CHAPTER - 01
Introduction
DEFINITION OF ECONOMICS
Lionel Robbins (1898–1984) defined Economics as:
"Economics is a science which studies human behaviour as a relationship between ends and
scarce means which have alternative uses."
Ends → Human wants or needs.
Scarce Means → Limited resources available to satisfy wants.
Alternative Uses → Resources can be used in different ways, so choices must be made.
MICROECONOMICS AND
MACROECONOMICS
Economics is broadly divided into two branches:
1. Microeconomics
2. Macroeconomics
1. Microeconomics
Definition
Microeconomics is the branch of economics that studies the economic problems and
decisions of individual economic units, such as a household, a firm, or an industry.
It mainly focuses on maximising individual welfare.
Main Features
Studies individual consumers and producers.
Deals with households, firms, and industries.
Focuses on the determination of the prices of goods and services.
Aims at the efficient use of limited resources.
Helps in maximising individual satisfaction and profit.
Examples
Price of a mobile phone.
Income and spending of a family.
Production decisions of a factory.
Demand and supply of a particular product.
2. Macroeconomics
Definition
Macroeconomics is the branch of economics that studies the economy as a whole.
It focuses on social welfare or collective welfare by analysing the overall performance of the
economy.
Main Features
Studies the entire economy.
Deals with national income and employment.
Studies inflation and economic growth.
Helps in making government economic policies.
Focuses on improving the standard of living of the people.
Examples
India's national income.
Inflation rate.
Unemployment rate.
Economic growth (GDP).
Government budget.
Difference Between Microeconomics and Macroeconomics
Microeconomics Macroeconomics
Studies individual economic units. Studies the economy as a whole.
Focuses on individual welfare. Focuses on social or collective welfare.
Deals with households, firms, and Deals with national income, inflation,
industries. employment, and GDP.
Studies the price of individual goods and Studies the general price level in the
services. economy.
Helps consumers and producers make Helps the government formulate
decisions. economic policies.
Micro = Small → Studies individual economic units.
Macro = Large → Studies the economy as a whole.
Microeconomics aims at individual welfare.
Macroeconomics aims at social or collective welfare.
1. Who is a Consumer?
A consumer is a person who consumes goods and services for the satisfaction of his or
her wants.
2. What is Consumption?
Consumption is the process of using the utility value of goods and services for the direct
satisfaction of human wants.
Utility Value: The inherent capacity of goods and services to satisfy human wants.
3. Who is a Producer?
A producer is a person who produces and/or sells goods and services to generate
income.
4. What is Production?
Production is the process of converting raw materials into useful goods and services.
Things become useful because they acquire utility value during the process of
production.
SAVING AND INVESTMENT
Saving is the part of income that is not consumed. It is the act of
abstaining from current consumption and keeping a portion of income
for future use.
Example:
If a person earns ₹20,000 and spends ₹16,000, the remaining ₹4,000 is
called saving.
2. What is Investment?
Investment is the expenditure made by producers on purchasing assets that help
generate income in the future.
Examples of Investment:
Buying machines for a factory.
Purchasing new equipment.
Constructing a new building for business.
Setting up a new production unit.
Difference Between Saving and Investment
Saving Investment
Part of income that is not spent. Spending money on productive assets.
Meant for future use. Meant to generate future income.
Increases personal financial security. Increases production and economic
growth.
Example: Keeping money in a bank. Example: Buying machinery for a factory.
MAJOR COMPONENTS OF ECONOMICS
Economics is mainly divided into three major components based on economic
activities:
1. Consumption
2. Production
3. Distribution
1. Consumption
Theory of Consumption
The Theory of Consumption studies the behaviour of consumers regarding the maximum
satisfaction (utility) they can obtain from their limited income and resources.
Key Objective
To achieve maximum satisfaction with the available income.
Example
A consumer chooses the best combination of goods within a limited budget.
2. Production
Theory of Production
The Theory of Production studies the behaviour of producers regarding the minimisation of
production costs and the maximisation of profits.
Key Objectives
Produce goods efficiently.
