Covers T.R. Jain & V.K. Ohri (2026-27) ch 1. Based on: NCERT Statistics for Economics, Chapter 1 (Reprint 2026-27) and the CBSE curriculum 2026-27.
- say what economics studies and which activities are economic activities
- tell a consumer, seller, producer, employee and employer apart
- explain why scarcity is the root of all economic problems and how alternative uses of resources create the problem of choice
- state the meaning of consumption, production and distribution
- give the meaning and scope of statistics, and the difference between quantitative and qualitative data
- explain the functions of statistics and its importance in economics with examples, and why statistics is no substitute for common sense
1 Why Economics?
You may already have studied Economics in earlier classes. In the words of Alfred Marshall (one of the founders of modern economics), the subject is mainly about this:
Economics (Marshall): economics is “the study of man in the ordinary business of life”.
What is the “ordinary business of life”? Look at the roles you play every day.
1.1 Five roles in economic life
Consumer: when you buy goods to satisfy your own needs, those of your family, or of someone you want to give a gift to, you are called a consumer.
Seller: when you sell goods to make a profit for yourself (for example, a shopkeeper), you are called a seller.
Producer: when you produce goods (a farmer or a manufacturing company) or provide services (a doctor, porter, taxi driver or transporter of goods), you are called a producer.
Employee: when you are in a job, working for some other person, and you get paid for it (wages or a salary), you are called an employee.
Employer: when you employ somebody, giving them a wage, you are an employer.
| Role | What you do | Example |
|---|---|---|
| Consumer | buy goods to satisfy wants | a book for yourself, a gift for your mother |
| Seller | sell goods for profit | a shopkeeper |
| Producer | make goods or provide services | farmer, manufacturing company; doctor, porter, taxi driver |
| Employee | work for another person for wages or salary | a job in a shop or company |
| Employer | employ others, paying them wages | a shop owner who hires a helper |
Economic activities are activities undertaken for a monetary gain. In all the roles above you are said to be gainfully employed in an economic activity. This is what economists mean by the “ordinary business of life”.
Not every activity is economic. The book counts all five roles above (including the consumer, who pays money for goods) as economic activity. A mother cooking for her own family at home, or helping a friend for free, is not done for money, so it is not an economic activity. The same food cooked by a paid cook is. The test: was it done for a monetary gain, or were goods or services bought with money?
- List the activities of your family members: which are economic, and why? Do you consider yourself a consumer? (Yes: you buy goods to satisfy your wants.)
- Think of examples where a person with a given income has to choose which things, and in what quantities, to buy at current prices. If current prices go up, the same income buys less, and some wants must be dropped.
- List your wants: how many can you fulfil, how many stay unfulfilled, and why? What kinds of scarcity do you face in daily life, and what causes them?
1.2 We cannot get something for nothing: Aladdin’s story
- Aladdin had a magic lamp. When he rubbed it, a genie appeared and fulfilled his wish
- He wanted a palace and the genie made one instantly; he wanted expensive gifts for the king when asking for his daughter’s hand, and got them “at the bat of an eyelid”
- In real life we are not that lucky: like Aladdin we have unlimited wants, but we do not have a magic lamp
- Pocket money example: with more pocket money you could buy almost everything you wanted. Since it is limited, you choose only the things you want the most
- The book calls this a basic teaching of Economics
Given
(numbers assumed for illustration) Monthly pocket money ₹500. Wants: a new book ₹300, a cricket ball ₹250, a film ticket ₹200
To find
Can all wants be met? How is the choice made?
Total needed: 300 + 250 + 200 = ₹750
Shortfall: 750 − 500 = ₹250, so all three cannot be bought together
Choice: pick the most wanted, the book (₹300), then the film ticket (₹200): 300 + 200 = ₹500, the whole pocket money; the ball waits for next month
Meaning: limited means force a choice, and the choice follows priority (what you want the most).
1.3 Scarcity: the root of all economic problems
Scarcity means that the things that satisfy our wants are limited in availability, while our wants are unlimited. 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.
Long queues
long queues at railway booking counters
Crowding
crowded buses and trains
Shortage
shortage of essential commodities
Ticket rush
the rush to get a ticket to watch a new film
All of these are manifestations of scarcity.
