Economics 6 Marks Question

The six limitations of statistics are explained below:

1. Study of Numerical Facts: Only Statistics is numerical statement of facts. Statistics is not appropriate for the study of qualitative aspects, like honesty, friendship, wisdom, etc. It can be used for measuring quantitative data only.
2. Study of Aggregates Only: Statistics is aggregate of facts. It does not study individuals units.
3. Homogeneity of Data, an Essential Requirement: The data must be homogeneous and uniform, otherwise the comparisons may not be possible.
4. Results are True Only as an Average: Most statistical findings are true only as an average. Hence, the conclusion are of approximate nature. So, statistics as a science is less exact as compared to natural sciences.
5. Without Reference, Results may Prove to be Wrong: In order to understand the conclusions precisely, it is necessary that the circumstances and conditions under which these conclusions have been drawn are also studied, otherwise they may prove to be wrong.
6. Can be Used Only by the Experts: Statistics cannot/ should not be used by inexperts. This will give rise to the distrust of statistics. Statistics is necessary but at the same time it is imperfect and should therefore be used by experts only.

	Basis	Positive Economics	Normative Economics
1.	Meaning	It deals with laws, principles, theories and facts of economics.	It deals with opinions, policy evaluation and idealistic part of economics.
2.	Reality vs. Idealism	It deals with reality, i.e. 'what is'.	It deals with idealistic situation, i.e. 'What ought to be'.
3.	Value Judgments	No value judgments are associated with positive economics.	Value judgments are associated with normative economics.
4.	Example	(a) There is inverse relation between price and quantity demanded, other things being equal. (b) In India, 34% marginal farmers are living below poverty line. (c) MGNREGA was launched in 2005.	(a) Globalization is widening the gap between countries. (b) Poverty is worse than unemployment. (c) Price rise is disastrous for the economy. (d) We should not give subsidies on fertilizers.

The reasons for studying economics are:

• To study the Theory of consumption: We want to know how the consumer decides, given his income and many alternative goods to choose from, what to buy when he knows the prices.
• To study the Theory of Production: We also want to know how the producer, similarly, chooses what to produce for the market when he knows the costs and prices.
• To study the Theory of Distribution: We want to know how the national income or the total income arising from what has been produced in the country is distributed through wages (and salaries), profits and interest.
• The study of economics also helps us to understand and analyse the root cause of basic problems faced by an economy like, poverty, unemployment, income disparity, etc. and helps to take various corrective measures.

I refute this statement. Any activity concerned with production, distribution toate or investment is said to be associated with Economics. Many activities which involve money but are not a part of Economics are exemplified below:

• Donations.
• Prizes.
• Pocket Money.
• Gifts.
• Gambling etc.

On the other hand, many activities are a part of Economics but are not involving money. It includes:

• Production for self consumption.
• Investment in own business.
• Barter system etc.

Statistics plays a very important role in the field of Economics. It is very important tool in the hands of economists. Statistics helps in Economics in many ways. Probably this is why it is a part of Economics syllabus and not any other discipline. Statistics has emerged as a lifeline of Economics.It helps an economist in following ways:

1. It helps to Understand Economic Problems with a Quantitative Expression: No economy can solve the problem of poverty, population or unemployment without knowing their magnitude and causes. We get to know the magnitude of these problems in our economy on the basis of statistical data. Once we know the magnitude of these De problems, we can think of their solutions which are called policies.
2. Helps in Policy formulation: Policy formulation is not possible without having statical details with us. When our finance minister needs to take a decision on fund allocation to different sectors, he needs statistics; when he announces a poverty alleviation programme, he needs statistics, when he thinks of an employment policy, he needs statistics.
3. Helps in Forecasting: In Economics, we need to forecast demand, supply, prices etc. we make use of historical data and trend analysis to make such forecasts. It is simply not possible to forecast logically without having statistical details.
4. Helps in Formulation of theories: An Economic theory is established by developing relationship between economic variables using statistical tools. For example, Statisticians collected data on price and quantity demanded. Statisticians studied this data and found strong negative correlation between price and quantity demanded. So, law of demand was formulated. No theory or law in economics can be developed without help of statistical tools.
5. Inter-sectoral and Inter-temporal Comparison: Statistics helps us to make inter-sectoral and intertemporal comparison. For example, to understand the problem of poverty, we wish to know the rural and urban poverty scenario. We also want to know state wise dimensions of poverty and we also compare poverty in India with other countries of the world. Similarly, we compare price rise in 2012-13 with price rise in other years. Statistics prove to be of great help in these comparisons.
6. Developing Cause-Effect Relationship: Statistics help us to develop cause and effect relationship amongst different variables. It helps us to diagnose an economic problem. Once an economic problem is diagnosed, it can be rectified easily. What a diagnostic lab is for a doctor, so is statistics for economics.