Reduce production cost.
Earn maximum profit.
Example
A factory uses modern machinery to produce more goods at a lower cost.
3. Distribution
Theory of Distribution
The Theory of Distribution studies how the income generated from production is distributed
among the owners of the factors of production.
Income is distributed in the form of:
Wages and Salaries → Labour
Rent → Land
Interest → Capital
Profit → Entrepreneur
Key Objective
To explain how national income is shared among different factors of production.
Component Theory Main Objective
Consumption Theory of Consumption Maximum satisfaction
(Utility)
Production Theory of Production Minimum cost and
maximum profit
Distribution Theory of Distribution Distribution of income
among factors of
production
WHAT IS STATISTICS?
Definition
Statistics is the science of collecting, organizing, presenting, analyzing, and interpreting
numerical data.
Examples of Statistics
Population Census
Election Results
School Examination Results
Weather Forecasting
National Income Data
Inflation Rate
Employment Statistics
KEY POINTS
It helps us understand data, draw meaningful conclusions, and make informed decisions.
Statistics deals with quantitative information.
It helps in collecting data systematically.
Data is classified and presented in a meaningful form.
It helps in analysis and interpretation of facts.
Used for decision-making and problem-solving.
PROCESS OF STATISTICS
1. COLLECTION
Gathering data from various sources.
2. CLASSIFICATION
Arranging data into groups or categories.
3. PRESENTATION
Presenting data in a systematic manner through tables, charts, graphs, etc.
4. ANALYSIS
Examining data to find patterns and draw conclusions.
5. INTERPRETATION
Explaining the meaning of analyzed data and making decisions.
Term Meaning
Statistics Science of collecting, organizing, presenting,
analyzing, and interpreting numerical data.
Quantitative Data Data expressed in numbers.
Collection Gathering information.
Classification Arranging data into groups.
Presentation Displaying data using tables, graphs, or charts.
Analysis Examining data to find patterns.
Interpretation Drawing meaningful conclusions from data.
FEATURES / CHARACTERISTICS OF
STATISTICS IN THE PLURAL SENSE
All Statistics are data, but all data are not Statistics.
(i) AGGREGATE OR TOTALS EXPRESSED IN TERMS OF
NUMBERS
A single number does not constitute Statistics. Statistics consist of aggregate numbers or
facts that in their totality have meaning.
Example:
If there are 1,000 students in a college, it is not a Statistical fact. But if it is stated that there
are 300 students in arts faculty, 400 in commerce faculty and 300 in science faculty, it
becomes Statistical information.
Example:
If total exports from India are ₹ 26,19,157 crore, it is just a number. But when we know that
textiles, rice, chemicals, etc. contribute what value, those figures become Statistics.
(ii) NUMERICALLY EXPRESSED STATISTICS
Qualitative aspects like "small", "big", "rich" or "poor" etc. are not called Statistics. Statistics
must be expressed in numbers.
Example:
Statements like Sharmila is tall or Sachin is short are not Statistical because they are
qualitative.
Example:
If Sharmila is 6 ft and Sachin is 5 ft tall, then these numericals are Statistics.
STATISTICS – A PLURAL NOUN
In its plural sense, Statistics refers to information in terms of numbers or numerical data,
such as Population Statistics, Employment Statistics, Statistics concerning Public
Expenditure, etc. However, any numerical information is not Statistics.
In its plural sense, Statistics is defined by different authors:
Bowley
"Statistics are numerical statements of facts in any department of enquiry placed in relation
to each other."
— Bowley
Yule and Kendall
"By Statistics we mean quantitative data affected to a marked extent by multiplicity of
causes."
— Yule and Kendall
EXAMPLES: DATA WHICH ARE NOT STATISTICS vs DATA WHICH ARE STATISTICS
Data which are not Statistics Data which are Statistics
(i) Riya scored 85 marks in Economics. (i) Average marks scored by students in
Economics in Class 12 is 78.
(ii) Arjun read 3 books in January. (ii) Class 11 students in ABC School
together read 420 books in January.