1.4 Alternative uses of resources and the problem of choice
- The resources producers have are limited and also have alternative uses
- Food example: food satisfies your want of nourishment; farmers raise the crops that produce it
- At any point of time, resources in agriculture, such as land, labour, water, fertiliser, are given
- The same resources can produce non-food crops such as rubber, cotton, jute
- So alternative uses of resources give rise to the problem of choice between the commodities those resources can produce
For “unlimited wants, limited resources”, give two separate examples: one of a consumer (pocket money or family income) and one of a producer (a farmer’s land: food crops or rubber, cotton, jute). After each, write how the choice had to be made.
1.5 Consumption, production and distribution
Economics studies man engaged in economic activities of various kinds. For this you need reliable facts about production, consumption and distribution. Economics is often discussed in three parts:
Consumption: the study of how the consumer decides, given his income and many alternative goods to choose from, what to buy when he knows the prices. (Recap: purchase of goods by consumers to satisfy their various needs is consumption.)
Production: the study of how the producer chooses what and how to produce for the market. (Recap: manufacture of goods by producers for the market is production.)
Distribution: the study of how the national income, 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. (Income from international trade and investment is left aside here.) The recap puts it as: division of the national income into wages, profits, rents and interests is distribution.
1.6 Special studies in modern economics
Besides the three conventional divisions, modern economics includes some basic problems facing the country for special studies:
Earning capacity
why, and to what extent, some households earn much more than others
Poverty and disparity
how many are really poor, how many middle-class, how many relatively rich
Education and jobs
how many are illiterate and will not get jobs, how many highly educated with the best job opportunities
Disasters
Tsunami, earthquakes, bird flu: what they cost and how they affect the “ordinary business of life”
- Before asking the government for action against poverty and gross disparity, you need the facts in terms of numbers; knowing the facts also helps you plan your own life better
- Economists can study disasters only if they know how to collect and put together the facts about their cost systematically and correctly
- So modern economics includes the basic skills of measuring poverty, how incomes are distributed, how earning opportunities relate to education, and how environmental disasters affect our lives
- That is why Statistics, the book’s phrase being “the study of numbers relating to selected facts in a systematic form”, was added to all modern courses of economics
1.7 Definition of economics
Economics (the definition 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.”
| Words in the definition | Meaning | Part of the chapter |
|---|---|---|
| scarce resources | resources are limited | scarcity |
| alternative uses | one resource can serve many uses | problem of choice |
| produce various commodities | making goods | production |
| satisfy their wants | using goods | consumption |
| distribute among persons and groups | who gets how much | distribution |
2 Statistics in Economics
Economic data are economic facts. The special studies of a country’s basic problems need us to know more about economic facts; such economic facts are also known as economic data.
- The purpose of collecting data about economic problems is to understand and explain them in terms of their various causes, that is, to analyse them
- Example: when we analyse the hardships of poverty, we explain it in terms of factors such as unemployment, low productivity of people, backward technology
- But analysis serves little purpose unless we find ways to mitigate the problem
Policies: in Economics, the measures that help solve an economic problem are known as policies.
No analysis of an economic problem is possible without data on the factors behind it, and without analysis no policies can be formulated to solve it. That is the basic relationship between the two subjects.
3 What is Statistics?
3.1 Meaning of statistics
Statistics deals with the collection, analysis, interpretation and presentation of numerical data. It is a branch of mathematics.
3.2 Scope of statistics
- Statistics is used in many disciplines: accounting, economics, management, physics, finance, psychology and sociology
- In this book we are concerned with data from the field of Economics: data on consumption, production, distribution and the special studies (poverty, income distribution, education and earning, disasters)
- These include both quantitative and qualitative data
3.3 Quantitative data
Quantitative data are facts that can be measured in numbers, such as prices, incomes, taxes paid. Most Economics data are quantitative.
The book’s example: “the production of rice in India has increased from 39.58 million tonnes in 1974–75 to 106.5 million tonnes in 2013–14” is quantitative data.
Q. By how much did rice production rise between 1974-75 and 2013-14, and about how many times did it become?
Rise: 106.5 − 39.58 = 66.92 million tonnes
Times: 106.5 ÷ 39.58 ≈ 2.69 times
Percentage rise: 66.92 ÷ 39.58 × 100 ≈ 169.1 per cent
Meaning: “rice production grew a lot” is vague; the numbers say exactly how much. That is the strength of quantitative data.
