EVOLUTION OF ECONOMICS
&
INTRODUCTION TO STATISTICS
THIS
PAGE IS
NOT FOR
EXAM
NATURE OF ECONOMICS:
• Economics is a Social Science
❖ (Positive Science and Normative Science)
• Economics is an Art
All activities taking place in an Economy are divided into
Economic and Non-Economic.
• Economic Activities: undertaken for monetary gains / to earn
money.
• Economic activities are those activities that are performed to
earn a living. These include:
❖ Consumption
❖ Production
❖ Distribution
• Non-Economic Activities: undertaken for non-monetary
benefits such as emotional satisfaction, religious sentiments,
social causes.
AN INTRODUCTION TO STATISTICS
WHAT IS STATISTICS?
Statistics, in itself, is the collation and analysis of numerical
data to arrive at specific inference. It includes quantitative
analysis. The term ‘statistics’ is used in two ways, namely,
singular and plural.
STATISTICS IN SINGULAR SENSE:
METHODS OF SINGULAR REPREENTATION:
• Collection of Data
• Organization of Data
• Presentation of Data
• Analysis of Data
• Interpretation of Data
STATISTICS IN PLURAL SENSE:
CHARACTERESTICS OF STATISTICAL DATA
(PLURAL REPRESENTATION):
• Aggregate of facts
• Numerically expressed
• Affected by multiplicity of causes
• Should be collected with reasonable accuracy
• For a pre-determined purpose
• Collected in a systematic manner
FUNCTIONS OF STATISTICS:
• To simplify complex facts
• To make comparisons of facts
• To facilitate planning and policy formation
• To help in forecasting
• To enlarge individual knowledge
IMPORTANCE OF STATISTICS
• Used by the government for assessment of current
performance
• Used for economic planning
• Used for making economic laws (law of demand; law of DMU)
• Used by businesses for financial for estimating demand,
making strategies, consolidating results, production planning,
etc.
• Used for accounting and auditing
LIMITATIONS OF STATISTICS
(i) STATISTICS DOES NOT STUDY ABOUT INDIVIDUALS:
Statistics are expressed in aggregates. It does not study individuals.
Following are the example of data:
• Average income, average marks,
• The unemployment rates in various years
• Rate of growth of GDP over the last two decades
• Record of temperature in the last few years
Following are the examples which is not considered as statistical data
• Marks of a single student
• Income of a consumer
• Attendance of a child
(ii) IT DOES NOT STUDY THE QUALITATIVE ASPECT OF PROBLEM:
The most important condition of statistical study is that subject of investigation
should be capable of being quantitatively measured. For example, honesty,
happiness, etc. are the attributes which are difficult to quantify. However, these
attributes are studied under statistics but with a different approach such as by
ranking. A topic in our book this year, spearman’s rank correlation will help us to
understand this concept in detail.
(iii) STATISTICS CAN BE MISUSED:
The result obtained can be manipulated accordingly to one’s own interest and
such manipulated results can mislead the community. Example of manipulation
of data
• If the number of votes in the machines are manipulated to favour a
particular party during elections.
• What if you were a real-estate agent and you were trying to convince
people to move into a particular neighbourhood. You could, with perfect
honesty and “truthfulness” tell different people that the average income
in the neighbourhood is: a) Rs150,000 b) Rs350,000 c) Rs100,000.
(iv) STATISTICAL RESULTS LACK MATHEMATICAL ACCURACY:
The results drawn from statistical analysis are normally in approximates. As the
statistical analysis is based on observation of mass data, number of inaccuracies
may be present and it is difficult to rectify them. For ex, when govt tries to
calculate per capita income (average income of a person), it has to collect data
on a mass or large scale. at times it is difficult to generate data at a large scale
where all the individuals in an economy have to be involved and there are
chances that govt. tries to interpret the results on the collection of only samples
rather than studying each and every unit in detail. Many times govt has to work
on approx. results. that is the reason we say statistical results lack 100 %
accuracy.
(v) UNIFORMITY AND HOMOGENEITY OF DATA:
It is essential that data must have the quality of uniformity and homogeneity.
Heterogeneous data are not comparable. For example, it would be meaningless
to compare the heights of men with heights of trees because these figures are
of heterogeneous character. Also if we compare the results of the students
belonging to science stream with student having commerce or humanities.
Therefore, statistics has limitations in comparing heterogeneous data.
(homogeneous means identical or same, like comparison of the physical fitness
of a girl with a girl and also of similar age)
Heterogeneous means differentiated like a group of study having both boys and
girls and comparing their physical fitness)
STATISTICAL METHODS ARE NO SUBSTITUTE FOR COMMON SENSE!
