Chapter 11

# Chapter 11

Chapter 11 :-

## Statistics – Introduction.

Plus One Economics Chapter 11 Introduction to Statistics

## Introduction

Statistics is the science of collecting, classifying and analyzing information in numbers. It is an inevitable tool in the hands of economists to understand various economic problems. These problems can be quantitative and qualitative. Economic facts expressed quantitatively form statistics.

## Why Economics ?

Alfred Marshall, defined economics as, “the study of man in the ordinary business of life”. What is the meaning of the words ‘ordinary business of life’?. These terms include behaviour of consumer, producer and the service provider.

### Consumer:

When you buy some goods for your use, you are a consumer.

### Seller:

When someone sells goods to make a profit he is a seller, e.g, shop-keeper.

### Producer:

When a person or firm produces some goods he becomes a producer, e.g. sugar manufacturer. A farmer cultivating the land is also a producer.

### Service provider:

Those who provide service is called service provider, e.g. doctor, lawyer, driver, etc.

### Employee:

When you are in a job, working for some other person and are paid for it (wage, salary), you are an employee.

### Employer:

When you employ somebody, giving them wage/salary, you are the employer.

In all these cases, people are gainfully engaged in an economic activity. Economic activities are ones that are undertaken for a monetary gain. This is what economists mean by ordinary business of life.

## We Cannot Get Something For Nothing

Aladdin in the story of Aladdin and the Magic Lamp got all his wishes fulfilled. All this happened in the story. But in our real life things are different. We have unlimited wishes like Aladdin. But our source of money is limited. So all our wishes cannot be satisfied. Hence we are forced to make a choice: we first choose those things that we most need. This is the fundamental principle that economics teaches us.

All economic problems come from scarcity. Scarcity is the mother of all economic problems. When we look around we find scarcity in various forms — crowded buses and trains, water shortage, shortage of food grains and other essential commodities. We experience this scarcity because the resources that satisfy our wishes are limited. Hence we can say that they have alternative uses. When the resources are used for alternative purposes, there arises the problem of choice of products to be produced with those resources.

## Consumption, Production, Distribution and Exchange

Economics ‘involves the study of people engaged in different economic activities like production, consumption, distribution and exchange.

Besides these three conventional concepts of the study of economics, modern economists include some of the basic problems the country faces, for special studies. For example, they address problems like poverty, unemployment, disparities in income, illiteracy, etc. For all these you need to know the facts before you can ask for appropriate actions by the government. Similarly economists also address dangers threatening our country (Tsunami, earthquakes, bird flue, etc.) that affect man’s ordinary business of life.

Economists can look at these things with the use of data. Data expresses economic facts in terms of numbers.

Obviously, we will appreciate the inclusion of statistics (study of numbers relating to selected facts in a systematic form) in all modern courses of economics.

## Subject matter of Economic Theory

Principles and laws relating to :

• Production
• Consumption
• Exchange
• Distribution
• Public Finance etc.

are the subject matter of economic theory.

## Production

Transformation of input into output is called production. In other words, Production refers to the process by which the producer chooses to produce something considering the costs and prices.

## Consumption

The act of consuming some thing. Use of goods and services for the satisfaction of human wants is termed as consumption.

## Exchange

Economic behaviour involves the exchange of one scarce resource for another. When people engage in paid work, they exchange their scarce time, effort, and skill for income, and, when people make purchases, they exchange their scarce income for scarce goods and services.

## Distribution

Distribution refers to the process by which the national income arising from what has been produced in the country (called the GDP) is distributed through wages, profits and interest. Distribution is the way total output, income, or wealth is distributed among individuals or among the factors of production (such as labour, land, organisation and capital).

## What is Economics ?

• Economics is a Social Science.
• It studies the Economic behaviour of Man.
• It studies the relationship between ends and scarce resources, which have alternative uses.
• Adam Smith is considered as the father of Economics.

## Why there are economic problems ?

Scarcity is the root cause of all economic problems. Economic problems arise because:

• Human wants are unlimited
• Resources are limited to satisfy these wants
• Resources have alternative applicability

## What is Statistics ?

It is a Science and branch of Mathematics. Statistics deals with the collection, analysis, interpretation and presentation of numerical data. It is a branch of mathematics. Statistics is used in the disciplines such as accounting, economics, management, physics, finance, psychology, sociology, etc.