For a percentage rise, divide the increase by the old (starting) value: 66.92 ÷ 39.58. Dividing by the new value (66.92 ÷ 106.5 × 100 ≈ 62.8 per cent) gives a wrong answer.
3.4 Qualitative data
Qualitative data describe attributes of a single person or a group of persons that are important to record as accurately as possible even though they cannot be measured in quantitative terms.
- Example: gender, which distinguishes a person as man/woman or boy/girl
- It is often possible (and useful) to state an attribute in degrees: better/worse; sick/healthy/more healthy; unskilled/skilled/highly skilled
- Such qualitative information is often used in Economics and other social sciences, and is collected and stored systematically like quantitative information (on prices, incomes, taxes paid), whether for a single person or a group
| Basis | Quantitative data | Qualitative data |
|---|---|---|
| What they show | a measurable quantity | an attribute or quality |
| Measurement | measured directly in numbers | cannot be measured in numbers; stated in degrees |
| Book examples | rice production, prices, incomes, taxes paid | gender; sick/healthy; unskilled/skilled |
| From the book’s activity | income earned, marks in a subject | beauty, intelligence, ability to sing, learning skills |
The test: can it be counted or measured in a unit (₹, tonnes, marks)? Yes means quantitative; if only a category or degree can be stated, it is qualitative.
3.5 Stages of statistics
You will study these stages in the coming chapters: Collection of Data (Chapter 2), Organisation of Data (Chapter 3), Presentation of Data (Chapter 4), Measures of Central Tendency (Chapter 5).
4 What Statistics does (functions of statistics)
Statistics is an indispensable tool for an economist that helps him understand an economic problem.
4.1 Finding causes and forming policies
- Using its methods, the causes behind an economic problem are found with the help of its qualitative and quantitative facts
- Once the causes are identified, it is easier to formulate policies to tackle it
4.2 Presenting facts in a precise and definite form
- Statistics presents economic facts in a precise and definite form that helps proper comprehension
- Facts expressed in statistical terms become exact, and exact facts are more convincing than vague statements
Statistical data
- “310 people died in the recent earthquake in Kashmir”
- precise figure, so more factual
Not statistical data
- “hundreds of people died”
- vague statement, less convincing
4.3 Condensing mass data
- Statistics condenses mass data into a few numerical measures (such as mean, variance)
- You cannot remember the incomes of a very large number of people, but you can easily remember a summary figure like the average income
- So statistics summarises and presents meaningful overall information about a mass of data
Given
(numbers assumed for illustration) Monthly incomes of 5 households in a locality: ₹8,000, ₹10,000, ₹12,000, ₹15,000, ₹30,000
To find
Average (mean) income, and what this one number tells us
Formula: average income = sum of all incomes ÷ number of households
Substitution: = (8,000 + 10,000 + 12,000 + 15,000 + 30,000) ÷ 5 = 75,000 ÷ 5
Answer: average income = ₹15,000 per month
Meaning: one number replaces five and sums up the group. But note: 3 of the 5 households earn less than the average, because one household (₹30,000) pulls the average up. The average is useful, but it must be read with sense (see section 6).
4.4 Finding relationships between economic factors
An economist may want to know:
Price and demand
what happens to demand for a commodity when its price rises or falls?
Price and supply
is supply of a commodity affected by changes in its own price?
Income and consumption
does consumption expenditure rise when average income rises?
Government spending and prices
what happens to the general price level when government expenditure rises?
- Such questions can be answered only if some relationship exists between the factors; whether it exists can be easily verified by applying statistical methods to their data
- Sometimes the economist assumes a relationship and tests whether the assumption is valid; this is possible only with statistical techniques
4.5 Prediction and future trends
- The economist may want to predict changes in one factor due to changes in another, such as the impact of today’s investment on future national income; this cannot be done without Statistics
- Plans and policies need knowledge of future trends
An economic planner has to decide in 2017 how much the economy should produce in 2020. For this, the expected level of consumption in 2020 must be known.
