Chapter-1 Concept of Economics and Significance of Statistics in Economics

Chapter - 1
Concept of Economics &
Significance of
Statistics in Economics

Introduction
• The word ‘Statistics’ seems to have been
derived from the Latin word ‘Status’ or the
Italian word ‘Statista’ or the German word
‘Statistik’ or the Greek word ‘Statistique’,
each of which means a political state.
• The word ‘Statistics’ was first used by German
scientist Gottfried Achenwall in 1749.
• He is known as the Father of Statistics.

• Some people regard statistics as data, facts
or measurements, while others believe it to be
the study of figures.
• In the early years, scope of statistics was
primarily limited to collection of data for
determining the economic and social conditions
of the people living in different parts of the
country.
• But with the passage of time, the scope of
statistics widened. For some time, statistics
was regarded as a branch of economics, but
now, it has become as full-fledged independent
subject.

• We need to know more about economic facts
in terms of numbers. Such economic facts are
also known as data.
• The purpose of collecting data about these
economic problems is to understand and
explain these problems in terms of the various
causes behind them.
Statistics in Economics

• We may, therefore, also try to find those
measures that help to solve an economic
problem.
• In Economics, such measures are known as
policies.
• No analysis of an economic problem would be
possible without data on various factors
underlying an economic problem.
• And that, in such a situation, no policies
can be formulated to solve it.
• This is the basic relationship between
Economics and Statistics.

Chapter-1 Concept of Economics and Significance of Statistics in Economics

Statistics: Meaning
• It is not easy to define statistics in a precise
manner.
• Statistics has been defined differently by
different writers from time to time,
emphasizing precisely the meaning, scope and
limitations of the subject.
• In a layman’s language, Statistics means ‘data’
or facts in figures.
Statistics
Singular Plural

(A) Definition of Statistics in Singular
Sense
• In singular sense, Statistics refers to
statistical methods.
• These methods are regarding collection,
organisation, presentation, analysis and
interpretation of data.
• So, in singular sense, Statistics is taken to
mean as statistical methods.

Stages of Statistical Study and
the Related Statistical Tools

(B) Definition of Statistics in Plural
Sense
• In the plural sense, Statistics means
‘numerical facts systematically collected’ as
described by ‘Oxford Dictionary’.
• Thus the simple meaning of Statistics in
plural sense is “data”.
• By data or Statistics, we mean quantitative
facts that are used in Economics.

Features of Statistics in Plural Sense
(a) Statistics are aggregate of facts - A single
number does not constitute statistics.
• 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.
For example:
Not Statistics Statistics
1. Human has 2 legs. 1. Human has 2 legs,
whereas cow has 4 legs.
2. Around 80,000 people 2. Around 80,000 people
dead in USA due to dead in USA as compared
COVID 19. to 25,000 people in
INDIA due to COVID 19.

(b) Statistics are numerically expressed –
• All Statistics are expressed in terms of
numbers. Qualitative aspects like 'small' or
'big' rich or 'poor' etc. do not constitute
Statistics.
• The statement will be called Statistics only if
numerical data are given or quantitative
expression is Statistics, e.g., production of
wheat in India has increased by 25% between
2005 and 2015.

(c) Statistics are affected by multiplicity of
causes
• Statistics are not affected by any single
factor; but are affected to a great extent by
a number of factors affecting together.
• Had they been affected by one factor alone
then by removing that factor they would lose
all their significance.

(d) Statistics should be placed in relation to
each other
• For the purpose of comparison, data collected
must be homogenous.
• It would be meaningless to compare the
heights of students with their pocket
allowance because these data are not
homogenous.
• Unless they have the quality of comparison
they cannot be called statistics.

(e) Statistics are collected for predetermined
purpose
• The purpose of collection of data should be
decided in advance.
• Data collected without purpose will be
misleading and will not serve the purpose of
statistical enquiry.

(f) Statistics are enumerated or estimated
according to a reasonable standard of
accuracy
• Statistical data must be reasonably accurate
because statistical data are collected to
investigate statistical enquiry.
• If the area of our enquiry is limited then we use
enumeration.
• And if the scope of enquiry is wide then we will
collect the data by the method of estimation.
• Estimates cannot be accurate. Hence, the
degree of accuracy must be observed.

(g) Statistics are 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.

If the above discussed features are present,
data are known as Statistics. Thus, all
Statistics are numerical statements of
facts but all numerical statements of facts
are not Statistics.

Scope/ Subject Matter of
Statistics
● Now –a-days the scope of Statistics has
spread to economics, business, industry,
physics, chemistry and various other fields of
knowledge.
● Scope/subject matter of Statistics can be
classified into the two broad categories.
Scope of
Statistics
Statistical
Methods
Applied
Statistics

(A) Statistical Methods
● Statistical methods are the methods used in
Statistics.
● The important methods of Statistics are given
below:
(a) Collection of Data
(b) Organisation of Data
(c) Presentation of Data
(d) Analysis of Data
(e) Interpretation of Data

(B) Applied Statistics
● It is concerned with the application of
statistical methods used in interpreting the
data to take decisions in solving economic
problems .
● Applied Statistics can be classified into two
categories given below:

(i) Descriptive Applied Statistics
● This deals with use of statistical methods to
make a problem under study comparable and
easily understandable using past and present
data.
(ii) Scientific Applied/ Inferential Statistics
● This deals with use of statistical methods to
draw conclusions and take decisions to deal
with various social, political and economic
problems.

Functions of Statistics
(a) Helps in understanding economic problem
● 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
quantitative facts of the economic problem.

(b) Presentation of facts in definite form
● Statistics enables an economist to present
economic facts in a precise and definite form
that helps in proper comprehension of what is
stated.
● When economic facts are expressed in
statistical terms, they become exact.
● Exact facts are more convincing than vague
statements.

