Chapter 1:
"Introduction to Statistics for Economics"
Introduction
Subject of Economics: Economics studies human behaviour in the "ordinary business of life," focusing on how
people and society choose to employ scarce resources with alternative uses to produce and distribute
commodities to satisfy wants.
Key Economic Activities:
o Consumption: When an individual buys goods to satisfy personal, family, or gifting needs. This
involves the consumer deciding what to buy given income and prices.
o Production: When an individual or company produces goods (e.g., farmer, manufacturing company) or
provides services (e.g., doctor, taxi driver). This involves the producer choosing what and how to
produce for the market.
o Distribution: How national income (Gross Domestic Product or GDP) is divided among wages (and
salaries), profits, and interest.
Economic Activity Definition: Activities undertaken for monetary gain.
o Consumer: Buys goods to satisfy needs.
o Seller: Sells goods for profit.
o Producer: Produces goods or provides services.
o Employee: Works for someone else and gets paid (wages/salary).
o Employer: Employs someone, giving them a wage.
o Being any of the above means one is "gainfully employed in an economic activity".
Scarcity:
o The fundamental problem in economics.
o Arises because human wants are unlimited, but the resources to satisfy those wants are limited and
scarce.
o Manifestations include long queues, crowded transport, commodity shortages, etc..
o Resources have alternative uses (e.g., land for food crops vs. non-food crops), leading to the problem
of choice.
Statistics in Economics
Role of Statistics:
o An indispensable tool for economists to understand economic problems.
o Helps describe consumption, production, and distribution.
o Involves the study of numbers relating to selected facts in a systematic form.
o Essential for analyzing and solving economic problems.
o Used to analyze serious economic problems like rising prices, population growth, unemployment, and
poverty.
What is Statistics?
o Deals with the collection, analysis, interpretation, and presentation of numerical data.
o A branch of mathematics, also used in various disciplines like economics, accounting, management,
etc..
o Economics data is primarily quantitative but also includes qualitative data.
Quantitative Data: Numerical information (e.g., rice production figures).
Qualitative Data: Describes attributes that cannot be measured numerically but are important
to record (e.g., gender, skill levels – better/worse, sick/healthy/more healthy,
unskilled/skilled/highly skilled).
o Process of Statistics: Collection of data, presentation (tabular, diagrammatic, graphic), summarization
(mean, variance, standard deviation), analysis, and interpretation.
What Statistics Does for Economics:
o Precise and Definite Form: Presents economic facts precisely, making them exact and more
convincing than vague statements.
o Condensing Mass Data: Summarizes large datasets into a few numerical measures (e.g., average
income), providing meaningful overall information.
o Finding Relationships: Helps identify relationships between different economic factors (e.g., price and
demand, income and consumption expenditure, government expenditure and price level).
o Prediction: Used to predict changes in economic factors and future trends (e.g., impact of investment
on national income, expected consumption levels). This helps in formulating plans and policies.
o Policy Formulation: Enables the formulation of appropriate economic policies to solve economic
problems.
o Policy Evaluation: Helps evaluate the impact and effectiveness of economic policies (e.g., family
planning effectiveness).
o Decision Making: Plays a vital role in economic decision-making by providing necessary data and
predictions (e.g., deciding oil imports based on expected domestic production and demand).
Limitation: Statistical methods are no substitute for common sense; misuse of statistics can lead to incorrect
conclusions.
WORKSHEET
Assertion-Reason Based Questions
Directions: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the
correct choice as: (a) Both A and R are true and R is the correct explanation of A. (b) Both A and R are true but R is not
the correct explanation of A. (c) A is true but R is false. (d) A is false but R is true.
1. Assertion (A): Scarcity is the fundamental economic problem.
Reason (R): Our wants are unlimited, but the resources to satisfy them are limited and have alternative uses.
2. Assertion (A): An economist needs statistics to understand and explain economic problems.
Reason (R): Statistics deals with the collection, analysis, interpretation, and presentation of numerical data,
which are economic facts.
3. Assertion (A): Qualitative data can be measured numerically.
Reason (R): Gender distinguishing a person as man/woman is an example of qualitative data.
4. Assertion (A): Statistical methods are a complete substitute for common sense in decision-making.
Reason (R): The average depth of a river being less than the average height of a family guarantees safe
crossing for all members.
Fill in the Blanks
1. Economics is the study of how people and society choose to employ _________ resources that could have
alternative uses to produce various commodities that satisfy their wants and to distribute them for consumption
among various persons and groups in society.
2. When you buy goods to satisfy your own personal needs, you are called a ___________.
3. Activities undertaken for a monetary gain are called ___________.
4. Statistics helps in ___________ mass data into a few numerical measures like mean and variance.
Multiple Choice Questions (MCQs)
1. Which of the following is NOT a conventional division of the study of Economics mentioned in the text?
(a) Consumption (b) Production (c) Investment (d) Distribution
2. What does the study of Consumption focus on?
(a) How producers choose what and how to produce. (b) How national income is distributed. (c) How
consumers decide what to buy given their income and prices. (d) How economic problems are mitigated.
3. Which of the following is an example of qualitative data according to the text?
(a) Income earned (b) Marks in a subject (c) Beauty (d) Production of rice in million tonnes
4. Scarcity gives rise to the problem of:
(a) Unlimited wants (b) Choice between different commodities (c) Abundance of resources (d) Fixed prices
5. The purpose of collecting economic data is primarily to:
(a) Memorize facts (b) Understand and explain economic problems (c) Increase personal wealth (d) Create new
economic theories without empirical basis
Subjective Questions (3 Marks)
1. Explain the concept of "scarcity" in economics with an example from daily life.
2. Differentiate between a consumer and a producer, providing an example for each.
3. How does statistics help an economist in presenting economic facts?
4. Briefly describe the three conventional parts into which economics is often discussed.
Subjective Questions (4 Marks)
1. Discuss how the alternative uses of resources give rise to the problem of choice, using an example from the
text.
2. Explain the stages involved in the process of statistics as described in the chapter.
3. Why is knowledge of statistics considered indispensable for an economist? Provide two reasons.
4. Illustrate with an example why "Statistical methods are no substitute for common sense."
Subjective Questions (6 Marks)
1. "Economics is the 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." Elaborate on this definition, linking it to the
concepts of scarcity, choice, and economic activities.
2. How does statistics aid in the formulation and evaluation of economic policies? Provide examples to support
your answer.
3. Beyond its role in understanding economic problems, what are the other significant contributions of statistics to
the field of economics? Discuss at least three such contributions.