Statistics for Economics | Functions, Importance, and Limitations

What is Statistics?

The word Statistics is derived from the Greek word 'Statistique,' the Latin word 'Status,' the Italian word 'Statista,' and the German word 'Statistic.' Statistics is defined as the study, collection, analysis, interpretation, and organization of data for different ultimate objectives. Statistics help a user in gathering and analyzing huge numerical data easily and efficiently. Statistics can be easily defined in two senses: Plural Sense and Singular Sense. 

👁 Statistics for Economics

Statistics in Plural Sense

In a plural sense, Statistics means a systematic collection of numerical figures and facts for a specified purpose in a field of study. The major characteristics of statistics in the plural sense are:

• Numerically Expressed: Statistics includes only quantitative or numerical data. Qualitative facts like beauty, intelligence, kindness, etc., are not considered in statistics. Instead, they can be quantified by assigning a unit or score to them.
• Aggregate of Facts: This means that statistics can not be described as single or isolated figures, as they cannot be compared by a user.
• Placed in Relation to Each Other: In statistics, the data is usually collected for comparison. Therefore, to collect the comparable figures it is essential that the data is homogeneous.
• Pre-determined Purpose: The purpose of the study is pre-determined as it helps in the systematic collection and analysis of data and achieves accurate results.
• Reasonable Accuracy: The data collected in statistics is done through a reasonable standard of accuracy. It means that, unlike mathematics or accountancy, a high degree of accuracy is not insisted upon in this field.
• Affected by the Multiplicity of Causes: It means that no one reason affects the study of numerical facts or figures in statistics.
• Collected Systematically: To gain accurate and complete results from the study of statistics, it is essential to collect the data systematically.

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Types of Statistical Data

Statistics in Singular Sense

In a singular sense, Statistics means collecting, presenting, analyzing, and interpreting the numerical data for the study. Different stages of the statistics study are:

• Collection of Data: The first stage is to determine the method of collection of data for a specific study and then gather data.
• Organization of Data: The collected data is then simplified in a way that one can compare it. The collected data in this stage is classified by time and place.
• Presentation of Data: The third stage is to make the organized data simple and attractive by presenting it in the form of graphs, charts, diagrams, and tables.
• Analysis of Data: After the presentation, the data is analyzed to attain accurate results. Some of the main methods of doing so are Measures of Dispersion, Measures of Central Tendency, Interpolation, etc.
• Interpretation of Data: The last stage includes the enactment of the conclusions. The comparisons are used, and ultimately, proper forecasting is made.

Economics means the study of how human beings and society employ scarce resources with alternate uses to manufacture different services and goods to satisfy their wants and then distribute them among different sections of society for consumption purposes. 

Statistics in Economics

Statistics plays a major role in economics. Statistics helps in the study of market structure and understand the different economic problems. After a better understanding of the economic problems, statistics also help in solving those issues by formulating appropriate economic policies. Every economics branch uses statistics to prove different economic theories. One can also establish a mathematical relationship with the help of statistics. Economists can present the facts of economics precisely. They can also determine the cause-and-effect relationship between different data sets. 

Functions of Statistics

👁 Functions of Statistics

1. Simplification of Complex Facts: The study of mass and complex data is difficult to understand. A layman cannot understand the complex terms and information presented in the analysis and results of the study. Therefore, different statistical methods help an economist or user in presenting complex data in an understandable and simple form.

2. Presentation of Facts in the Definite Form: Statistics helps preset the facts of data using figures in their true form. Presenting qualitative facts about data instead of quantitative figures can not present the data effectively. For example, saying that the literacy rate has increased by 5% over the past two years is better than simply saying that the literacy rate is increasing.

3. Comparisons of Facts: Comparing the facts and figures for the pre-determined purpose is an essential function of statistics. It is because absolute figures can not convey a better concrete meaning. Therefore, the relationship between two data sets or groups can be compared through different statistical methods such as ratios, averages, percentages, rates, etc.

4. Forecasting: Uncertainty and risk in business can be found in abundance. Therefore, organizations and the economy as well have to forecast the future to prepare themselves for any kind of change. Proper and accurate forecasting helps in reducing uncertainty. For this purpose, one can use different statistical tools such as time series analysis, interpolation, etc., as they can help make a projection of the future.

5. Formulation and Hypothesis Testing:  Testing a hypothesis means testing a fake scenario to understand the results of its formulation. Therefore, different statistical tools and methods help an economist in formulating and testing the hypothesis.

6. Enlarging Individual Knowledge and Experience: An individual can widen their horizon using statistics while going through different procedures of statistics. Statistics also enlarge the thinking and reasoning power of an individual and ultimately help them reach a rational conclusion.

Importance of Statistics

To Government

• Statistics helps the government of a country fulfill different objectives by letting them collect, organize, present, analyze, and interpret a piece of large information in numerical figures. With this, the government can efficiently run the economy and fulfill welfare and other objectives.
• The government of a country can also formulate various economic policies by using statistical methods like index numbers, forecasting and demand analysis, time-series analysis, and many more.
• In democratic countries like India, different political groups take the help of statistics to know about their popularity among the masses.

In Economics

• Statistics help in formulating different economic laws such as the Law of Demand, Law of Supply, Elasticity of Demand, Elasticity of Supply, etc., were developed using the inductive method of generalization.
• An economy faces different economic problems such as unemployment, poverty, etc. Statistics, with the help of different techniques and tools, help an economy understand and solve these economic problems efficiently.
• An economy includes different market structures such as perfect competition, monopoly, oligopoly market, etc. For better results and functioning, the study of these market structures is essential. Statistics help in the study through the comparison of the cost, profits, and prices of the firms.
• An economist can also estimate a mathematical relationship between the different variables of economics.
• Ultimately, statistics helps study the behavior of different concepts of economics. For example, the laws of supply and demand are used to understand the behavior of consumers toward the purchase and usage of a commodity or service by considering different determinants of supply and demand.

In Business

• Statistics provide different guidelines and tools to know the feasibility, location, inputs availability, taxes, size of output, turnover, market size, etc., before establishing a business.
• A businessman can estimate the demand for their service or product with the help of different statistical methods such as trend analysis, etc.
• Statistics also help a business in the production planning process to ensure a proper balance between the supply and demand for a good or service offered by the firm.
• Different statistical techniques help a business in the analysis of purchasing power, consumer wants, pricing, population, etc., to understand the potential of the target market for its service or product.

Limitations of Statistics

1. Ignores the Qualitative Aspect: Statistics does not consider aspects that can not be expressed in quantitative terms. One has to convert the qualitative aspects like kindness, honesty, care, health, intelligence, etc., into quantitative terms to study.

2. Does not Deal with Individual Terms: As the definition of statistics suggests, it only deals with the aggregate of facts and does not consider individual items. For example, it does not consider the marks of one student but will consider the marks of a class.

3. Requires only Uniform and Homogeneous Data: An economist can not perform a statistical study if the data gathered is not homogeneous.

4. Can Be Misused: If the methods of statistics are not used by an expert, trained, specialized, and unbiased person, there are huge chances of misuse and inaccurate results. A biased individual can transform the data according to their needs and purpose.

5. Results are True only on Average: In statistics, a result is true only on average. It means that if we say that the average mark of a class of 50 students is 60, it does not mean that every student has the same marks. One student might have 30 or 40 marks.