CBSE Class 11 Economics Notes — Introduction (Statistics for Economics)

CBSE Class 11 Statistics for Economics Chapter 1 notes: scarcity, consumption, production, distribution, economic data, meaning and uses of statistics.

Chapter Summary

This opening chapter explains what economics studies and why statistics became part of it. It covers economic activities, unlimited wants against scarce resources, the three divisions of consumption, production and distribution, the idea of economic data, the meaning of statistics, the uses of statistics in analysis, relationships, prediction and policy, and the warning, through the river-crossing story, that numbers never replace common sense.

Key Concepts

Economic Activities: The Ordinary Business of Life

The chapter begins with Alfred Marshall's well-known description of economics as the study of man in the ordinary business of life. To see what that means, think of the different roles a person plays when dealing with money. When you buy goods for yourself, your family or as a gift, you are a consumer. When you sell goods to earn a profit, as a shopkeeper does, you are a seller. A farmer or a manufacturing company that produces goods, and a doctor, porter or taxi driver who provides services, is a producer. A person who works for someone else and receives a wage or salary is an employee, and the one who pays that wage is an employer.

In every one of these cases the person is gainfully employed in an economic activity. The key test is the motive: an economic activity is one undertaken for monetary gain. So when a tailor stitches a shirt for a customer it is an economic activity, but when you cook for your own family out of affection it does not pass this test.

This definition is what economists mean by the ordinary business of life, and it explains why almost everybody is involved in economics every day without realising it. When you answer the textbook activity on classifying the work of your family members, always give the reason: is the work done for payment or profit, or not?

Key Points

Examples

Unlimited Wants, Scarce Resources and the Problem of Choice

The textbook uses the story of Aladdin and his magic lamp to make an important point. Aladdin could rub the lamp and the genie would deliver a palace or costly gifts at once. In real life we also have unlimited wants, but we have no magic lamp. Consider your pocket money. If it were larger you could buy nearly everything you desire, but because it is limited you must choose only the things you want the most. That act of choosing under limits is a basic teaching of economics.

Scarcity is the root of all economic problems. Without it there would be no economic problem and no need to study the subject. We meet scarcity daily: long queues at railway booking counters, crowded buses and trains, shortages of essential commodities and the rush for tickets to a new film are all signs of it. Scarcity arises because the things that satisfy wants are limited in availability.

Producers face the same issue. Their resources, such as land, labour, water and fertiliser in agriculture, are limited at any given time and have alternative uses. The same resources that grow food could also grow rubber, cotton or jute. Alternative uses force a choice between commodities. If current prices rise, a consumer with a fixed income can buy fewer units of the things she wants, so her choice has to be made again.

Key Points

Examples

Consumption, Production and Distribution

To study people engaged in economic activities you need reliable facts about how they behave. Economics is therefore usually discussed in three parts: consumption, production and distribution.

The study of consumption asks how a consumer decides what to buy when income is given, many goods are available and prices are known. The study of production asks how a producer decides what to produce for the market and how to produce it. The study of distribution asks how the national income, meaning the total income arising from what has been produced in the country and called the Gross Domestic Product or GDP, is shared out. The chapter says it is distributed through wages and salaries, profits and interest. For simplicity, income from international trade and investment is left aside.

The recap lists the same division in slightly different words: purchase of goods by consumers to satisfy their needs is consumption, manufacture of goods for the market is production, and the division of national income into wages, profits, rents and interest is distribution.

For a short answer, remember that each part is built around a decision or a division: the consumer's choice, the producer's choice, and the sharing of income among those who contributed to production.

Key Points

Examples

Why Modern Economics Needs Numbers: Poverty, Disparity and Disasters

Beyond the three conventional divisions, modern economics has to include some basic problems facing the country for special study. The chapter gives a series of questions. Why do some households have the capacity to earn much more than others? How many people are really poor, how many are middle class and how many are relatively rich? How many are illiterate and unlikely to get jobs that require education, and how many are highly educated with the best job opportunities? These are questions about poverty and disparity, and each can be answered only in terms of numbers.

If you dislike the continuance of poverty and gross disparity and want the government to act, you must first know the facts. Knowing facts also lets you plan your own life better. Disasters such as the tsunami, earthquakes or the bird flu hit the ordinary business of life enormously, and economists can study what they cost only if they know how to collect and put together the facts systematically and correctly.

This is why basic skills of measurement, such as measuring poverty, how incomes are distributed, how earning opportunities are related to education and how environmental disasters affect lives, now form part of economics. It also explains why Statistics, defined as the study of numbers relating to selected facts in a systematic form, was added to modern courses in economics.

Key Points

Examples

Economic Data, Analysis and Policy

The special studies described above require us to know more about economic facts, and such facts are called economic data. The reason for collecting data about a problem is to understand and explain it through its various causes. This process is called analysis. When we analyse the hardship of poverty, for instance, we try to explain it by factors such as unemployment, low productivity of people and backward technology.

Analysis alone is not enough. It would serve little purpose unless we could find ways to reduce the problem. Measures that help solve an economic problem are called policies. A government that finds low productivity to be a cause of poverty may, for example, plan training or better technology for workers.

The chapter then states the basic relationship between economics and statistics in a chain: no analysis of an economic problem is possible without data on the factors underlying it, and without analysis no policy can be formulated to solve it. So data lead to analysis, and analysis leads to policy. If you can explain this chain with an example, you have understood the heart of the chapter.

A useful way to write it in exams is: problem, data, analysis of causes, policy, and later evaluation of the policy using fresh data.

Key Points

Examples

What Is Statistics? Quantitative and Qualitative Data

Statistics deals with the collection, analysis, interpretation and presentation of numerical data. It is a branch of mathematics and is also used in accounting, economics, management, physics, finance, psychology and sociology.

