MEANING OF ECONOMICS

Economics revolves mainly around what Alfred Marshall called "the study of man in
the ordinary business of life.” Economics is a social science of human behaviour
which aims at allocation of scarce resources in such a way that consumers can
maximise their satisfaction, producers can maximise their profits and society can
maximise social welfare.

In simple words, Economics is about making choice in the presence of scarcity.

According to Robbins, "Economics is the science which studies human behaviour as
a relationship between ends and scarce means which have alternative uses."

SCARCITY AND ECONOMIC PROBLEM

Meaning of Scarcity

In our daily life, scarcity means acute shortage of a certain commodity but in
economics, it means limitation of supply of a commodity in relation to its demand. It
is excess of demand over available supply, i.e., demand of resources > supply of
resources. When resources are less in relation to our wants, scarcity would arise.

Meaning of Economic Problem

Let us understand economic problem with the help of this chart comparing human
wants with resources.For example,
Thus, it is basically a problem of scarcity of resources on one hand and also that
resources can be put to alternative uses on the other hand.

Therefore an individual has to make a choice as to which wants (according to

priority/ intensity) should be satisfied with limited resources in order to get maximum
satisfaction.

DEFINITION OF ECONOMICS

Scarcity Definition

This definition considers economics as a science which studies human behaviour as

relationship between unlimited wants and scarce means. Lord Robbins in his book
'An Essay on Nature and Significance of Economics Science', published in 1932, has
defined Economics in these words :

"Economics is a science that studies human behaviour as a relationship between ends

and scarce means which have alternative uses"

According to Robbins, Economics is a science of choice. It deals with how the

resources of society should be allocated to the satisfaction of different wants.

Criticism: This definition does not relate to welfare and growth aspects.

STATISTICS IN ECONOMICS

What is the need of statistics in Economics?

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.

For example, when we analyse the hardships of poverty, we try to explain it in terms
of the various factors such as unemployment, low productivity of labour, backward
technology, etc.
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.

Origin and Growth of Statistics

The term 'STATISTICS' has been derived from the Latin word 'STATUS', which
means political state. Germans have spelled it as 'STATISTIK'. The term 'Statistics'
was first used by German scientist Gottfried Achenwall in 1749. He is known as the
Father of Statistics. Many statisticians like Bowley, Edgeworth, Karl Pearson, Fisher
and others have added to the development of Statistics.

Statistics: Meaning

Today, Statistics is the base of every study. In a layman's language, Statistics means
'data' or facts in figures. Technically the word Statistics is used in two distinct senses
- Singular and Plural. Statistics in singular sense deals with various tools of statistical
analysis and in plural sense it deals with quantitative or numerical information. Let us
study these in detail.

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

According to Croxton and Cowden,

"Statistics may be defined as a science of collection, presentation, analysis and

interpretation of numerical data".

The above definition of Statistics covers the following statistical methods:

1. Collection of Data. This is the first step in a statistical enquiry. So, data should
be collected by the investigator himself or obtained from - published or
unpublished sources.
2. Organisation of Data. After the collection of data, next step is to organise the
collected data. Data that are collected by an investigator need to be organised
according to the purpose of enquiry.
3. Presentation of Data. Data collected and organised are presented in some
systematic manner to make it clear for the user. Tables, diagrams and graphs etc.
can be used to present data.
4. Analysis of Data. The next step is the analysis of the presented data. Various
methods are used to analyse the data such as averages (mean, median, mode),
dispersion, correlation etc,
5. Interpretation of Data. It is the last step of the statistical methods. Interpretation
of data implies the drawing of conclusions on the basis of analysis of the data. On
the basis of this conclusion, certain decisions can be taken

Briefly, Statistics in singular sense means, data properly collected, organised,

presented, analysed and interpreted.

Stages Statistical Study Statistical Tools

Stage I Collection of Data Census or Sample
Techniques
Stage II Organisation of Data Array of Data and Tally Bars
Stage III Presentation of Data Tables, Graphs, and
Diagrams
Stage IV Analysis of Data Percentages, Averages,
Correlation, and Regression
Coefficients
Stage V Interpretation of Data Magnitude of Percentages,
Averages and the Degree of
Relationship between
different economic variables.
Definition of Statistics in Plural Sense

In the plural sense, Statistics means ‘numerical facts systematically collected’ as

described by the ‘Oxford Dictionary’. Thus the simple meaning of Statistics in Plural
sense is “data”. By data we mean quantitative facts that are used in Economics.

Characteristics of Statistics in Plural Sense

1. Statistics are aggregate of facts.

2. Statistical data are affected to a great extent by a number of factors affecting
together.
3. Statistics are numerically expressed.
4. Statistics are enumerated or estimated according to a reasonable standard of
accuracy.
5. Statistics are collected in a systematic manner.
6. Statistics are collected for a predetermined purpose.
7. Statistics should be placed in relation to each other.

