CH 1

Download as pdf or txt
Download as pdf or txt
You are on page 1of 4

Chapter 1 - Introduction

Question 1:

Mark the following statements as true or false.

(i) Statistics can only deal with quantitative data.

(ii) Statistics solves economic problems.

(iii) Statistics is of no use to Economics without data.

Answer:

(i) Statistics can only deal with quantitative data. False

Statistics deals with both quantitative data as well as with qualitative data. Statistics not only reveals
quantitative information but also reflects the qualitative aspect of data like better, worse off, highly
skilled, etc. Although, the qualitative aspects can neither be easily measured nor can be expressed in
quantitative terms, but statistics describes the attributes of these variables.

(ii) Statistics solves economic problem. True

Statistics acts as a tool in the hands of economists that enables them to understand and evaluate an
economic problem. The causes of a problem are identified through statistical tools and methods and
policies and rectification measures are formulated accordingly.

(iii) Statistics is of no use to economics without data. True

Data enable economists to present economic facts in a precise and concise form. Data itself is self
explanatory. For example, if the per capita monthly income in India has increased from Rs 300 to Rs
600 during 1974 to 1984, then just by looking at the figures an economist would not only understand
the quantitative increase in the per capita income but also can assess the implicit qualitative aspects
associated with this increase like higher standard of living, low level of poverty, higher level of savings,
etc.

Question 2:

Make a list of activities that constitute the ordinary business of life. Are these economic activities?

Answer:

The following are the activities that constitute the ordinary business of life:

1. Buying of goods and services.

2. Rendering services to a company by employees and workers.

3. Selling of goods and services.

4. Production process carried out by a firm.

Yes, the above mentioned activities are regarded as economic activities. This is because, these
activities involve the use of scarce resources to carry out production, consumption, saving,
investment, etc. These activities involve the exchange of money to earn livelihood.

Question 3:

‘The Government and policy makers use statistical data to formulate suitable policies of economic
development’. Illustrate with two examples.

Answer:

The statistical data is of prime importance for the government and the policy makers. The statistical
data not only help them to analyse and evaluate the outcomes of the past policies but also assist
them to take corrective measures and to formulate new policies accordingly. Further, the statistical
data also help the government to ascertain various needs and priorities for the pursuit of the common
goal of economic development. For example, if Indian Government aims at encouraging the
production level, then it formulates its economic policy based on the average production level of the
past three years. Another example could be the preparation of government budget. The previous data
of government expenditures and government revenues are taken into consideration for estimating the
allocation of funds among various projects.

Question 4:

"You have unlimited wants and limited resources to satisfy them." Explain by giving two examples.

Answer:

Every economy faces the problem of scarcity. ‘Scarcity of resources’ implies that there are unlimited
wants to be fulfilled by limited resources. The basic concern of an economy is to allocate the scarce
resources to the best possible use in the face of unlimited wants. Thus, the problem of scarcity forces
an economy to make a choice among various alternatives. For example, an economy endowed with a
given level of resources has to make a choice between the production of guns and breads. The
choice of the economy (i.e. either to produce guns or bread and in what quantities) depends on the
need and goal of the economy. While the production of bread will make the economy devoid of the
security level, whereas, the production of guns will not provide sufficient food for the population. The
same problem of scarcity can be felt at an individual level. For example, with a given amount of
money say, Rs 20,000, one cannot buy a TV and a sofa set simultaneously. Thus, the individual
needs to make a choice between the alternatives according to his/her priority.

Question 5:

How will you choose the wants to be satisfied?

Answer:

An individual fulfills his/her wants according to his/her needs, satisfactions and priority attached to
different wants. Those wants will be fulfilled first that provides the highest satisfaction to the individual
and to which the individual has attached the top most priority. Further, the choice of want also
depends on the need of the hour and availability of the goods and also on the availability of means
(money) to realise a particular want. Thus, depending on all these conditions, we can say that an
individual having sufficient budget will fulfill a particular need that would fetch him/her the highest
possible satisfaction.

Question 6:

What are your reasons for studying Economics?

Answer:

The need to study economics stems from the basic problem of scarcity and choice. The basic concern
of economics is to allocate the scarce resources to the best possible use in the face of unlimited
wants. Consequent to the scarce availability of resources, an economy needs to make choice to
allocate the scarce resources to the areas with maximum possible and optimum returns.Thus, the
study of economics is very important. The following are the reasons that make the study of economics
inevitable.

1. To study the Theory of Consumption

The Theory of Consumption deals with the study of the behaviour of the consumers in different types
of market. The basic concern of this theory is how a rational consumer makes his/her preferences to
get the maximum possible satisfaction in the facet of fixed level of income, given prices of the goods,
etc.

2. To study the Theory of Production

The Theory of Production studies the production decisions of the producers in different types of
market. The theory investigates how a producer takes production decisions. The theory highlights how
a producer combines different inputs (given their prices) in order to minimise the cost of production
and to maximise the profits.

3. To study the Theory of Distribution

The study of economics makes us aware about the distribution of national income. In other words,
how the income arising from the total production of an economy is distributed in the form of wage,
profit, rent and interest to different factor owners (like, labour, entrepreneur, land, capital).

4. To study the basic macroeconomic problems faced by an economy

Economics proves as the most powerful tool to understand and analyse the root cause of basic
macroeconomic problems faced by an economy like, poverty, unemployment, income disparity, etc.
Economics helps us not only in understanding the interrelationship among these problems (like the
relationship between poverty and unemployment) but also to take various corrective measures.

Question 7:

Statistical methods are no substitute for common sense. Comment.

Answer:

A statement of attention to the students of statistics is being referred here. Statistical data should not
be believed blindly as it can be misinterpreted or misused. The statistical data may be politically
influenced, may involve personal biasness or may undergone data mining (manipulations). Moreover,
statistical data and methods fail to reveal the errors committed by an investigator while surveying and
collecting data. Thus, the students are advised to use their common sense while working with the
statistical data. This point can be better understood with the help of the following example. According
to a survey that was conducted on the Death Rate, it was found that the number of deaths per 1,000
people was more in doctors accessible regions compared to the death rate in the remote areas. Such
statistical data violate common sense and thereby is misleading. Therefore, the students are advised
not to have lope sided beliefs on the statistical data and methods but simultaneously should evaluate
the statistical results logically and should offend the results if it violates their common sense.

Thus, it can be concluded that statistics is like clay that can be transformed in either good or bad way
in order to draw right or wrong conclusions. Hence, the numerical data should not be deliberately
used without applying common sense.

You might also like