Yes, it is true that statistical methods are no substitute for common sense. This is because common sense should be used before making any interpretation from statistical data. Data should not be used blindly as there may be errors in it.
This statement can be better understood with the following examples:

1. If the school authority finds that the average shoe size of 150 students of Class XII is 6 and it places an order for 150 shoes of size 6, then it will be using statistical data without common sense resulting in many shoes not fitting students.
2. If statistical data reveals that there is a direct relation between education and poverty, then such data is misleading and should not be believed blindly.

Statistics is indispensable to almost all sciences - social, physical and natural It is very often used in most of the spheres of human activity. In spite of the wide scope of the subject it has certain limitations.Some important limitations list of statistics are the following:

1. Statistics does not study qualitative phenomena: Statistics deals with facts and figures. So the quality aspect of a variable or the subjective phenomenon falls out of the scope of statistics. For example, qualities like beauty, honesty, intelligence etc. cannot be numerically expressed. So these characteristics cannot be examined statistically. This limits the scope of the subject.
2. Statistical laws are not exact: Statistical laws are not as exact as in case of natural sciences. These laws are true only on average. They hold good under certain conditions. They cannot be universally applied. So statistics has less practical utility.
3. Statistics does not study individuals: Statistics deals with aggregate of facts. Single or isolated figures are not statistics. This is considered to be a major handicap of statistics.
4. Statistics can be misused: Statistics is mostly a tool of analysis. Statistical techniques are used to analyze and interpret the collected information in an enquiry. As it is, statistics does not prove or disprove anything. It is just a means to an end. Statements supported by statistics are more appealing and are commonly believed. For this, statistics is often misused. Statistical methods rightly used are beneficial but if misused these become harmful. Statistical methods used by less expert hands will lead to inaccurate results. Here the fault does not lie with the subject of statistics but with the person who makes wrong use of it.
5. Uniformity and Homogeneity of data: Statistics can deal with only homogeneous and uniform data. Heterogeneous data are not comparable and hence statistical tools can't be applied on them. It does not make sense to compare weight of human beings with weight of cows or buffaloes. Sometimes data are available in different units and are collected under different circumstances. It also makes their comparison illogical.
6. Only Experts can make proper use of Statistics: Statistics can be properly used only by experts. A layman can't derive right meaning from statistical statements. According to King, "The science of statistics is most useful servant but only of great value to those who understand its proper use.

One can understand the importance of statistics in business from the following.

1. Marketing: Statistical analysis are frequently used in providing information for making decision in the field of marketing. It is necessary first to find out what can be sold and then to evolve suitable strategy, so that the goods reach to the ultimate consumer. A skill full analysis of data on production purchasing power, man power, habits of consumers, habits of consumer, the transportation cost should be considered to take any attempt to establish a new market.
2. Production: In the field of production de statistical data and method play a very important role. The decision about what to produce? How to produce? When to o produce? For whom to produce is based largely on statistical analysis.
3. Finance: The financial organization discharging their finance function effectively depend very heavily on statistical analysis of peat and tigers.
4. Banking: Banking institute have found if increasingly necessary to establish research department within their organization for the purpose of gathering and analysis information, not only regarding their own business but also regarding general economic situation and every segment of business in which they may have interest.
5. Investment: Statistics greatly assists investors in making clear and valued judgment in his investment decision in selecting securities which are safe and have the best prospects of yielding a good income.
6. Purchase: the purchase department in discharging their function makes use of statistical data to frame suitable purchase policies such as what to buy; What quantity to buy; What time to buy; Where to buy; Whom to buy.
7. Accounting: statistical data are also employer in accounting particularly in auditing function, the technique of sampling and destination is frequently used.
8. Control: the management control process combines statistical and accounting method in making the overall budget for the coming year including sales, materials, labor and other costs and net profits and capital requirement.

