, averages, percentages etc.

2. STATISTICS PRESENTS THE FACTS IN A DEFINITE FORM: this definiteness is

achieved by stating conclusions in a numerical or quantitative form.

3. STATISTICS PROVIDES A TECHNIQUE OF COMPARISON: Comparison is an

important function of statistics. For example, comparison of data of different regions,
periods, conditions etc. is helpful for drawing economic conclusions. Some of the
statistical tools like averages, ratios, percentages, etc, are used for comparison.

4. STATISTICS STUDIES RELATIONSHIP: Correlation analysis is used to discover

functional relationship between different phenomena, for example, relationship
between supply and demand, relationship between sugarcane price and sugar,
relationship between advertisement and sale. Statistics help in funding the association
between two or more attributes, for example, association between literacy and
unemployment, association between inoculation and infection, etc.

5. STATISTICS IN HELP IN FORMULATING POLICIES: Many policies such as that

of import , export, wages, production, etc are formed on the basis of Statistics.

6. STATISTICS HELPS IN FORECASTING: Statistics helps to predict future

behaviour of phenomena such as market situation for the future is predicted on the
basis of available statistics of past and present.

7. STATISTICS HELPS TO TEST AND FORMULATE THEORIES: When some

theory is to be tested statistical data and techniques are useful. Eg whether demand
affects the price can be tested by collecting and comparing relevant data.

POSITIVE AND NORMATIVE Concept

Positive- A positive science is one which makes a real description of an activity.

What is? What was? Is answered. How are problems actually solved is focused on in positive
science. Positive economics we study human decisions as facts which can be verified with
actual data.
Eg.: a. India is the second largest populated country of the world.
b. Prices have been rising in India.
c. Increase in real per capita income increases the standard of living of people.
Normative- A normative science is that science which refers to what ought to be? What
ought to have happened? Normative economics deals with what ought to be or how economic
problems should be solved. The statements which make assessment of activity and offer
suggestions are called normative statements.
Eg.:a. Free education should be given to the poor
b. Effective steps should be taken to reduce income- inequalities in India.
c. Our education system should produce sufficient qualified and trained persons to the
economy.