(iii) One cow on the farm produced 10 (iii) The output of wheat in India was
litres of milk on Tuesday. estimated to be 108 million tonnes in
2025, compared to 95 million tonnes in
2020.
(iv) A shopkeeper sold 12 pens today. (iv) The manufacturing sector contributed
₹18 lakh crore to the Indian economy in
2025, while the services sector contributed
₹35 lakh crore.
STATISTICS AS A SINGULAR NOUN
In the singular sense, Statistics means the science of Statistics or statistical methods.
It refers to the techniques or methods relating to:
Collection of quantitative data
Classification of quantitative data
Presentation of quantitative data
Analysis of quantitative data
Interpretation of quantitative data
DEFINITION OF STATISTICS
Croxton and Cowden
"Statistics may be defined as the collection, presentation, analysis and interpretation of
numerical data."
— Croxton and Cowden
Lovitt
"Statistics is the science which deals with the collection, classification and tabulation of
numerical facts as a basis for the explanation, description and comparison of phenomena."
— Lovitt
Seligman
"Statistics is the science which deals with the methods of collecting, classifying, presenting,
comparing and interpreting numerical data collected to throw some light on any sphere of
enquiry."
— Seligman
STAGES OF STATISTICAL STUDY
Studying Statistics as a singular noun implies the knowledge of various stages of statistical
study.
These Stages Are:
Stage I – Collection of Data
Collection of Data means gathering statistical data relevant to the problem under study.
Stage II – Organisation of Data
Organisation of Data means arranging and classifying the collected data in a systematic
order.
Stage III – Presentation of Data
Presentation of Data means presenting the organised data in the form of tables, graphs,
diagrams, etc.
Stage IV – Analysis of Data
Analysis of Data means analysing the data with the help of various statistical methods.
Stage V – Interpretation of Data
Interpretation of Data means interpreting the analysed data to draw meaningful conclusions
and take decisions.
STATISTICAL TOOLS
Statistical tools are methods or techniques used for the:
Collection of data
Organisation of data
Presentation of data
Analysis of data
Interpretation of data
STATISTICAL TOOLS
Each stage of the statistical study involves the use of certain standard techniques or
methods.
These techniques or methods are called statistical tools.
There are statistical tools used for the collection of data, like the 'Sample' and 'Census'
techniques.
Array of data and tally bars are the standard techniques used for organisation of data.
Tables, graphs and diagrams are the well-known statistical tools for the presentation of
data.
Averages and percentages are the commonly used techniques for the analysis of data.
Interpretation of data is often done in terms of the magnitude of averages, percentages
or coefficients of correlation/regression.
STAGES OF STATISTICAL STUDY AND THE RELATED STATISTICAL TOOLS
Stage Statistical Study Related 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 Averages, Percentages,
Correlation and Regression
Coefficients
Stage V Interpretation of Data Magnitude of Percentages,
Averages and the Degree of
Relationship between
Different Economic
Variables
SCOPE OF STATISTICS
The Scope of Statistics includes the following three major areas:
Nature of Statistics
It involves understanding the characteristics, features, and nature of Statistics as a discipline
of study.
Subject Matter of Statistics
It includes:
The various types of data.
The sources of data.
The different topics covered under Statistics.
Limitations of Statistics
It involves understanding the constraints and limitations in the use and application of
Statistics.
NATURE OF STATISTICS
The basic question is whether Statistics is a science or an art.
Prof. Tippett has rightly observed that:
"Statistics is both a science as well as an art."
Statistics as a Science
Statistics is a science because it:
Studies numerical data.
Follows a scientific and systematic method.
Uses logical techniques for collecting, analysing, and interpreting data.
Statistics as an Art
Statistics is an art because it:
Relates quantitative data to real-life problems.
Requires skill, experience, and judgment in collecting, presenting, analysing, and
interpreting data.
Conclusion
Statistics is both a Science and an Art.
Science → Studies numerical data in a scientific or systematic manner.
Art → Applies quantitative data to solve real-life problems.
