STATISTICS IN ECONOMICS

Origin and Growth of Statistics

The term 'STATISTICS' has been derived from the Latin word
'STATUS', which means political state.
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
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.
Definition of Statistics in Singular Sense
In singular sense, Statistics refers to 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himself or obtained from-published or unpublished sources.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 average (mean, median, mode, etc.), 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 data.
Definition of Statistics in Plural Sense
In the plural sense, Statistics means 'numerical facts
systematically collected' as described by "Oxford Dictionary'.
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 predetermined purpose and placed in relation to
each other."
Characteristics of Statistics in Plural Sense
The definition of Statistics given by Prof. Horace Secrist gives
the following characteristics:
1. Statistics are aggregate of facts: Statistics are aggregate
of facts. A single observation is not Statistics, as Statistics
means numerical facts collected.
2. Statistics are affected to a marked extent by
multiplicity of causes: Statistical data are affected to a
great extent by a number of factors affecting together.
For example, Statistics of prices of T.V. sets are affected by
various factors e.g., supply, demand, taste and preferences,
income, etc. It is very difficult to study separately the effect
of each of these factors on price of T.V sets.
3. Statistics are numerically expressed: All Statistics are
numerically expressed. Qualitative expressions like good,
bad, big. Small, etc. do not constitute Statistics.
The statement will be called Statistics only if numerical data
are given or quantitative expression is Statistics, e.g.,
production of wheat in India has increased by 20% between
2001 and 2011.
4. Statistics are enumerated or estimated according to a
reasonable standard of accuracy: Statistical data must be
reasonably accurate because statistical data are collected to
investigate statistical enquiry.
If the area of our enquiry is limited then we use enumeration
and if the scope of enquiry is wide then we will collect the
data by the method of estimation.
Estimates cannot be accurate. Hence, the degree of accuracy
must be observed.
5. Statistics are collected in systematically: Statistical
data not collected in a systematic manner would lead to
misleading conclusions.
6. Statistics are collected for a predetermined purpose:
The purpose of collection of data should be decided in
advance. Data collected without purpose will be misleading
and will not serve the purpose of statistical enquiry.
7. Statistics should be placed in relation to each other:
For the purpose of comparison, data collected must be
homogeneous. It would be meaningless to compare the
heights of students with their pocket allowance because
these data are not homogeneous.
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.
According to Tippett: "Statistics affects everybody and
touches life at many points".
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.
According to Johnson and Jackson, "Statistical methods
are procedures used in the collection, organisation,
summarization, analysis, interpretation and
presentation of data".
The important methods of Statistics are:
(a) Collection of data
(c) Presentation of data
(e) Interpretation of data
(b) Organisation of data
(d) Analysis of data
2. Applied Statistics
It is concerned with the application of statistical methods
used in interpreting the data to take decisions in solving
economic problems e.g., statistical studies related to national
income, agricultural production etc.
Applied Statistics can be classified into two categories:
(a) Descriptive Applied Statistics: This deals with use of
statistical methods to make a problem under study
comparable and easily understandable using past and
present data.
(b) Scientific Applied Statistics: This deals with use of
statistical methods to draw conclusions and take decisions
to deal with various social, political and economic problems.

