Chapter 1 - Concept of Economics & Significance of

Statistics in Economics
Economics
Economics is a science that studies human behaviour as a relationship
between ends and scare means which have alternative uses. Moreover
economics is a social science which studies individuals and organisations
engaged in the consumption, production and distribution of goods and
services.
Consumer A person who buys goods and services for the satisfaction of
human wants.
Producer A person who produces goods or sell goods and services for the
generation of income.
Saving It is the part of income which is not consumed.
Investment It is an expenditure by the producers on the assets which help
in the generation of income.
Scarcity - Scarcity means shortage of goods and resources in relation to their
demand.

Economic Activities- An economic activity means that activity which is

based on or related to the use of scarce resources for the satisfaction of
human wants.
NonEconomic Activities - These activities are those which have no
economic aspect or are not concerned with money or wealth.
Economic Problem- Economic problem always arise out on the fact that
resources are scarce and these have alternative uses. For eg: A ten rupees
note in your pocket may spent on a cup of tea or coffee or a cold drink. That
is what we call problem of choice or economic problem. Means are always
scarce in relation to our wants. Even if you are the richest person the earth
but still you cant have everything you wish to have at time. It implies
scarcity. Thus, we can say that if there is no scarcity, there is no economic
problem, and there is no economics if there is no economic problem.
Three Distinct components of Economics
Consumption

It is the process of using utility value of goods and service for direct
satisfaction of wants.
As a consumer, people have limited means, while their wants are
unlimited.
They allocate their given means on the purchase of different goods and
services so that satisfaction is maximized.

Production

It is the process of converting raw materials into useful things.

Things become useful as they acquire utility value in the process of
production.

Distribution

The economic principles on the basis of which income is distributed

among the factor of production like land, labour, capital and
entrepreneurship is called distribution.

Microeconomics and Macroeconomics

Microeconomics

It deals with economic issues or economic problem related to

microeconomic units like household, a firm or an industry.
These issues and problems are studied with a view of maximizing
individual welfare.

Macroeconomics

It deals with economic issues or economic problems at the level of

economy as a whole like issues of collective significance.
These issues and problems are studied with a view of social welfare or
collective significance.

Data - Economic facts in terms of numbers.

Statistics It is a store of quantitative information or quantification of the
facts and findings.
Statistics as a singular noun It refers to methods or techniques relating
to collection, classification, presentation, analysis and interpretation of
quantitative data. According to Croxton and Cowden, Statistics may be
defined as the collection, presentation, analysis and interpretation of
numerical data.
Statistics as plural noun It relates to information in terms of number or
numerical data such as population statistics, employment statistics,
Statistics concerning public expenditure etc.
All statistics are data, but all data are not statistics There are data out of which some are statistics while some are not statistics
like a cow has 4 legs is just a data but is not statistics whereas the data like
average height of the 26 plus male people in India is 6 feet compared to 5
feet in Nepal is statistics.

Features or characteristics of Statistics

Aggregate of facts
Numerically expressed
Affected by multiplicity of causes
Reasonable Accuracy
Placed in relation to each other
Pre determined purpose
Enumerated or Estimated
Collected in a systematic manner

Stages of Statistical Study

There are five stages of statistical study namely collection of data,
organization of data, presentation of data, analysis of data and interpretation
of data.
(Diagram from book)

At
At
At
At
At

first stage we collect statistical data

second stage we organize the data in some systematic order
third stage we present the data in the form of graphs
fourth stage data is analyzed in terms of averages and percentages
fifth stage data is interpreted to find out certain conclusions.

Statistical Tools - These are the methods or techniques used for the
collection, organization and presentation of data as well as for the analysis
and interpretation of data.
Stages of statistical study and the related statistical tools (table
from the book)
Scope of Statistics

Nature of statistics
It is both a science as well as an art. As a science, statistics studies
numerical data in a scientific or systematic manner. As an art, it relates
to quantitative data to the real life problems.
Subject matter of statistics
Descriptive Statistics
It refers to those methods which are used for collection,
presentation as well as analysis of data. The methods used are
measurement of central tendencies, measurement of dispersion,
measurement of correlation etc. For ex when you estimate
average height of the secondary students in your school.
Inferential Statistics

It refers to all such methods by which conclusions are drawn

relating to the universe or population on the basis of a given
sample. For ex If your class teacher estimates average height of
the entire class on the basis of the average height of only a sample
of students of the class.
Limitations of statistics
Statistics has emerged to be a crucial significance in all walks of life.
However, it has certain limitations. Thus, Newshome writes that,
Statistics must be regarded as an instrument of research of great
value but barring serve limitations which are not possible to
overcome.
Following are notable limitations of statistics:
Study of numerical facts only
Study of aggregates only
Homogeneity of data, an essential requirements
Results are true but only on average
Without reference result prove to be wrong
Can be used only by the experts
Prone to misuse

Importance of statistics in Economics

Statistics has emerged as the lifeline of economics. Thus the following points
highlights the significance of statistics in economics

Quantitative expression of economic problems

Inter sectoral and Inter temporal Comparisions
Working out cause and effect relationship
Construction of economic theories or economic models
Economic forecasting
Formulation of policies
Economic Equilibrium

Distrust of StatisticsIn spite of valuable services that statistics renders to business community
and to scientists, both social and natural, there is some amount off misgiving
in the minds of a few people regarding their usefulness and reliability.
According to Disraeli, There are three kinds of lies lies, damned lies and
statistics.
Statistics as a subject matter is never wrong, but the fault lies with people or
the users who uses it like a medicine in hand or incompetent doctor. Indeed,
one can present statistical information in a manner that tends to distort the
facts. For instance, the government in 2011, claimed that per capita income

in India increased at the rate of 17 percent. On the other hand, opposition

party claimed that it was increased by 5 percent. But the difference lies in
the fact that government estimates are based on current price, while the
opposition party estimates are based on old prices of 2004 05. Thus, these
makes statistics as a never faulty or incompetent for a common man. But,
the fault lies with those who collect wrong statistics or those who draw wrong
conclusions.
Remedies for removing distrust

Consideration of statistical limitations

No bias
Application by experts