UNEMPLOYMENT ANALYSIS IN INDIA
The problem of unemployment in India is more meaningfully analysed when the size of
unemployment is supported with quantitative data, such as:
Numbers
Percentages
Rates
Trends over time
Comparisons across regions, etc.
SUBJECT MATTER OF STATISTICS
The subject matter of Statistics includes two components:
1. Descriptive Statistics
2. Inferential Statistics
(i) DESCRIPTIVE STATISTICS
Descriptive Statistics refers to those methods which are used for the collection,
presentation, as well as analysis of data.
These methods relate to such parameters as:
Measurement of Central Tendencies (Average, Mean, Median, Mode)
Measurement of Dispersion (Mean Deviation, Standard Deviation, etc.)
Measurement of Correlation, etc.
Example:
Descriptive Statistics is used when you estimate the average height of all the secondary
students in your school. Likewise, it is used when you find that the marks in Science and
Mathematics of the students in all classes are related.
(ii) INFERENTIAL STATISTICS
Inferential Statistics refers to all such methods by which conclusions are drawn relating to
the universe or population on the basis of a given sample.
(In Statistics, the term universe or population refers to the aggregate of all items or units
relating to any subject.)
Example:
If your class teacher estimates the average height of the entire class (population) on the
basis of the average height of only a sample of students of the class, he is using Inferential
Statistics.
LIMITATIONS OF STATISTICS
Statistics is very useful in our daily life, but it also has some limitations.
Prof. W. I. King said:
"Statistics is a valuable tool for research, but it has some limitations that cannot be
avoided."
1. Studies Only Numerical Facts
Statistics deals only with facts that can be expressed in numbers.
It cannot study qualitative facts like:
Honesty
Patriotism
Wisdom
Friendship
Justice
Example:
We cannot measure honesty or friendship in numbers.
2. Studies Only Groups (Aggregates)
Statistics studies groups of people or things, not a single person or object.
Example:
It can study the average income of teachers in India, but not the income of one teacher.
3. Data Must Be Similar (Homogeneous)
For comparison, the data must be of the same type and measured in the same unit.
Different types of data cannot be compared.
Example:
We cannot compare the production of food grains (tonnes) with cloth (metres).
Remember:
Data must be similar to compare it.
4. Results Are True Only on Average
Statistics gives average results, not the exact situation of every individual.
Example:
If the per capita income of India is ₹60,000, it does not mean that every Indian earns
₹60,000.
Remember:
Statistics shows the general trend, not the exact truth.
5. Wrong Interpretation Can Give Wrong
Results
Statistical data should always be studied with proper background and conditions.
Otherwise, the conclusion may be wrong or misleading.
Example:
Two companies may earn the same average profit, but one may be growing while the other
may be declining.
6. Can Be Used Properly Only by Experts
Statistics requires special knowledge and skill.
A person without proper knowledge may draw wrong conclusions.
Example:
Yule and Kendall said:
"Statistical methods are the most dangerous tools in the hands of an inexpert."
7. Statistics Can Be Misused
Statistics can be misused to support false or misleading conclusions.
Example:
A person may use selected data to prove something that is not true.
Remember:
Misuse of Statistics is its greatest limitation.
WHAT STATISTICS DOES: FUNCTIONS AND
IMPORTANCE OF STATISTICS (Easy & Simple
Notes)
Statistics has become the lifeline of Economics. It helps economists, businesses, and
governments understand economic problems, make decisions, and plan for the future.
Prof. Tippett said:
"A day might come when the department of economics in the universities will go out of the
control of economic theoreticians and come under the control of statistical workshops, in
the same manner as the department of physics and chemistry have come under the control
of experimental laboratories."
This means Statistics has become very important in the study of Economics.
1. Quantitative Expression of Economic
Problems
Statistics expresses economic problems in numbers, making them easy to understand and
analyse.
Example:
Instead of simply saying unemployment is increasing, we say:
"The unemployment rate is 8%."
This makes comparison easier.