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 tool for an economist that helps to
understand an economic problem. Using its various
methods, effort is made to find the causes behind it with the
help of the quantitative facts of the economic problem.
2. Presentation of facts in definite form: Statistics enables
an economist to present economic facts in a precise and
definite form that helps in proper comprehension of what is
stated. When economic facts are expressed in
statistical terms, they become exact. Exact facts are more
convincing than vague statements.
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. In this way,
Statistics summarises and presents meaningful overall
information about a mass of data.
4. Establishes relation between factors: Statistics is used
in finding relationships between different economic factors.
An economist may be interested in finding out, what
happens to the demand for a commodity when its price
increases or decreases?
Or would the consumption expenditure increase when the
average income increases? Or, what happens to the general
price level when the government expenditure increases?
Such questions can only be answered if any relationship
exists between the various economic factors that have been
stated above.
5. Helps in formulation of plans and policies: one might
use statistical tools to predict consumption that could be
based on the data of consumption of past years or of recent
years obtained through surveys.
6. Helps in evaluation of impact of policies: Today, we
increasingly use Statistics to analyse serious economic
problems such as rising prices, growing population,
unemployment, poverty, etc., to find measures that can solve
such problems.
Further it also helps to evaluate the impact of policies in
solving the economic problems.
For example, it can be ascertained easily using statistical
techniques whether the policy of progressive taxation is
effective in checking the problem of unequal distribution of
income.
7. Inter-sectoral and inter-temporal comparisons:
Statistics comprehends the numerical data through inter-
sectoral and inter-temporal comparisons.
Inter-sectoral comparisons refer to comparisons across
different sectors of the economy.
Inter-temporal comparison means understanding of change
in the magnitude of the problem overtime, e.g., making a
comparison of the rural and urban unemployment in
different time periods.
IMPORTANCE OF STATISTICS IN ECONOMICS
In the field of economics, statistics plays a very important
role .Some of the areas in which statistics plays a very vital
role in the study of economics are as follows
1. Understanding the Performance of the Economy:
Statistics are important for understanding the performance
of an economy. It also provides us important data for
comparing the performance of an economy with itself over
time and with other economies.
2. Understanding the Importance of Various Sectors of
the Economy: It is possible to understand the contribution
of various sectors in an economy with the help of statistical.
Sectors such as agriculture, manufacturing, power, services,
etc., play their role in every economy. To understand their
importance, statistics of production, employment, etc., in
these sectors are very useful.
3. Studying the Regional Balances and Imbalance:
Statistics are also helpful in finding out the share of different
regions of an economy. Statistics help us to know the share
of different states in industrial production of a country.
4. Studying the Role of Government in an Economy and
in the Formulation of Economic Policies: Government
collects a part of the income in an economy in the form of
taxes. It also takes loans and pays interest on these loans. It
incurs expenditure on various activities such as
administration, defence, payment of interest on loans,
education, support to agriculture, industry, etc.
Statistics relating to these activities of the government are
essential to understand the role of the government in the
functioning of an economy.
These statistics are also helpful in the formulation of
economic policies of the government.
5. Statistics for Planned Development: Economic planning
is helpful in ensuring better utilisation of the resources of an
economy.
For such planning and ensuring better utilisation of
resources, statistics relating to the availability of resources
and their distribution among different uses is essential.
Statistics also helps in evaluating the progress of various
five-year plans.
6. Better Comprehension of the Basic Principles of
Economics: Economics as a subject has evolved its own
principles like laws of demand and supply, the relationship
between cost of production and the quantity of production,
etc.
These principles are, supposed to be universal and
applicable in most situations. Statistical data enable the
economists to find out cause and effect relationship between
different sets of data such as price and demand. This helps
in the formulation of various economic theories.
7. Quantitative Expression of Economic Problems:
Statistics are helpful in understanding the magnitude of
economic problems in quantitative terms.
For instance, we can understand the problem of
unemployment, price rise, etc. by expressing them in
quantitative terms.
8. Statistics Is Helpful in Research: Statistics is also
helpful in evolving new ideas and in formulating economic
laws. Verifying the behaviour of individuals is highly
dependent on continued studies of such behaviour.
This is done by collecting and analysing statistical data with
the help of statistical methods.
LIMITATIONS OF STATISTICS
1. Statistics Is Not Concerned with Individual
Observation: Statistical method can be used to study and
analyse aggregate of facts. But it is not concerned with
individual values or observations.
Statistics does not give any specific recognition or
importance to any individual value. For example, in statistics
we are concerned with monthly income of different persons
in a particular organisation and not with income of a
particular person.
2. Statistics does not Analyse Qualitative Phenomenon:
Statistical methods deal with those objects which can be
measured in quantitative terms.
There are certain qualitative phenomena such as honesty,
beauty, goodwill, integrity, etc., which cannot be
quantitatively measured.
Statistical methods cannot be easily used in analysing these
qualitative phenomenons.
3. Statistical Generalisations Are True Only on Average:
Statistical generalisations arrived from statistical data are
not exactly accurate; they are true only on average.
In other words, they give us only approximate results rather
than exact results.
4. Improper Use of Statistics: To use numerical facts for
better understanding of any subject of study, some amount
of perfection is needed.
Expertise is essential for proper use of statistics and
statistical method Otherwise, there is a vast scope for
misuse of statistics or for drawing misleading conclusions
from them.
This is often done by politicians or business houses.
Sometimes, they manipulate statistics and distort the facts
to draw predetermined conclusions to suit their interest.
However, it may be noted that the fault does not lie with
statistics as a subject. The fault lies with those people who
distort the statistics to draw wrong conclusions.