Chapter - 1 Introduction

 Economics by Alfred Marshall, “The study of man in the ordinary business of life”.

 Consumer “A consumer is one who consumes goods and services for the satisfaction
of his wants”.

 Consumption “Consumption is the process of using up utility value of goods and

services for the direct satisfaction of our wants”.

 Producer “A producer is one who produces/or sells goods and services for the
generation of income”

 Production “Production is the process of converting raw material into useful thing”.

 Saving It is the part of income which is not consumed. It is an art of abstinence from
consumption.

 Investment It is expenditure by the producers on the purchase of such assets which

help to generate income.

 Economic Activity It is an activity which is related to the use of scarce means. Means are
always scarce in relation to our wants.

 Economic Problem It is the problem of choice arising on account of the facts that
resources are scarce and these have alternative uses.

Components of Economics
There are three components of economics:

 Consumption
 Production
 Distribution

Statistics – A Plural Sense Statistics refers to information in terms of numbers or numerical

data, such as population statistics, employment statistics etc.

According to Bowley, “Statistics are numerical statements of facts in any department of

enquiry placed in relation to each other.”

Distrust of statistics - By distrust of statistics, we mean lack of confidence in statistical

statements and statistical methods. In other words, distrust of statistics implies that people
look upon statistics with doubt and suspicion.

According to Disraeli, “There are three kinds of lies - lies, damned lies and Statistics.”

Features of Statistics in the Plural Sense:

Statistics Economics - XI
 Aggregate of facts - A single number does not constitute Statistics. No conclusion can
be drawn from it. It is only the aggregate number of facts that is called Statistics. ‘All
statistics are expressed in numbers but all members are not statistics’.

 Numerically expressed - Statistics are expressed in terms of numbers. Qualitative

aspects like 'small' or 'big'; 'rich' or 'poor'; etc. are not called Statistics

 Affected by multiplicity of causes - statistics are not affected by any single factor; but
are influenced by many factors.

 Reasonable accuracy - A reasonable degree of accuracy must be kept in view while

collecting statistical data. This accuracy depends on the purpose of investigation, its
nature, size and available resources

 Mutually related and Comparable - Such numerical alone will be called Statistics as are
mutually related and comparable. Unless they have the quality of comparison they
cannot be called Statistics.

 Predetermined purpose - Statistics are collected with some pre-determined objective.

Any information collected without any definite objective will only be a numerical value
and not Statistics.

 Estimated - Statistics may be collected by enumeration or are estimated. If the field of

investigation is vast, the procedure of estimation may be helpful.

 Collected in a Systematic Manner - Statistics should be collected in a systematic

manner. Before collecting them, a plan must be prepared. No conclusion can be drawn
from Statistics collected in unsystematic manner

Statistic – A Singular Sense It refers to techniques or methods relating to collection,

classification, presentation analysis and interpretation of quantitative data.

According to Seligman, “Statistics is the science which deals with the methods of collecting,
classifying, presenting, comparing and interpreting numerical data collected to throw
some light on any sphere of enquiry”.

Importance of Statistics in Economics:

 Quantitative expression of economic problem - Consider any economic problem, be it

the problem of unemployment, the problem of price rise or the problem of shrinking
exports. The first task of the economists is to understand its magnitude through its
quantitative expression.

 Inter-sectoral and inter-temporal comparisons - Economists do not stop merely at the

quantitative expression of the problems. They would try to further comprehend it
through inter-sectoral and inter-temporal comparisons. From inter-sectoral
comparisons we mean, comparisons across different sectors of the economy. Thus,
analysing the problem of unemployment, the economists would like to know the
magnitude of unemployment across rural and urban sectors of the economy. They
would like to know what percentage of rural population is unemployed compared to

Statistics Economics - XI
 the urban population. Inter-temporal comparison means understanding of change in
the magnitude of the problem over time. This would mean making a comparison (say)
over different plan periods of the rural and urban unemployment

 Working out cause and effect relationship - Economists try to find out cause and effect
relationship between different sets of data. This enables them to attempt an effective
diagnosis of the problem and accordingly to suggest some effective remedies. Thus,
through their statistical studies, if the economists come to know that it is because of the
decline in demand that investment in the economy has tended to shrink, they can
suggest the government to adopt such measures as would increase the level of
demand in the economy.

 Construction of economic theories or economic models - What is economic theory? It

is an established statistical relationship between different sets of statistical data,
offering conclusions of economic significance. The well-known inverse relationship
between price of a commodity and its demand (i.., more is purchased when price falls)
is an established statistical relationship, and therefore, is a part of economic theory.