If the above discussed features are present, data are known as 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.

The scope/subject matter of statistics can be classified into the following two broad
categories.

> Statistical methods; and

> Applied Statistics

1. Statistical Methods

Statistical methods are the methods used in Statistics. These are the procedures used
in the collection, organisation, summarisation, analysis, interpretation and
presentation of data.

The important methods of Statistics are given below :

(a) Collection of data
(c) Presentation of data
(b) Organisation of data
(a) Analysis of data
(e) Interpretation of data

2. Applied Statistics

It is concerned with the application of statistical methods used in interpreting the data
and make decisions to solve economic problems. For example, it helps analyze data
on national income or agricultural production to make better economic decisions.

FUNCTIONS OF STATISTICS

Statistics performs very important functions to conduct a statistical enquiry. These

are:

1. Helps in understanding economic problem

Statistics is an indispensable/important tool for an economist that helps to understand

an economic problem. By using different methods, they can find the causes of these
problems through the analysis of numerical data.

2. Presentation of facts in definite form

Statistics helps an economist present economic facts clearly and precisely, making
them easier to understand. When economic facts are shown using numbers, they
become more exact and convincing than vague statements.

Saying that 310 people died in the recent earthquake in Kashmir, is more factual and
thus, a statistical data, whereas, saying hundreds of people died, is not statistical data.
3. 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.

4. Establishes relation between factors

Statistics is used in finding relationships between different economic factors.

Whether relationships exist or not can be easily verified by applying statistical
methods.

5. Helps in formulation of plans and policies

Sometimes, making plans and policies requires knowing future trends. Example, one
could use statistical tools to predict consumption based on data from past or recent
years obtained through surveys.

6. Helps in evaluation of impact of policies

Today, we rely more on statistics to analyze important economic issues like rising
prices, population growth, unemployment, and poverty. Statistics helps us find
solutions to these problems by evaluating the effectiveness of different measures.

7. Inter-sectoral and inter-temporal comparisons

Statistics helps us understand numerical data through inter-sectoral and inter-

temporal comparisons. Inter-sectoral comparisons involve comparing different
sectors of the economy.

IMPORTANCE OF STATISTICS

The role of Statistics is ever increasing in all fields of modern age. For example,

> Business policies are formulated on the basis of past data.

> We cannot think of economic planning without Statistics.
The importance of Statistics can be studied under the following heads:

1. Statistics in Economics

A number of economic problems can easily be understood by the use of Statistics. It

helps in formulation of economic policies, e.g., basic economic activities like
production, consumption etc. use Statistics.

The importance of Statistics in various parts of economics has been discussed as

follows :

(a) Statistics in consumption. Statistics in consumption helps us understand how

various groups of people spend their income.

(b) Statistics in production. Statistics plays a crucial role in comparing production

processes. By analysing production statistics, we can effectively adjust demand
and supply and determine the quantity of goods to produce.

(c) Statistics in distribution. Statistical methods are employed to address the

distribution of national income among different factors of production, such as land,
labor, capital, and entrepreneurship.

2. Statistics in Economic Planning

Economic planning sets goals for economic growth using scarce resources. Statistics
helps assess how well these plans are working through statistical methods.

3. 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.
4. Statistics in Administration

Formulation of a policy involves Statistics. The state gathers the facts relating to
population, literacy, employment, poverty, per capita income etc., with the help of
statistical methods and principles.

LIMITATIONS OF STATISTICS

The important limitations of Statistics are as given below :

1. Statistics does not study (deal with) individuals

Statistics studies the aggregate of facts. Study of an individual is not a part of subject
matter of Statistics.

2. Without reference, statistical results may prove to be wrong

In order to understand the statistical results clearly, it is also important to study the
conditions under which these conclusions are drawn, otherwise the results may prove
to be wrong.

3. Statistics deals with numerical facts only

Statistics are numerically expressed. Statistics does not study qualitative aspects. It
can be used for measuring quantitative data only. For example, honesty, wisdom,
health, sincerity etc, which are also important attributes to know the results or
conclusions of any study, do not form a part of Statistics.

4. Statistics are true only on an average

Statistical laws are not exact like the laws of physical sciences like physics, chemistry
etc. Statistical results are true only on an average. These represent only tendencies,
e.g., average wage of 700, does not mean that every worker is earning 700

5. Statistics needs special expertise

Statistics can be used by experts only. According to Yule and Kendall - statistical
methods are most dangerous tools in the hands of inexperts. It requires special
knowledge to use statistical tools otherwise results may be wrong or misleading.

6. Homogeneity of data is essential

It is essential that data must have the quality of uniformity and homogeneity to make
data comparable. For example, it would be meaningless to compare the production of
wheat with production of coal because these figures are of a heterogeneous character.

7. Prone to Misuse

Statistics can be misused. If statistical tools are not rightly used, the results may not
be true. The results may be manipulated according to suitability of one's own interest