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This chapter deals with what is Economics?, Why we need Economics?, How does Statistics used in real life? and What is the relationship between Economics and Statistics?.

Why Economics?

Already you have learnt Economics as a subject in your previous classes at school. You could have told this subject is mainly about what Alfred Marshall (one of the founders of modern economics) called “the study of man in the ordinary business of life”. When you buy goods (you may want to satisfy your own personal needs or those of your family or those of any other person to whom you want to make a gift) you are called a consumer.When you sell goods to make a profit for yourself (you may be a shopkeeper), you are called a seller. When you produce goods (you may be a farmer or a manufacturer), you are called a producer. When you are in a job, working for some other person, and you get paid for it (you may be employed by somebody who pays you wages or a salary), you are called a service holder.

When you provide some kind of service to others for a payment (you may be a lawyer or a doctor or a banker or a taxi driver or a transporter of goods), you are called a service provider. In all these cases you will be called gainfully employed in an economic activity. Economic activities are ones that are undertaken for a monetary gain. This is what economists mean by ordinary business of life.

You might have heard the story of Aladdin and his Magic Lamp; definitely you would agree that Aladdin was a lucky boy. Anytime and anything he wanted, he just had to rub his magic lamp on when a genie appeared to fulfil his wish. When he wanted a big car to drive in, the genie instantly made one for him. When he wanted expensive gifts to bring to the king when asking for his daughter's hand, he got them at the bat of an eyelid. In real life we cannot be as lucky as Aladdin. Even though, like him we need many wants, we do not have a magic lamp. Let us take an example that the pocket money that you get to spend. If you had more of it then you might have purchased almost all the things you wanted. But since your pocket money is less, you have to choose only those things that you want the most.

This is a basic teaching of Economics. What will happen if the current prices go up? Scarcity is the root of all economic problems. Had there been no scarcity, there would have been no economic problem. And you would not have studied Economics either. In our daily life, we face various forms of scarcity. The long queues at railway booking counters, crowded buses and trains, shortage of essential commodities, the rush to get a ticket to watch a new film, etc., are all symptoms of scarcity. We face scarcity because the things that satisfy our wants are limited in availability.
Can we think of some more instances of scarcity? The resources which the producers have are limited and also have alternative uses. If we consider food that you eat every day. It satisfies your want of nourishment. Farmers employed in agriculture raise crops that produce your food. At any point of time, the resources in agriculture like land, labour, water, fertiliser, etc., are given. All these resources have alternative uses. The same resources can be used in the production of non-food crops such as rubber, cotton, jute etc.

Thus alternative uses of resources give rise to the problem of choice between different commodities that can be produced by those resources.

  • Identify your wants. How many of them can you fulfil? How many of them are unfulfilled? Why you are unable to fulfil them?
  • What are the different kinds of scarcity that you face in your daily life? Identify their causes.

Courtesy NCERT Text book

Consumption, Production and Distribution

If you think about it, you might have realised that Economics is nothing but the study of man engaged in economic activities of various kinds. For this, we need to know reliable facts about all the diverse economic activities like production, consumption and distribution. Economics is always discussed in three parts: consumption, production and distribution. We want to know the consumer's decision, given the person's income and many alternative goods to choose from, what to buy when we know the rate of the item. This is the study of Consumption.


We should also know how the producer chooses and what to produce for the market when he knows the costs and prices. This is the study of Production.


Finally, we want to know how the national income or the total income arising from what has been produced in the country (called the Gross Domestic Product or GDP) is distributed through wages (and salaries), profits and interest (We will leave aside here income from international trade and investment). This is study of Distribution.

Besides these three conventional divisions of the study of Economics about which we want to know all the facts, modern economics has to include some of the basic problems facing the country for special studies. For example, you want to know why or what extent some households in our society have the capacity to earn much more than others. or you want to know how many people in the country are really poor, how many are middle-class, how many are relatively rich and so on. You may want to know how many are illiterate, who will not get jobs, requiring education, how many are highly educated and will have the best job opportunities and so on. Or you may want to know more facts in terms of numbers that would answer questions about poverty and disparity in the world.

If you do not like the continuance of poverty and gross disparity and want to do something about the ills of society you will need to know the facts about all these things before you can ask for a proper actions by the government. If you know the facts, it may also be possible to plan your own life in the better way. Similarly, you may heard of or some of you may even have experienced disasters like Tsunami, earthquakes, the bird flu — dangers threatening our country and so on that affect people's 'ordinary business of life' enormously. Economists can look at these things only if they know how to collect and put together the facts about what these disasters cost systematically and exactly.

In fact you may think about it and ask yourselves whether it is right that modern economics now includes learning the basic skills involved in making useful studies for measuring poverty, how incomes are distributed, how earning opportunities are related to your education, how environmental disasters affect our lives and so on? Definitely, if you think along these lines, you will also appreciate why we needed Statistics (which is the study of numbers relating to selected facts in a systematic form) to be added to all modern courses of modern economics. Do you now agree with the following definition of economics that many economists use?

“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.”
##TOPIC###Statistics in Economics###

Statistics in Economics

In the previous section you were told about some important topics about the basic problems facing a country. These studies are required to know more about economic facts in terms of numbers. Such economic facts are also known as data. The purpose of collecting data about these economic problems is to understand and explain these problems in terms of the various causes behind them. In other words, we try to analyse them. For example, when we analyse the hardships of poverty, we try to explain it in terms of the various factors such as unemployment, low productivity of people, backward technology, etc. But, what purpose does the analysis of poverty serve unless we are able to find ways to mitigate it. We may, therefore, also try to find those measures that help solve an economic problem.

In Economics, such measures are known as policies. If you think about that there is no analysis of a problem would be possible without the availability of data on different reasons underlying an economic problem? In such a situation, no policies can be formulated to solve it. If yes, then you have to understand the basic relationship between Economics and Statistics.

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