 Economic forecasting - Economists do forecasting through statistical studies. By the

term forecasting we do not mean some astrological predictions. We only mean to
assess and ascertain the future course of certain events which are of Economists do
forecasting through statistical studies. By the term forecasting we do not mean some
astrological predictions. We only mean to assess and ascertain the future course of
certain events which are of

 Formulation of policies - It is through statistical investigations that the finance minister

gets a feedback on the tax-paying capacity of the people, and revenue needs of the
government. Accordingly, tax rates are fixed to get maximum possible revenue with
minimum possible discomfort to the people.

Limitations of Statistics:

 Study of numerical facts only - Statistics studies only such facts as can be expressed in
numerical terms. It does not study qualitative aspect like honesty, friendship, wisdom,
health, patriotism, justice, etc.

 Study of aggregates only - Statistics studies only the aggregates of quantitative facts. It
does not study statistical facts relating to any particular unit

 Homogeneity of Data, an essential Requirement - To compare data, it is essential that

statistics are uniform. in quality. Data of diverse qualities and kinds
cannot be compared.

 Without reference, results may prove to be wrong - In order to understand the

conclusions precisely, it is necessary that the circumstances and conditions under which
these conclusions have been drawn are also studied. Otherwise, they may
prove to be wrong.

 Can be used only by the experts - Statistics can be used only by those persons who
have special knowledge of statistical methods. Those who are ignorant about these
methods cannot make sensible use of statistics.

Statistics Economics - XI
 Prone to misuse - Misuse of Statistics is very common. Statistics may used to support a
pre-drawn conclusion even when it is absolutely false. It is usually said, "Statistics are
like clay by which you can make a god or a devil, as you please.” Misuse of statistics is
indeed its greatest limitation.

 Results are True only on an Average - Most statistical findings are true only as
averages. They express only the broad tendencies. Unlike the laws of natural sciences,
statistical observations are not error-free. They are not always valid
under all conditions.

Multiple Choice Questions

1._____ is one who consumes goods and services for the satisfaction of their wants.

(a) Producer

(b) Consumer

(c) Investor

(d) All of the above

2. ______ is the one who produces or sells goods and services for the generation of
income.

(a) Producer

(b) Consumer

(c) Investor

(d) All of the above

3. Saving and Investment are_______activity

(a) Production

(b) Consumption

(c) Economic

(d) Non-economic

4. Act of abstinence from consumption is known as______.

(a) Production

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(b) Savings

(c) Investment

(d) Consumption

5. _____ implies scarcity of limited resources with regards to unlimited wants.

(a) Production

(b) Consumption

(c) Economic activity

(d) Non-economic activity

6. “Economic activity is the study of mankind in the ordinary life of business”, this
definition was given by;

(a) Alfred Marshall

(b) Robbins

(c) Peterson

(d) None of the above

7. Which of the following are Components of economics?

(a) Consumption

(b) Production

(c) Distribution

(d) All of the above

8. Which of the following are the features of statistics in the plural sense?

(a) It is a aggregate of facts (b) Statistics is numerically expressed

(c) Both (a) & (b) (d) None of the above

9. Which of the following is not one of the limitations of statistics?

(a) Statistics study numerical facts only

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(b) Statistical results are true only on averages

(c) Heterogeneous data is required

(d) Statistics study aggregates only

10. Which of the following are regarded as the importance of economics?

(a) Statistics is a quantitative expression of economic problems

(b) Statistics works out cause and effect relationship

(c) Statistics facilitates economic forecasting

(d) All of the above

Assertion-Reason Based
1. Read the following statement given below and choose the correct alternative

Assertion(A) - Statistics is the lifeline of economics.

Reason (R) – Statistics helps to establish various statistical relationship.

(a) Both Assertion and reason are true. Reason is the correct explanation of assertion

(b) Both assertion and reason are true. Reason is not the correct explanation of assertion

(c) Assertion is true but reason is not

(d) Reason is true but assertion is not

2. Read the following statement given below and choose the correct alternative

Assertion (A) - Statistics is a rainbow of lies.

Reason (R) - Anyone can alter statistics to arrive at predetermined conclusions.

(a) Both Assertion and reason are true. Reason is the correct explanation of assertion

(b) Both assertion and reason are true. Reason is not the correct explanation of assertion

(c) Assertion is true but reason is not

(d) Reason is true but assertion is not

3. Read the following statement given below and choose the correct alternative

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Assertion (A) - Distrust on statistics can not be removed and is inevitable.

