Ch.

1 Introduction to Statistics
A consumer is one who pays the price of a commodity and uses it.
A producer is one who manufactures or produces a commodity for sale in the market in order to
earn profit.
When one works for others and paid wages or salary, he is called service holder.
When one provides services such as transport services or medical services, he is known as
service provider./ Producer
All these activities are called economic activities because they are engaged in some gainful
activities.
These activities are known as ordinary business of life.
the
Thus, “economics is a study of how people and society choose to employ scarce resources that
could have alternative uses in order to produce various commodities that satisfy their wants and
to distribute them for consumption among various persons and groups in society.”

What is Economics about?

An economic problem arises, only due to scarcity of resources in relation to demand for them.
Human wants are unlimited and recurring in nature. But, the resources (land, labour, capital
and entrepreneurship) that satisfy our wants are limited in supply. Also, these resources can be
put to alternative uses. Now, the basic economic problem is to choose between alternative uses,
i.e., to choose those wants that should be satisfies now and those that can be satisfied later. In
short, the basic economic problem is the problem of choice.

For example, there are wants such as rice, wheat and houses. But, the land available to produce
all these goods is scarce. If the economy decides to produce rice, then no land will be available
for the production of wheat and houses. Now, a choice has to be made as to which goods should
be produced with the given amount of land. Thus, the economic problem is the problem of choice.

Economics, thus, studies economic activities such as consumption, production and distribution,
which are ordinary business of life.
If the study is related to the choice of goods by a consumer, it is a study of consumption.
If the study is about how and what a producer chooses to produce, it is a study of production.
When we want to study how the production of goods and services produced in the country is
distributed among the factors of production in the form of rent, wages, interest and profit, it is a
study of distribution.
Besides these, economics is also interested to study the problems afflicting the country. Such
problems are poverty, price rise, unemployment and illiteracy.

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To understand the magnitude of these and other such problems, one needs to have facts about
them.
Such facts which are systematically and precisely collected are called data.
The purpose of collecting such data on these economic problems is to understand and explain
these problems and their causes. This means that we have to analyse the data. When we
analyse the hardships of poverty, we try to explain it in terms of the various factors such as
unemployment, low productivity of people, backward technology, etc.

Once the data are collected and analysed, measures can be taken to mitigate poverty. Such
measures are known as policies.

Origin and Development of Statistics:

The word statistics comes from the German word ‘statistik’ and Latin word ‘status’ which mean
‘the State’. From this, it could be understood that statistics was mainly used by the governments.
It was the need of the governments in those days that led to collection of data on vital matters
such as population, manpower and wealth in the form of land, buildings and other assets, by the
kings and the States. They needed information on these matters to collect revenue and run the
administration.

Meanings of Statistics

The term statistics is used in two senses.

1. In singular sense, it means the subject of statistics. As a subject, statistics is defined as
a science of a body of techniques of collection, classification, presentation, analysis and
interpretation of numerical facts or data.
2. In its plural sense, statistics means systematically collected numerical facts.

Characteristics of Statistical Data

1. Numerical Facts: Facts can be either qualitative or quantitative. When we say that ‘A’ is
intelligent, it is a qualitative statement. On the other hand, if ‘A’ has got 90% in the Board
Examination, it is a quantitative statement. By statistical data we mean quantitative facts.

2. Aggregate of Numerical Facts: Only when the numerically expressed facts are more than one,
it would be called statistics. For example, the only fact that ‘A’s income is Rs.2000 cannot be
called statistical data because it is a fact that has no importance or relation with anything else.
But, when we say that A’s income is Rs.2000 and ‘B’s income is Rs.5000, it can be called
statistical data.
3. Data are collected in a systematic manner for a pre-planned purpose: The purpose of
collection of data should be very clear before proceeding for the collection of data. Numerical
facts that have been collected without any purpose or planning cannot be called statistical data.

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4. Enumerated or Estimated according to reasonable standards of accuracy: Statistics can be
collected in two ways:
1. By Estimation: If the area of study is very large, statistical data are collected by
estimation. But the estimates should be reasonable.
2. By Enumeration: If the area of study is small, data are collected by actual enumeration.
If absolute accuracy is required, the figures should be enumerated.

5. Data are placed in relation to each other: Statistical data collected for any investigation should
be properly classified according to their relationship and nature. For example, if the data are
collected for age, income and weight of persons, it would be necessary that the collected data
should be duly classified under three heads. It is only then that a comparative study of age,
income and weight of persons can be done.
6. They are affected by many causes: Since statistical data are affected by a number of causes,
they have to be studied in relation to other factors as well. Otherwise, it can result in wrong
conclusions.
Quantitative Data: If a variable can be measured in numerical terms, we get quantitative data.
Examples are daily temperature, height, weight of individuals and price and income.
Qualitative Date: When a particular thing cannot be measured in numerical terms, it is called an
attribute. Attributes cannot be measured numerically in the same manner as heights and weights
and prices and incomes. Examples are love, beauty, honesty and attitude of people to a political
system. However, they can be ranked according to their qualities.