It deals with :

• Collection of Data
• Classification
• Tabulation
• Analysis
• Presentation
• Interpretation

## Statistics

The term statistics is used either as singular or plural. As a singular noun the term statistics denotes the various methods adopted for the collection, presentation, analysis and interpretation of quantitative information. As a plural noun statistics refers to quantitative information or data, e.g. the statistics of births, deaths, imports, exports, etc.

## Statistics in Economics

The special studies of certain problems facing the country require economic facts in terms of numbers. When economic facts are expressed in numbers, they become economic data, Statistics makes use of economic data for drawing meaningful inferences. This is the relationship between economics and statistics.

What is the purpose of collecting data about economic problems? It is to understand and explain these problems in terms of various causes behind them. In other words, we try to analyse them. For example, when we analyse the hardship of poverty, we try to explain the causes leading to poverty such as unemployment, low productivity of people, obsolete technology, etc. Now we will be able to find ways to mitigate it. These are measures that help solve the economic problem. In Economics, such measures are known as policies.

Now it is understood that no analysis of an economic problem would be possible without data on various factors underlying an economic problem. And no policies can be formulated to solve it. That is the basic relationship between Economics and Statistics.

Our study is confined to data from the field of economics. Economics makes use of both qualitative and quantitative data. The difference between these two are given below.

Table 1.1 Data Classification
Qualitative data Quantitative data
Data classified on the basis of some attribute or quality such as sex, colour of hair, literacy, intelligence, etc. and cannot be measured quantitatively. Data classified according to some characteristics that can be measured such as height, weight, income, exports, imports, etc.

## Why statistics along with Economics ?

• Economic behaviour of Man cannot be studied in a laboratory by conducting experiments.
• We make use of tools of statistics to formulate economic laws based on hypothesis.
• Tools and techniques of statistics are used to test the hypothesis.

## Use of Statistics

• In the field of research.
• In the field of business and industry.
• For economists.
• For financial institutions.
• For planners

## Use of Statistics in Economics

1. For the systematic and scientific analysis of economic variables.
2. For economic and development planning.
3. For decision making in economics.
4. Framing economic policies.
5. For economic forecasting.
6. For government intervention in right direction.

• Statistics is an inevitable tool in the hands of economists. It helps to understand various economic problems and formulate measures to solve them.

• Complex numerical data in economics are simplified through statistical methods. When economic facts are expressed in statistics they become exact. Instead of saying so many people died in the Bangladesh building collapse, saying that 1,102 people killed in the tragedy will give more clarity and precision.

• Voluminous data are reduced to a few figures making them easily understandable.

• Knowledge of trends and tendencies helps in making future plans.

• The government plans and makes policies based on statistics.

• In economics, variables are systematically and scientifically analysed with the tools of statistics.

• In development planning, use of statistical methods of analysis and decision making has become indispensable.

• Imports and exports of a country may be compared with each other or with those of another country.

## Functions of Statistics

• It simplifies complexities.
• It presents the data in a definite form.
• It presents the data in a precise form.
• It helps condensation of data.
• It enables comparison of data.

### Statistics not a substitute to common sense

Blind use of statistical methods is dangerous. Following story will reveal this: A person along with his wife and two sons reached the bank of a river. He knows the depth of the river. So he took the average height of four which was more than the depth. He decided to cross the river (decision taken on average height) and ultimately two sons were drowned. We can understand from the above that statistics will never be a substitute for common sense.

## Distrust of Statistics

• Lack of confidence in Statistical statements and statistical methods.
• Statistics can prove anything.
• Whether statistics is good or bad depend on its use.

## Limitations of Statistics

• Statistics Studies Only Quantitative Data.
• It does not study individual cases.
• Statistical results are true only on an average
• It does not reveal the entire story of the problem.
• Its methods can be used only by an Expert.

## Conclusion

Statistics plays a vital role in economic policies and decision making processes. Success of economic planning very much depends on the availability of sufficient and accurate data at all stages. Statistics is applied to any field of activity. It has universal applicability.