- Option 1: a subjective judgement based on a guess about consumption in 2020
- Option 2: statistical tools to predict consumption in 2020, using consumption data of past years or of recent years obtained by surveys
The second is more dependable. Thus statistical methods help formulate appropriate economic policies.
5 Importance of statistics in economics (conclusion)
5.1 Three big uses of statistics
Analysing serious problems
rising prices, growing population, unemployment, poverty: finding measures to solve them
Evaluating policies
whether the policy of family planning is effective in checking the ever-growing population can be ascertained easily with statistical techniques
Policy decisions
Statistics plays a vital role in decision making in economic policies
- In a time of rising global oil prices, it may be necessary to decide how much oil India should import in 2025
- The decision depends on two things: the expected domestic production of oil and the likely demand for oil in 2025
- Without Statistics neither can be determined, so the decision to import cannot be made without knowing the actual requirement of oil
- This vital information can only be obtained statistically
| Function of statistics | Book example |
|---|---|
| 1. Finding causes to form policy | poverty: unemployment, low productivity, backward technology |
| 2. Precise, definite form | 310 deaths in the Kashmir earthquake, not “hundreds” |
| 3. Condensing data | average income; mean, variance |
| 4. Finding and testing relationships | price-demand, income-consumption expenditure, government expenditure-price level |
| 5. Prediction | today’s investment and future national income; consumption in 2020 |
| 6. Evaluating policy | family planning |
| 7. Policy decisions | oil imports |
“C-P-C-R-P-E-D”
Causes, Precise form, Condensing, Relationships, Prediction, Evaluation, Decisions: seven functions of statistics.
6 Statistical methods are no substitute for common sense
- A story told to make fun of statistics: a family of four (husband, wife and two children) 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
- The average height was greater than the average depth, so he thought they could cross safely
- Result: some members of the family (the children) drowned while crossing
- The book asks: does the fault lie with the statistical method of calculating averages or with the misuse of the averages?
Assume: father 175 cm, mother 160 cm, children 95 and 90 cm; average depth of the river 120 cm, deepest part 150 cm
Average height = (175 + 160 + 95 + 90) ÷ 4 = 520 ÷ 4 = 130 cm, which is more than 120 cm
But: the children (95 and 90 cm) are 25 and 30 cm shorter than even the average depth, and at the deepest part the water is 55 and 60 cm above their heads
Conclusion: the average was calculated correctly; the mistake was its misuse. Each person’s height and the deepest part of the river had to be considered. Statistical methods need common sense alongside.
Writing “this story proves statistics is useless” is wrong (see worked example 4).
7 Differences asked in exams
| Basis | Economic activity | Non-economic activity |
|---|---|---|
| Purpose | monetary gain | love, service, leisure; not money |
| Example | a shopkeeper selling goods, a porter carrying luggage for a fee | a mother cooking for her family, helping a friend for free |
Employee versus employer is in the table in section 1.1, and quantitative versus qualitative data in the table in section 3.4.
- Marshall: economics = the study of man in the ordinary business of life
- Five roles: consumer, seller, producer, employee, employer; economic activity = for monetary gain
- Wants unlimited, resources limited and scarce; scarcity is the root of all economic problems
- Alternative uses of resources (food crops or rubber, cotton, jute) create the problem of choice
- Consumption = purchase; production = manufacture for the market; distribution = national income (GDP) divided into wages, profits, rents, interest
- Economic data = economic facts; policies = measures to solve problems; no data, no analysis, no policy
- Statistics = collection, analysis, interpretation and presentation of numerical data; quantitative (rice 39.58 to 106.5 million tonnes) and qualitative (gender, skill) data
- Functions: causes, precise form (310 deaths), condensing (average income), relationships and testing, prediction (2017 plan for 2020), evaluating policy (family planning), decisions (oil imports in 2025)
- Statistical methods are no substitute for common sense: average river depth vs the family’s average height
- Can I define consumer, seller, producer, employee and employer with examples?
- Can I explain with two examples that wants are unlimited and resources limited?
- Can I write the meaning of consumption, production and distribution?
- Can I give three differences between quantitative and qualitative data, with examples?
- Can I write at least five functions of statistics with the book’s examples?
- Can I use the river story to explain why statistics is no substitute for common sense?