Reason (R) - Statistics is a clay which we can use to make a god or devil, as we wish.

(a) Both Assertion and reason are true. Reason is the correct explanation of assertion

(b) Both assertion and reason are true. Reason is not the correct explanation of assertion

(c) Assertion is true but reason is not

(d) Reason is true but assertion is not

4. Read the following statement given below and choose the correct alternative

Assertion (A) - If your class teacher estimates average height of the whole class on the basis
of average height of four or five students he is using inferential statistics.

Reason (R) - Inferential statistics refers to all such methods by which conclusion can be
drawn relating to the population of a given sample.

(a) Both Assertion and reason are true. Reason is the correct explanation of assertion

(b) Both assertion and reason are true. Reason is not the correct explanation of assertion

(c) Assertion is true but reason is not

(d) Reason is true but assertion is not

5. Read the following statement given below and choose the correct alternative

Assertion (A) - Statistics can be collected in a systematic manner

Reason (R) - No conclusions can be drawn from unsystematic collection of data

(a) Both Assertion and reason are true. Reason is the correct explanation of assertion

(b) Both assertion and reason are true. Reason is not the correct explanation of assertion

(c) Assertion is true but reason is not

(d) Reason is true but assertion is not

Statistics Economics - XI
Chapter - 2 Collection of Data
Sources of Data
There are two sources of data:

 Primary Source of Data It implies collection of data from its source of origin.

 Secondary Source of Data It implies collection of data from some agency or institution
which already happens to have collected the data through statistical survey.

Types of Data
There are two types of data:

 Primary Data Data collected by the investigator for his own purpose for the first time,
from beginning to end are called primary data.

 Secondary Data These data have already been collected by somebody else, these are
available in the form of published or unpublished report.

Principal Differences between Primary and Secondary Data:

 Primary data are original and secondary data are already in existence and therefore, are
not original.

 Primary data do not need any adjustment, secondary data need to be adjustment to
suit the objective of study in hand.

 Primary data are expensive and secondary data are less expensive.

Statistical Methods of Data Collection:

(i) Direct Personal Investigation:

It is the method by which data are personally collected by the investigator from the
information. Merits and demerits of this method are follows.

(a) Merits

 Originality

 Reliability

 Uniformity

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 Accuracy

 Related information

 Elastic

(b) Demerits

 Difficult to cover wide areas

 Costly

 Personal bias

 Limited coverage

(ii) Indirect Oral Investigation:

It is the method by which information is obtained not from the persons regarding whom the
information is needed. It is collected orally from other persons who are expected to possess
the necessary information. Merits and demerits of this method are given below

(a) Merits

 Wide coverage

 Expert opinion

 Simple

 Less expensive

 Free from bias

(b) Demerits

 Less accurate

 Doubtful conclusions

 Biased

(iii) Information from Local Sources or Correspondents:

Under this method, the investigator appoints local persons or correspondents at different
places. Merits and demerits of this method are given below

(a) Merits

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 Economical

 Wide coverage

 Continuity

 Suitable for special purpose

(b) Demerits

 Loss of originality

 Lack of uniformity

 Personal bias

 Less accurate

 Delay in collection

(iv) Information Through Questionnaries and Schedules:

There are two ways of collecting information on the basis of questionnaire:

(a) Mailing Method Under this method questionnaires are mailed to the informants.

The method is most suited when:

 The area of the study is very wide.

 The informants are educated.

(b) Enumerator’s Methods Under this Method enumerator himself fills the schedules after
seeking information from the informants.

This method is mostly used when:

 Field of investigation is large.

 The investigation need specialised and skilled investigation.
 The investigators are well versed in the local language and cultural norms of the
informants.

(c) Collection of Secondary Data

There are two main sources of secondary data:

 Published sources - Secondary data is usually gathered from the published (printed)
sources. A few major sources of published information are as follows:

1. Published articles of local bodies, and central and state governments.

2. Statistical synopses, census records, and other reports issued by the different
departments of the government.

Statistics Economics - XI
3. Official statements and publications of the foreign governments.

4. Publications and reports of chambers of commerce, financial institutions, trade

associations, etc.

5. Magazines, journals, and periodicals.

 Unpublished sources - Statistical data can be obtained from several unpublished

references. Some of the major unpublished sources from which secondary data can be
gathered are as follows:

1. The research works conducted by teachers, professors, and professionals.

2. The records that are maintained by private and business enterprises.

3. Statistics maintained by different departments and agencies of the central and the state
government, undertakings, corporations, etc.