There is an interesting story which is told to make fun of statistics. It
is said that a family of four persons (husband, wife and two children)
once set out to cross a river. The father knew the average depth of
the river. So, he calculated the average height of his family members.
Since the average height of his family members was greater than the
average depth of the river, he thought they could cross safely.
Consequently, some members of the family (children) drowned while
crossing the river. Does the fault lie with the statistical method of
calculating averages or with the misuse of the averages?
In the above box, the story that has been shared is to simply make you understand
that while using statistical methods like mean, median, mode and many others, we
need to apply common sense as well because at times we need to use our own
intellect and observations before we reach any final conclusion.
Also, the statistical data may involve personal bias or may have undergone
manipulations, thus, the common sense must be used while applying statistical
methods. So statistical data should not be followed or trusted blindly.
APPENDIX
Statistics is an indispensable tool for an economist that helps to understand an
economic problem.
Using its various methods, effort is made to find the causes behind it with the
help of the qualitative and the quantitative facts of the economic problem.
Once the causes of the problem are identified, it is easier to formulate certain
policies to tackle it.
1. QUANTITATIVE EXPRESSION
Statistics adds a touch of reliability and concreteness to economics by
quantitatively expressing data.
Evidently, our first step towards solving an economic problem is to gain an
idea about its magnitude using statistical data. For e.g. We can use the
situation of spread of COVID-19 all over the world. As we saw every day, the
data had been updated with increasing number of infected
cases. The data was provided in various categories like country wise, state
wise, district wise. This entire collection of data is given with the purpose of
understanding the situation in a better way all around the world. In this
way, statistics summarises and presents a meaningful overall information
about a mass of data. The Following chart is the quantitative expression
of growth of GDP in India over various years. This statistical data helps us
to analyse the situation in terms of GDP.
Fig.1
2. STATISTICS IS USED IN FINDING RELATIONSHIPS BETWEEN DIFFERENT
ECONOMIC FACTORS.
An economist maybe interested in finding out what happens to the
demand for a commodity when its price increases or decreases? Or,
would the supply of a commodity be affected by the changes in its own
price? Or, would the consumption expenditure increase when the
average income increases? Or, what happens to the general price level
when the government expenditure increases? Such questions can only be
answered if any relationship exists between the various economic factors
that have been stated above. Whether such relationships exist or not can
be easily verified by applying statistical methods to their data.
In the following chart, it shows as the income increases, consumption also
increases which means that there is a positive or direct relation between
the two variables, income and consumption. It implies that we could
establish this direct relationship between the variables only after we have
statistical data.
Fig.2
3. IDENTIFICATION OF PATTERNS AND FORECASTING ECONOMIC EVENTS
Armed with statistical tools, economists can easily study data for a
particular purpose and identify patterns in the data. What it does is puts
them in a great position to predict future trends. Moreover, such
knowledge can be used for future planning. For example, an economist
might be interested in knowing the impact of today’s investment on the
national income in future. Such an exercise cannot be undertaken
without the knowledge of Statistics. Sometimes, formulation of plans
and policies require the knowledge of future trends. For example,
even the forecasting done by the metrological department is based on
statistical data.
4. FORMULATION OF POLICIES
The policies introduced can make or break the progress of a nation. Such
important decisions are made after a rigorous study of the nation’s
statistical data. In fact, this is done with the help of statistical tools.
For e.g.. During this time of outbreak of COVID 19, the government
formulated policies regarding the recession in the economy. The govt.
formulates policies for spending on social welfare and development.
In the following statistical data, you can see in both the charts the
difference between the male and female literacy rates in India. Keeping in
mind this data, govt plans policies or programs to enhance the female
literacy rate in India.
Fig.3
Fig.4
5. INTER-SECTORAL AND INTER-TEMPORAL COMPARISONS
Comparisons for a department of inquiry in terms of time or sectors
facilitates the purpose of comparison. This means it allows for a wider
sense of comparison and also helps in checking progress. Inter-sectoral
comparisons mean comparison across different sectors. Whereas, inter-
temporal comparisons mean comparison across different time periods.
For e.g., if we compare the output levels in various sectors (agricultural,
manufacturing, service sector), we are able to draw comparisons on the
GDP contributions by each vis-à-vis their employment share in total.
Thereafter, initiatives may be taken to improve the situation for the
Sector that suffers the most.
Fig.5
The above charts show the comparisons with respect to various sectors and
measuring different variables like GDP, share of service sector, rate of
unemployment.
https://www.youtube.com/watch?v=HUThHJ6E3rY
APPLICATION OF STATISTICS