Every economy faces the problem of scarcity. ‘Scarcity of resources’ implies that there are unlimited wants to be fulfilled by limited resources. The basic concern of an economy is to allocate the scarce resources to the best possible use in the face of unlimited wants. Thus, the problem of scarcity forces an economy to make a choice among various alternatives. For example, an economy endowed with a given level of resources has to make a choice between the production of guns and breads. The choice of the economy (i.e. either to produce guns or bread and in what quantities) depends on the need and goal of the economy. While the production of bread will make the economy devoid of the security level, whereas, the production of guns will not provide sufficient food for the population. The same problem of scarcity can be felt at an individual level.
For example: With a given amount of money say, ₹ 20,000, one cannot buy a TV and a sofa set simultaneously. Thus, the individual needs to make a choice between the alternatives according to his/ her priority.

Statistics as a discipline is considered indispensable in almost all spheres of human knowledge. There is hardly any branch of study which does not use statistics. Scientific, social and economic studies use statistics in one form or another. These disciplines make use of observations, facts and figures, enquiries and experiments etc and thereby use statistics and statistical methods. Statistics studies almost all aspects in an enquiry. It mainly aims at simplifying the complexity of information collected in an enquiry. It presents data in a simplified form as to make them intelligible. It analyses data and facilitates derivation of conclusions, Now let us briefly discuss some of the important functions of statistics.

1. Presents facts in simple form: Statistics presents facts and figures in a definite form. That makes the statement logical and convincing than mere description. It condenses the whole mass of figures into a single figure. This makes the problem intelligible.
2. Reduces the Complexity of data: Statistics simplifies the complexity of data. The raw data are unintelligible. We make them simple and intelligible by using different statistical measures. Some such commonly used measures are graphs, averages, dispersions, skewness, kurtosis, correlation and regression etc. These measures help in interpretation and drawing inferences. Therefore, statistics enables to enlarge the horizon of one's knowledge.
3. Facilitates comparison: Comparison between different sets of observation is an important function of statistics. Comparison is necessary to draw conclusions as Professor Boddington rightly points out." The object of statistics is to enable comparison between past and present results to ascertain the reasons for changes, which have taken place and the effect of such changes in future. So to determine the efficiency of any measure comparison is necessary. Statistical devices like averages, ratios, coefficients etc. are used for the purpose of comparison.
4. Testing hypothesis: Formulating and testing of hypothesis is an important function of statistics. This helps in developing new theories. So statistics examines the truth and helps in innovating new ideas.
5. Formulation of Policies: Statistics helps in formulating plans and policies in different fields. Statistical analysis of data forms the beginning of policy formulations. Hence, statistics is essential for planners, economists, scientists and administrators to prepare different plans and programmes.
6. Forecasting: The future is uncertain. Statistics helps in forecasting the trend and tendencies. Statistical techniques are used for predicting the future values of a variable. For example a producer forecasts his future production on the basis of the present demand conditions olt and his past experiences. Similarly, the planners can forecast the future E population etc. considering the present population trends.
7. Derives valid inferences: Statistical methods mainly aim at deriving En inferences from an enquiry. Statistical Haier techniques are often used by scholars planners and scientists to evaluate different projects. These techniques are also used to draw inferences regarding population parameters on the basis of sample information.

Statistics in plural sense exhibits following characteristics:

1. Aggregate of Facts: A single number does not constitute statistics. Statistics are basically aggregate of facts. For example, if it is stated that there are 1000 persons in our village, then it has little statistical significance.

But if it is stated that there are 300 men, 400 women and 300 children in our village, it makes more statistical sense as this data conveys useful information.

2. Numerically Expressed: Statistics are expressed in terms of numbers. Qualitative expressions like good, bad, young, old, etc do not constitute statistics.

For example, 'sale of firm A has gone up' are not statistics. But ‘sale of firm A has gone up from ₹ 4 lakhs in 2015 to ₹ 5 lakhs in 2016', are statistics.

3. Affected by Multiplicity of Causes: Statistical data are affected to a considerable extent by a number of forces operating together.

For example, rise in price of product may have been due to several causes like reduction in supply, increase in demand, shortage of power, rise in wages, rise in taxes, etc.

