Introduction

Written and reviewed by Devendra Dubey, Mathematics & Commerce faculty at UniDrill (M.Sc. Mathematics, Osmania University · 10 years teaching). Based on NCERT Economics Class XI (Statistics for Economics), Chapter 1.

Why do we queue, and why does it need numbers?

Think about the last time you stood in a long queue for railway tickets, squeezed into a crowded bus, or saw a rush for film tickets. There were not enough tickets, seats or shows for everyone who wanted them. Shortages like these are everywhere, and economics begins from them.

This chapter has two jobs. First, it tells you what economics is about: people with many wants and few resources must choose. Second, it introduces statistics, the toolkit economists use to turn facts about those choices into numbers they can analyse. Everything later in Statistics for Economics (organising, presenting and averaging data) builds on this chapter.

The people in an economy

Economics starts with the ordinary business of life. Alfred Marshall described Economics as "the study of man in the ordinary business of life". Everyone plays one or more of these roles:

Notice that a producer is not only someone who makes things. A doctor or a taxi driver produces a service, and that counts as production too.

All these roles involve economic activity, activity undertaken for monetary gain, and being engaged in it is called gainful employment. This is what Marshall meant by the "ordinary business of life". Leisure, which brings no monetary gain, is not an economic activity in this sense.

Scarcity and choice: the heart of economics

In the story of Aladdin, a lamp grants any wish. In real life there is no lamp. Pocket money and time are limited, while wants are many, so each purchase means giving up something else.

Scarcity, the limited availability of things that satisfy wants, is the root of all economic problems. Queues, crowded transport and shortages are visible signs of it.

Producers face the same problem. Their resources are limited and have alternative uses. A piece of farm land, with its labour, water and fertiliser, could grow food crops or non-food crops such as rubber, cotton or jute. Because the resources can be used in different ways, the producer has to choose between commodities.

Cause to effect: wants are many → resources are limited → resources have alternative uses → choice is unavoidable → economic problem.

The working definition of Economics in the chapter puts these ideas together: it 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.

Two views. For the exam: Marshall's "study of man in the ordinary business of life" and the working definition built on scarcity and choice are both correct, and each must be attributed to the right idea. Another reading: Marshall's wording looks at the everyday activities of people earning and spending, while the scarcity definition, associated with the economist Lionel Robbins, looks at the problem of choice that sits behind those activities. Textbooks often present them side by side because they describe the same subject from two angles.

Pause and predict: a farmer has one acre of land that can grow either wheat or cotton this season. Is there scarcity, and what causes the choice?

Check your answer: Yes. The land is limited and has alternative uses, so growing one crop means not growing the other. Choice follows directly from limited resources with alternative uses.

The three parts of economics

Economics is conventionally discussed under three heads.

"Distribution" here means the division of income, not the physical delivery of goods to shops. Exchange is not one of the three.

Modern economics also studies special problems such as poverty, income inequality, illiteracy, the link between education and jobs, and the impact of disasters such as tsunamis, earthquakes and bird flu. All of these need numbers to be understood.

What is statistics?

Economic facts, also called economic data, are collected so that problems can be analysed and policies framed to deal with them. For example, to understand poverty, economists look at facts about unemployment, low productivity and backward technology. Statistics supplies the tools for working with those facts. Notice the careful wording: statistics helps to analyse problems and to design policies, but it does not solve the problems by itself.

Statistics is defined in two ways, and both are correct: the study of numbers relating to selected facts in a systematic form, and the collection, analysis, interpretation and presentation of numerical data.

The word is also used in two senses. In the plural, "statistics" means numerical facts such as employment statistics or foreign trade statistics. In the singular, "Statistics" means the subject, the methods used to handle such data. Statistics is a branch of mathematics and is used in many fields: accounting, economics, management, business, physics, chemistry, finance, psychology and sociology.

Data: numbers and attributes

Worked example: classify and compute. Classify each item as quantitative or qualitative, and find the increase in rice production.

Rice production in India rose from 39.58 million tonnes in 1974-75 to 106.5 million tonnes in 2013-14.

The common wrong step is to say production "rose by 106.5%", which compares the end figure with itself. The base for a percentage rise is always the starting value. A statement of exact magnitudes like this is the kind of precision the chapter asks for.

Statistics deals with both kinds of data, so the claim that statistics deals only with numbers is wrong.

The statistical process

Statistics works in four steps, in this order.

These steps are the plan for the rest of the book: collection of data, organisation of data, presentation of data, measures of central tendency and so on.

Five functions of statistics

Worked example: which function is it? A newspaper writes that "hundreds of people died" and an official report says "310 people died and 4,670 were wounded". The official report performs the function of precision, because it gives a definite magnitude on which relief can be planned. A statement that "the average income of a village is ₹8,000 a month" performs the function of condensation, because it replaces thousands of individual incomes with one number.

You can remember the five functions as Precision, Condensation, Relationships, Prediction, Policy. Solving problems is not on the list.

Pause and predict: a state government uses past population growth to estimate how many schools it will need in ten years. Which functions of statistics are at work?

Check your answer: Prediction (forecasting the future number of children) and policy making (deciding how many schools to build). Both depend on earlier data on population.

The limit of statistics: the river story

The chapter ends with a warning: statistical methods are no substitute for common sense. A family once tried to cross a river. The average height of the family members was greater than the average depth of the river, and the family still drowned.

The fault lay in misuse of the average, and not in statistics itself.

Illustration: why the average misled. Suppose the depth of the river at three points is 0.4 m, 0.5 m and 2.4 m.

$$\text{Average depth} = \dfrac{0.4 + 0.5 + 2.4}{3} = 1.1 \text{ m}$$

If the average height of the family is 1.3 m, the family is taller than the average depth, and still a single point of the river is far deeper than any of them. The average hides the deep spot. This is why a summary figure must always be read together with how widely the values are spread out.

Beyond the textbook. For the exam: the river story shows that statistics cannot replace common sense, and that the fault lies in the misuse of averages. In reality: the same warning applies to everyday reports, such as a state's average income that hides very rich and very poor households. Why it matters: the next chapters teach you to find the average and also to ask how spread out the values are.

Exam traps

60-second revision

Where this chapter connects

• Next: Collection of Data takes the first step of the statistical process, gathering data from primary and secondary sources.
• Later in the book: Organisation of Data and Presentation of Data cover the second step, and Measures of Central Tendency covers the averages the river story warns about.
• Class XII link: Introduction to Microeconomics and Introduction to Macroeconomics develop the ideas of scarcity, choice and the role of consumers, producers and the economy as a whole.