Most economic data are quantitative, meaning they are expressed in numbers. The chapter's example is the statement that rice production in India rose from 39.58 million tonnes in 1974-75 to 106.5 million tonnes in 2013-14. The increase is 106.5 minus 39.58, which is 66.92 million tonnes, so production grew about 2.7 times.

Economics also uses qualitative data. These describe attributes of a person or group that are important to record accurately even though they cannot be measured in numbers. Gender is a plain example, and so are skill levels. Often an attribute can be stated in degrees, such as better or worse, sick or healthy, or unskilled, skilled and highly skilled. Such qualitative information is collected and stored systematically, just like information on prices, incomes or taxes paid.

The chapter also previews the working of statistics in later chapters. First data are collected, then presented in tabular, diagrammatic and graphic forms, then summarised by measures such as mean, variance and standard deviation, and finally analysed and interpreted.

Key Points

Examples

What Statistics Does: Precision, Summary, Relationships and Prediction

Statistics is called an indispensable tool for an economist, and the chapter lists its functions one by one.

First, it helps find the causes of a problem using both qualitative and quantitative facts, which makes it easier to form policies. Second, it presents facts in a precise and definite form. Saying that 310 people died in an earthquake in Kashmir is statistical and exact, while saying that hundreds died is vague and less convincing.

Third, it condenses a mass of data into a few numerical measures such as the mean. Nobody can remember the incomes of thousands of people, but everyone can remember an average income. Fourth, it helps find relationships between economic factors. An economist may ask what happens to demand when price rises, whether supply responds to the commodity's own price, whether consumption rises when average income rises, or what happens to the general price level when government spending increases. Statistical methods can verify whether such relationships exist and test assumptions made about them.

Fifth, it supports prediction, for instance the effect of today's investment on future national income. A planner deciding in 2017 how much to produce in 2020 can guess consumption, or use statistical tools on past and survey data to predict it. The second approach is more reliable and helps formulate better policies.

Key Points

Examples

Statistics in Policy Making and the Limits of Statistics

The conclusion stresses that statistics is increasingly used to analyse serious problems such as rising prices, growing population, unemployment and poverty, and to find measures to solve them. It also helps evaluate the impact of policies. For example, statistical techniques can show whether the family planning policy is effective in checking population growth.

It plays a vital role in decisions. Consider how much oil India should import in 2025. The decision depends on expected domestic production and likely demand, and neither can be determined without statistics. The import decision therefore cannot be made until the actual requirement is known, and this information can be obtained only statistically.

The chapter ends with a caution. A family of four, a husband, wife and two children, wanted to cross a river. The father knew the average depth of the river and calculated the average height of his family. Since this average was greater than the river's average depth, he thought they could cross safely, and the children drowned. The question the book asks is whether the fault lay with the method or with its misuse. The answer is misuse. An average hides variation, and the river was deeper in places than the children were tall. Statistical methods are no substitute for common sense.

Key Points

Examples

Frequently Asked Questions

What is an economic activity?

An economic activity is any activity undertaken for monetary gain. A shopkeeper selling goods, a farmer growing crops, a doctor treating patients and an employee earning wages are all engaged in economic activity. Cooking for one's own family or helping a friend without payment is not an economic activity because there is no monetary gain.

Why is scarcity called the root of all economic problems?

Human wants are unlimited, while the resources that satisfy them are limited and have alternative uses. Because everything cannot be had at once, people and producers must choose. If there were no scarcity, there would be no choice and hence no economic problem. Queues, shortages and crowded buses are everyday signs of scarcity.

Define economics according to the chapter.

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. Alfred Marshall described it earlier as the study of man in the ordinary business of life.

What are consumption, production and distribution?

Consumption is the study of how a consumer decides what to buy given income and prices. Production is how producers choose what and how to produce for the market. Distribution is how national income or GDP is divided among wages, profits, rents and interest. Together they form the traditional three divisions of economics.

What is the difference between quantitative and qualitative data?

Quantitative data are expressed in numbers, such as rice production, income or marks. Qualitative data describe attributes that cannot be measured numerically, such as gender or skill level, although they can often be ordered by degree. Economics uses both and stores them systematically.

How is statistics related to economics?

Economic problems can be analysed only with data. Statistics supplies the methods to collect, present, summarise and interpret that data. Without data no analysis is possible, and without analysis no policy can be formulated. Statistics also finds relationships, tests assumptions and predicts future trends in economic variables.

Explain any four functions of statistics in economics (4 marks).

Statistics presents facts precisely, for example 310 deaths instead of hundreds. It condenses mass data into measures such as the average. It finds and tests relationships, such as between price and demand. It predicts future trends, such as consumption in 2020, which helps in planning. It also helps frame and evaluate policies.

Illustrate how the government uses statistical data to formulate policies (3 marks).

To fight poverty, the government needs data on how many people are poor and why, and can then plan employment or training schemes. For import planning, it needs estimates of domestic oil production and likely demand in 2025 to decide how much to import. Data also help check whether a policy such as family planning has worked.

What does the story of the family crossing the river teach?

The father crossed on the basis of the average height of the family compared with the average depth of the river, and the children drowned. The method was not wrong; its use was. Averages hide variation, so statistical results must be combined with common sense. Statistical methods are no substitute for common sense.

Can statistics alone solve economic problems?

No. Statistics helps analyse a problem, find its causes, test relationships and predict outcomes, but it does not solve the problem by itself. Solutions come from policies chosen and carried out using that analysis. Statistics is a tool, and its value depends on the quality of the data and the judgement of the people using it.

CBSE Class 11 Economics Notes — Introduction (Statistics for Economics)