2. Inter-sectoral and Inter-temporal
Comparisons
Statistics helps compare:
Different sectors of the economy (Inter-sectoral comparison).
Different time periods (Inter-temporal comparison).
Example:
Comparing unemployment in rural and urban areas.
Comparing inflation rates of 2023 and 2024.
3. Working Out Cause and Effect Relationship
Statistics helps identify the relationship between two economic variables.
Example:
If investment decreases, unemployment may increase.
Statistics helps study this relationship.
4. Construction of Economic Theories or
Economic Models
Statistics provides data for developing and testing economic theories and models.
Example:
The Law of Demand states that when the price increases, demand decreases. Statistics helps
prove this theory using real data.
5. Economic Forecasting
Statistics helps predict future economic conditions based on past and present data.
Example:
Statistics is used to forecast:
Inflation
Unemployment
Production
Rainfall
Economic growth
6. Formulation of Policies
Statistics provides reliable information to the government for making economic and social
policies.
Example:
The government uses data on:
Income
Employment
Inflation
to make policies related to:
Taxation
Education
Welfare programmes
7. Economic Equilibrium
Statistics helps economists achieve economic equilibrium, where demand and supply are
balanced and resources are used efficiently.
Example:
By analysing production and consumption data, economists determine the balance between
demand and supply.
EXERCISES
1. Mark the following statements as True or False.
(i) Statistics can only deal with quantitative data.
Answer: True
(ii) Statistics solves economic problems.
Answer: False
Statistics helps in analysing economic problems and decision-making, but it does not solve
them by itself.
(iii) Statistics is of no use to Economics without data.
Answer: True
2. Make a list of activities in a bus stand or a market place.
How many of them are economic activities?
Answer:
Activities at a Bus Stand
Selling bus tickets
Driving buses
Conductors collecting fares
Tea and snack stalls
Newspaper selling
Cleaning the bus stand
Waiting for a bus
Talking with friends
Activities at a Market Place
Buying vegetables
Selling fruits
Shopkeepers selling goods
Tailor stitching clothes
Delivery of goods
Children playing
Window shopping
Economic activities are those done to earn income or livelihood.
3. "The Government and policy makers use statistical data to
formulate suitable policies of economic development."
Illustrate with two examples.
Answer:
Statistics helps the government make better policies.
Example 1:
If unemployment data shows that many people are jobless, the government may introduce
employment schemes.
Example 2:
If inflation data shows a rise in prices, the government may take steps to control inflation by
changing tax rates or increasing the supply of goods.
4. "You have unlimited wants and limited resources to satisfy
them." Explain this statement by giving two examples.
Answer:
Human wants are unlimited, but the resources to satisfy them, such as money, time, and
income, are limited. Therefore, we cannot satisfy all our wants at the same time.
Example 1:
A student wants a mobile phone, a laptop, and a bicycle, but has money to buy only one.
Example 2:
A family wants to buy a car, renovate the house, and go on a holiday, but their income allows
them to do only one or two of these.
5. How will you choose the wants to be satisfied?
Answer:
I will choose my wants based on:
Importance or priority.
Availability of money and resources.
Urgency of the need.
Benefits received from satisfying the want.
For example, I will first spend money on food, education, and health before spending on
entertainment.
6. What are your reasons for studying Economics?
Answer:
I study Economics because it helps me:
Understand how people use limited resources.
Learn how economic decisions are made.
Understand production, consumption, and distribution.
Know about national income, inflation, and unemployment.
Make better financial decisions in daily life.
7. "Statistical methods are no substitute for common sense."
Comment with examples from your daily life.
Answer:
Statistics provides numerical information, but it should always be used with common sense.
Wrong interpretation of data can lead to incorrect conclusions.
Example 1:
A shopkeeper sees high sales of umbrellas on one rainy day. He should not assume that
umbrella sales will remain high throughout the year.
Example 2:
If the average marks of a class are 75, it does not mean that every student scored 75. Some
students may score higher, while others may score lower.
Conclusion:
Statistics helps in decision-making, but common sense and proper judgment are equally
important.
JAI HIND