(d) Published Sources

Some of the published source of secondary data are:

 Government publication

 Semi-government publication

 Reports of committees and commissions

 Publications of trade associations

 Publication of research institutions

 Journals and papers

 Publication of research scholars

 International publication

(e) Unpublished Sources

These data are collected by the government organisations and others, generally for their self
use or office record.

 In order to assess the reliability, suitability and adequacy of the data, the following
points must be kept in mind.

 Ability of the collecting organisation

Statistics Economics - XI
 Objective and scope

 Method of collection

 Time and condition of organisation

 Definition of the unit

 Accuracy

(v) Census ‘Method

Census method is that method in which data are collected covering every item of the
universe or population relating to the problem under investigation.

Merits and demerits of this method are given follows:

(a) Merits

 Reliable and accurate

 Less biased

 Extensive information

 Study of diverse characteristic

 Study of complex investigation

 Indirect investigation

(b) Demerits

 Costly

 Large manpower

 Not suitable for large investigation

Short note on Census

Census of India is a decennial publication of the Government of India. It is published

by Registrar General & Census Commissioner, India. It is a very comprehensive
source of secondary data/It relates to population size and the various aspects of
demographic changes in India Broadly, it includes statistical information on the
following parameters:

(i) Size, growth rate and distribution of population in India.

(ii) Population projections.

Statistics Economics - XI
(iii) Density of population.

(iv) Sex composition of population.

(v) State of literacy.

Information on these parameters relates to country as a whole as well as different

states and union territories of the country. As the name suggests, Census of India is a
comprehensive enquiry on population size and the related parameters of change
covering each and every household of the country

(vi) Sample Method

It is that method in which data is collected about the sample on a group of items taken from
the populations for examination and conclusions are drawn on their basis.

Merits and demerits of this method are given below

(a) Merits

 Economical

 Time saving

 Identification of error

 Large investigation

 Administrative convenience

 More scientific

(b) Demerits

 Partial

 Wrong conclusions

 Difficulty in selecting representative sample

 Difficulty in framing a sample

 Specialised knowledge

Methods of Sampling

(i) Random Sampling: Random sampling is that method of sampling in which each and every
item of the universe has equal chance of being selected in the sample.

Random sampling may be done in any of the following ways

Statistics Economics - XI
 Lottery method

 Tables of random number

(ii) Purposive or Deliberate Sampling: It is that method in which the investigator himself
makes the choice of the samples items which in his opinion are the best representative of
the universe.

(iii) Stratified or Mixed Sampling: According to this method of sampling population is

divided into different strata having different characteristics and some of the items are
selected from each strata, so the entire population gets represented.

(iv) Systematic Sampling: According to this methods, units of the population are
numerically, geographically and alphabetically arranged. Every nth item of the numbered is
selected as a sample item.

(v) Quota Sampling: In this method, the population is divided into different groups or classes
according to different characteristics of the population.

(vi) Convenience Sampling: In this method, sampling is done by the investigator in such a
manner that suits his convenience.

Reliability of Sampling Data

It depends mainly on the following factors

 Size of the sample

 Method of sampling
 Bias of correspondents and enumerators
 Training of enumerators

Important agencies at the national level which collect process and tabulate the statistical
data. NSSO (National Sample Survey Organisation), RGI (Registrar General of India), DGCIS
(Directorate General of Commercial Intelligence and Statistics) and Labour Bureaus.

Short note on NSSO

Reports and Publications of National Sample Survey Office (NSSO):

Reports and publications of NSSO is another important source of secondary data in India.
NSSO is a government organisation under the Ministry of Statistics and Programme
Implementation. This organisation conducts regular sample surveys to collect basic statistical
information relating to a variety of economic activity in rural as well as urban parts of the
country. For example, the 78th round of NSSO (January 2020-December 2020) was on
"Domestic Tourism Expenditure and Multiple Indicators". Broadly, reports and publications
of NSSO offers statistical information of the following parameters of economic change:

(i) Land and Livestock Holdings.

(ii) Housing Conditions and Migration with special emphasis on slum dwellers.

(iii) Employment and Unemployment status in India.

Statistics Economics - XI
(iv) Consumer Expenditure in India, including level and pattern of consumer expenditure of
diverse categories of the people.

(v) Sources of Household income in India.