(c) Statistics helps in condensing mass data
into a few numerical measures
● The numerical measures help to summarise
data.
For example, it would be impossible for you to
remember the income of all the people in a
data, if the number of people is very large.
● Yet, one can remember easily a summary
figure like the average income that is obtained
statistically.
● In this way, Statistics summarises and
presents meaningful overall information about
a mass of data.

(d) Establishes relation between factors
● Statistics is used in finding relationships
between different economic factors.
● An economist may be interested in finding
out, what happens to the demand for a
commodity when its price increases or
decreases ?
● 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.

(e) Helps in formulation of plans and policies
● Sometimes, formulation of plans and policies
requires the knowledge of future trends.
● That could be based on the data of
consumption of past years or of recent years
obtained through surveys.

(f) Helps in evaluation of impact of policies
● Today, we increasingly use Statistics to
analyse serious economic problems such as
rising prices, growing population, poverty, etc.,
to find measures that can solve such
problems.
● Further it also helps to evaluate the impact of
policies in solving the economic problems.

(g) Inter-sectoral and inter-temporal
comparisons
● Statistics comprehends the numerical data
through inter-sectoral and inter-temporal
comparisons.
● Inter-sectoral comparisons refer to
comparisons across different sectors of the
economy.
● Inter-temporal comparison means
understanding of change in the magnitude of
the problem overtime.

Importance of Statistics in
Economics
(a) Statistics in Economics - A number of
economic problems can easily be understood
by the use of Statistics. It helps in
formulation of economic policies.
● The importance of Statistics in various parts
of economics has been discussed as follows:
(i) Statistics in consumption - To obtain the
knowledge of how different groups of people
spend their income forms Statistics relating
to consumption. The data of consumption are
useful and helpful in planning their budget and
improve their standard of living.

(ii) Statistics in production - The comparative
study of the production processes is done
with the help of Statistics. The Statistics of
production are very useful and helpful for
adjustment of demand and supply and
determining quantity of production of the
commodity.
(iii) Statistics in distribution – Statistical
methods are used in solving the problem of
distribution of national income among various
factors of production i.e.: land, labour, capital
and entrepreneur.

(b) Statistics in Economic Planning – Economic
planning is done to achieve certain targets
for growth of the economy using scarce
resources of the nation.
● Statistics helps in evaluating various stages
of economic planning through statistical
methods. Statistics helps in comparing the
growth rate.
● It helps to formulate plans to achieve pre
determined objectives.
● It measures the success and failure of plans
and accordingly guides to apply corrective
measures.

(c) Statistics in Business –
● Statistical tools play a very important role in
major business activities.
● The producer depends upon market research
to estimate market demand and the market
research is based on Statistics.
● The trader depends heavily on methods of
statistical analysis to study market.
● Statistical tools are very important for the
detailed analysis of money transactions in the
business.

(d) Statistics in Administration –
● Formulation of a policy involves Statistics.
● The state gathers the facts relating to
various aspects with the help of statistical
methods and principles.
● It helps the state to achieve targets with the
help of optimum utilisation of scarce
resources.

Importance
of Statistics
in Economics
Statistics
in Business
Statistics in
Economics
Statistics
in
Administration
Statistics
in
Economic
Planning

(a) Statistics deals with numerical facts only
● Statistics studies only such facts as can be
expressed in numerical terms.
● It does not study qualitative phenomena like
honesty, friendship, wisdom, health,
patriotism, justice, etc.
(b) Statistics does not deal with individuals
● Statistics studies only the aggregates of
quantitative facts. It does not study any
particular unit; it has no relevance in
statistics.
● Therefore, data are either underestimated or
overestimated.
Limitations of Statistics

(c) 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. For example, production of food
grains cannot be compared with the production
of cloth.
(d) Statistics are true only on an average
● Most statistical findings are true only as
averages. They express only the tendencies.
● Unlike the laws of physical science or chemistry,
statistical observations are not absolutely true.
They are not always valid under all conditions.

(e) Without reference, statistical results may
prove to be wrong - In order to understand
the conclusions precisely, it is necessary that
the circumstances and conditions under
which these conclusions have been drawn are
also studied; otherwise they may prove to be
wrong.
(g) Prone to Misuse - Misuse of Statistics is
possible; Statistics may prove true what is
actually not true.
● It is usually said “statistics are like clay by
which you can make a god or a devil, as you
please”.
● The results may be manipulated according to
suitability of one’s own interest.

(e) Statistics needs special expertise
● Statistics can be used only by those persons
who have special knowledge of statistical
methods.
● It can therefore, be said that data in the hands
of an unqualified person is like a medicine in the
hands of a quack who may abuse it out of
ignorance leading to dangerous consequences.

Statistical Methods are No
Substitute for Common Sense
● This is a statement of caution to the students
of statistics. It urges the students not to use
statistics devoid of their common sense.
● You may find some spurious relationships, like
larger the number of doctors in an area greater
are the deaths in that area.
● It may be true statistically, but does not match
with common sense.
● Hence, never propagate any statistical
conclusion in case it offends your common
sense.

Distrust of Statistics
Inspite of great use of Statistics, there is some
amount of misgiving in the minds of a few
economists regarding their reliability.
(i) ‘There are three degrees of lies – lies,
demand lies and Statistics.’
(ii) ‘Statistics can prove anything.’
(iii) ‘Statistics can prove nothing.’
(iv) Statistics can blow the wind in whichever
direction they like.
(v) Statistics are like clay of which you can make
a God or a Devil, as you please.

Presented by –
Ritvik Tolumbia
CS, CWA, M.Com (ABST), M.A (Eco), B.Ed

Chapter-1 Concept of Economics and Significance of Statistics in Economics

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