4. Reasonable Accuracy: Statistical data must be reasonably accurate because statistical data are to serve as a basis for the field of statistical inquiry.
5. Collected in a Systematic Manner: Statistics should be collected in a systematic and orderly manner. Statistics collected without any system are unreliable and inaccurate. No conclusion can be drawn from statistics collected in a haphazard manner.
6. Pre-determined Purpose: Before collecting the data, the purpose should be decided in advance. Any data collected without any definite purpose, will only be a numerical value and not statistics. If the data are not collected for a pre-determined purpose then their usefulness will be almost negligible.
7. Placed in Relation to Each Other: Only such data will termed as statistics which are mutually related and comparable.

For example, if it is stated than Naman earns ₹ 30,000 and Sangeeta spends ₹ 40,000, then this data are not statistics as they are mutually not related and hence not comparable.
But if it is stated that Naman earns ₹ 30,000 and Sangeeta earns ₹ 50,000 then this data are statistics as they are comparable.

According to Horace Secrist, “By Statistics we mean aggregate of facts affected to a marked extent by multiplicity of causes numerically expressed, enumerated or estimated according to a reasonable standard of accuracy, collected in a systematic manner for a pre-determined purpose and placed in relation to each other."

1. Statistics is aggregate of facts: A single figure is not called statistics. Aggregate of facts is called statistics. It is for a simple reason that a single figure can neither be compared, nor presented nor analyzed. If Ram says that his height is 6 feet, it is not statistics but if he says average height of his class is 6 feet, it is a statistical statement because it is backed by aggregate of facts.
2. Statistics are affected to a marked extent by multiplicity of causes: There are many factors which work behind statistical forces operating together. For example, statistics of employment in an economy are affected by demand and supply of labour force, working conditions, production methods used etc. In the above example, if average height of a class is 6 feet, there are many factors responsible for it- geographical, genetic, gender etc.
3. Statistics are numerically expressed: All Statistics are numerically expressed. If a fact is not numerically expressed, it cannot be called statistics. Statements like good, bad, very large, very small, inadequate etc. cannot be called statistics. For example, following statements are not statistics.

My height has increased.

India's population has increased.

Crime rate is increasing in India etc.

Following are statistical statements.

My height which had increased by 2 inches last year has increased by 5 inches this year.

India's population is increasing @ 2% p.a. which was 1.2% p.a.

Crime rate in India has increased by 200% during 1999-2010.

4. Statistics are enumerated or estimated according to a reasonable standard of accuracy: Statistical data must be reasonably accurate because they serve as the basis of decision making and conclusions drawn. If data are actually collected they need to be accurate if they are estimated (when actual data are not available) they must be accurate to a reasonable standard.
5. Statistics are collected in a systematic manner: Only systematically collected statistics are reliable. Those statistics which are not systematically collected are inaccurate and unreliable. Such statistics, if used, will lead to misleading conclusions.
6. Statistics are collected for a predetermined purpose: Statistics are collected for a pre-determined purpose. Purpose cannot be determined after collection of data. Which sources should be used for collecting data, which method to use, what should be the sample size all depends on purpose of statistics. If it is not collected for a predetermined purpose, it will be purposeless i.e. useless.
7. Statistics should be placed in relation to each other: Since statistics are collected for comparison, we need to place various items in relation to each other. Data must be uniform and homogeneous to be able to put in relation to each other. For example, if we are comparing price indices, base year should be same. If it is not so, they are not comparable. Therefore, we can say that all numerical facts are not statistics but all statistics are numerical facts.

It is absolutely right to say that statistics is indispensible in every field of life.

1. Statistics and planning: Statistics in indispensable in planning in the modern age which is termed as "the age of planning". Almost all over the world the government is re-storing to planning for economic development.
2. Statistics and economics: Statistical data and techniques of statistical analysis are immensely useful in solving economical problem. Such as wages, price, time series analysis, demand analysis.
3. Statistics and business: Statistics is an indispensible tool of production control. Business executives are relying more and more on statistical techniques for studying the wants and desires of the valued customers.
4. Statistics and industry: In industry statistics is widely used in quality control. In production engineering to find out whether the product is confirming to the specifications or not. Statistical tools, such as inspection plan, control chart etc.
5. Statistics and mathematics: Statistics 5 and Mathematics are intimately related recent advancements in statistical technique are the outcome of wide is applications of mathematics.
6. Statistics and modern science: In medical science the statistical tools for bat collection, presentation and analysis of observed facts relating to causes and incidence of diseases and the result of application of various drugs and medicine are of great importance.
7. Statistics, psychology and education: In education and psychology statistics has found wide application such as, determining or to determine the reliability and validity to a test, factor analysis etc.