Chapter -1 : Introduction
What is Economics?
Adam Smith defined Economics as the study of the nature and causes of nations’ wealth or simply as the study of wealth (Wealth Definition)
The study of man in the ordinary business of life – Alfred Marshal (Welfare Definition)
When you buy goods ———————- Consumer
When you sell goods ———————– Seller
When you produce goods —————– Producer
When you provide some service ——— Service provider
Economic activity are ones that are undertaken for a monetary gain. This is what economist mean by Ordinary business of life.
Man earns money to get material welfare
Scarcity, Unlimited wants and Alternative uses
Economics is concerned with Scarcity of resources, unlimited wants and alternative uses of available resources. Scarcity, unlimited wants and Alternative uses are the crux of economics.
If you get pocket money of Rs.1000 what you would like to do.
With Rs.1000 you will not be satisfy all your needs.
You can go to Movie with friends.
or You can go to cricket match
or you can buy your favourite book.
Salary Income of a person is limited… and person can use it for multiple personal needs.
Consumption, Production and Distribution
- Consumption, Production and Distribution are considered as three pillars of economics
- Study of consumption deals with – how individual decides to buy particular product by selecting out of available alternatives with limited resources
- Study of Production deals with – How the producer deals with producing particular product when he knows Price and cost.
- Study of Distribution deals with – How the wealth is distributed in society by way of wages, Interests, profits etc out of the National Income.
In addition to above classical three pillars, Modern Economics also includes few basic problems that country is facing.
- To know why or what extent some households in our society have the capacity to earn much more than others.
- How many people in our country are poor, how many are middle class etc.
- How many are illiterate and how many are educated
In other words, we are interested to know the numbers that would answer questions about poverty and disparity in society.
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.
Statistics in Economics
To perform various analysis as per modern economics, it requires huge data collection and analysis. Statistics helps in collecting data with respect to people in systematic way and helps in summarising the huge data into meaningful number.
What is Statistics?
Statistics means numerical facts systematically collected
The term statistics in singular means the ‘Science of collecting, classifying and using statistics or statistical fact.
What Statistics does?
- It provides required data for the analysis.
- Helps in summarising the huge data into meaning full number by using mean, variance etc.
- It helps in finding relationship between different economic factors using correlation
- Predicting the changes in one economic factor due to change in other factor and helps in formulation of plans and policies.
In economics statistics plays a critical role.
Statistical methods are no substitute for common sense!
There is an interesting story which is told to make fun of statistics. It is said that a family of four persons (husband, wife and two children) once set out to cross a river. The father knew the average depth of the river. So he calculated the average height of his family members. Since the average height of his family members was greater than the average depth of the river, he thought they could cross safely. Consequently some members of the family (children) drowned while crossing the river.
- Does the fault lie with the statistical method of calculating averages or
- with the misuse of the averages?