Characteristics of Statistics as a Science

1. It is a science.
2. It is a body of the following techniques.
a) Collection of data
b) Editing the data
c) Presentation of data through diagrams and graphs.
d) Analysis through averages and other statistical tools.
e) Establishment of relationship and comparisons.
f) Interpretation and Forecasting.

Functions of Statistics
1. Collection of data: The first and foremost function of statistics is to collect data without
which an economic problem cannot be analysed.
2. Organisation of data: Statistics performs the function of organising and classifying the
data in various categories so that analysis is easier.
3. Presentation of data: The organised data are presented in various forms such as tables,
graphs and pictures in order to make them understood well.

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 4. Analysis of data: With measures such as mean and standard deviation, statistics
analyses the data.
5. Interpretation of data: In the light of analysis, data are interpreted with tools such as
correlation, to take suitable decisions.
6. Forecasting: Statistics helps in forecasting the trends in future with such measures as
regression and interpolation and extrapolation.

Scope of Statistics
Statistical data are used in economics for various purposes. Some of them are:
1. To Economists: Statistical Data are used to analyze trends of various goods and
services and for analysing consumption and expenditure pattern in the economy.
2. To Government and Policy Makers: Government collects data on various features of
population such as birth and death rates, size and composition of population, income and
consumption, industrial and agricultural production and formulate suitable policies of
economic development.
3. To Business: Statistical Data helps businessmen to study relationships of sale and
price, and to determine fluctuation in the market. They also help in determining the
magnitude of inventories (stocks) to be held at a given point of time.
4. To Industry: Statistical data are used to analyze the relationship of input and output.
Importance of Statistics in economic analysis
It enables an economist to present economic facts in a precise and definite form that can be
easily understood.
Statistics helps in condensing the vast data into a few numerical values. For example, one cannot
remember the incomes of say, 200 persons but if the data are condensed in the form of average
income, it will be easy to remember.
Statistics is used to find the relationship between different economic factors. For example, one
may be interested to know how and to what extent demand for a commodity is affected by the
change in the price of its substitutes.
Statistics also helps in forecasting the future trends. For example, when we have the data on
demand for oil for the past 20 years, we will be able to predict the demand for oil in 2010, given
the increase in population and demand for oil all these years.
Statistics is very important in the field of economics for analyzing various economic issues.
1. In the field of consumption, statistics is used to find out the relationship between price and
demand and thereby determine the nature of the commodity such as essential, inferior and or
normal goods.
2. In the field of production, statistics helps in finding out the input – output relationship and
behaviour of production, revenue and cost.

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 3. In the field of distribution, statistics helps in determining the productivity and reward for a factor
of production with the help of several statistical tools.

Limitation of Statistics
In spite of the various uses, Statistics has some limitations. They are:
1. Study of numerical facts only: Statistics studies only those facts that can be expressed in
numerical terms. It does not study qualitative facts such as honesty, health, patriotism and love.
2. Results are true only on average: Most statistical findings are true only as averages. For
example, if it is said that per capital income of India is Rs. 50000, it does not mean that everyone
in India earns Rs.50000.
3. Results may prove wrong when studied without reference: In order to understand the
conclusions properly, it is necessary that the circumstances and conditions under which these
conclusions are drawn also are studied.
Year Firm A Firm B
2010 1000 4000
2011 3000 0
Average Annual Profit 2000 2000

4. 5. Statistics can be studied only by experts: Only those persons who have special knowledge of
Statistics can use it wisely. Those who are ignorant about statistical methods may take wrong
decisions, just as a quack handles medicines wrongly and abuses it.
Causes of distrust of statistics
Statistical data and the results are not fully trusted. The causes of distrust of statistics are:
1. Complicated nature of statistics: Sometimes, without prior knowledge of statistical techniques,
it is used by inexperts and it may result in wrong interpretations. People feel they are inconsistent
to the real situation.
2. Violation of limitations of statistics: Sometimes, some people do not keep in mind the
limitations of statistics. Ultimately, they are frustrated with statistics and develop a feeling of
distrust of statistics.
3. Availability of contrary data: Sometimes a similar problem is analysed by two or more persons
and the data collected by them are contrary to each other. This creates confusion about the
trustworthiness of data.
4. Biased opinion of the investigator: Sometimes an investigator is biased for certain facts and
due to various reasons, is committed to prove his a certain form of the problem. For this purpose,
he uses statistical techniques cleverly to get his predetermined conclusions. Possible this
conclusion may be contrary to the real situation and it may cause distrust of statistics.

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5. Using statistics without references: Data should be used with proper references. If related
references are ignored while using the data, naturally the results will not be trustworthy and will
develop a sense of distrust of statistics.
It may be concluded that if statistics is used by experts without biased opinion, the results will be
correct and there will be no question of distrust of statistics.

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