Unlike Census of India, Reports and Publications of National Sample Survey Office are based
on 'sample' study of the population/universe.

Q. Difference between sampling and census method

Census Sampling
1. Involves collecting data from every 1. Involves collecting data from a
single member of a population. subset or a selected group of the
population
2. Requires a large amount of 2. Requires fewer resources and is
resources and time to conduct the quicker to conduct as it only involves
survey and gather data. a specific group of the population
3. Provides a complete and accurate 3. Provides an estimate or a general
representation of the population as it idea of the population based on the
covers all the members. sample selected
4. Can be more expensive than 4. Is generally less expensive than a
sampling as it involves collecting data census as it only involves a specific
from every member of the population. group of the population
5. Can be useful for small populations 5. Can be useful for large populations
or when detailed information is or when a general overview is
needed about the whole population. needed about the population
6. The margin of error is typically very 6. The margin of error is typically
small as it covers the whole larger than a census as the sample
population size is smaller than the population
size

Multiple Choice Questions

1. Which of the following are known as the types of research data?

A. Organised data and unorganised data

B. Qualitative data and quantitative data
C. Processed data and unprocessed dat
D. None of the above

2. Which of the following statements is true about the collection of data?

A. The data that is collected from the place of origin is known as primary data
B. The data that is collected from the place of origin is known as secondary data
C. The data that is collected from the place of origin is known as tertiary data
D. None of the above

3. Which of the following statements is true about the source of data?

A. The source of data that is collected and compiled by others is known as secondary data

Statistics Economics - XI
B. The source of data that is collected and compiled by others is known as tertiary data
C. The source of data that is collected and compiled by others is known as primary data
D. None of the above

4. Which of the following statements is true about data in research?

A. The data used for research is quantitative

B. The data used for research can be qualitative but never quantitative
C. The data used for research can be both quantitative and qualitative
D. The data used for research can be quantitative but never qualitative

5. Which of the following statements is not true about the collection of data?

A. In the structured interview, the interviewer asks a set of pre-planned questions in a

standard format
B. In the observation method, the researcher collects data with the help of their
observational skills
C. In an indirect interview, the investigator directly asks the informants for the data
D. In a direct interview, the researcher meets the interviewees directly to collect the data

6. Which of the following is an accurate representation of the process of conducting

research?

A. The formulation of hypothesis precedes the collection of dat

B. The formulation of hypothesis precedes the selection of research tools
C. The formulation of hypothesis precedes the statement of objectives
D. The formulation of hypothesis precedes the analysis of data

7. Which of the following statements is true about the census?

A. The census involves a process of choosing a few units out of the entire population for
collecting data
B. The census involves a process of organising and publishing the data
C. The census involves a process of collecting data from each and every unit
D. None of the above

8. What is the meaning of cluster sampling?

A. It is a process where the sampling universe is divided into multiple groups

B. It is a process where the samples for a study is obtained through conscious selection
C. It is a process where the samples for a study are selected at regular intervals
D. It is a process through which the sample for a study is divided into multiple groups

9. Which of the following situations is suitable for direct personal investigation?

A. It is suitable when the field of investigation is large and complex

B. It is suitable when the information to be collected is complex and confidential
C. It is suitable when the researcher needs second-hand data for their research
D. It is suitable when direct contact with the interviewees is not possible

10. Which of the following is a drawback of the direct personal investigation?

Statistics Economics - XI
A. This method of investigation lacks reliability
B. It is an extremely costly and time-consuming process
C. The questions asked under this method can be subject to misinterpretation
D. It is difficult to get original data using the direct personal investigation method

True or False
State whether the following statements are True or False:

1. If we use the data collected by some other person, it is known as secondary data.
(True/False)

2. Indirect oral investigation is applied when the field of investigation is very limited .
(True/False)

3. Primary data involve more time and more expenses.

(True/False)

4. Investigator Is a person who plans and conducts an empirical investigation independently.

(True/False)

5. Approximation errors occur due to miscalculation.

(True/False)

Answer the following questions (1 Mark Each)

1. Define primary data.

2. Define secondary data.

3. What are the sources of data?

4. Write down a few parameters on which statistical information is published in Census of

India.

5. Name two important sources of secondary data.

Statistics Economics - XI
Chapter - 3 Organisation of Data
Organisation of Data

Organisation of data refers to the arrangement of figures in such a form that comparison of
the mass of similar data may be facilitated and further analysis may be possible.

Classification

Classification is the process of arranging things in groups or classes according to their

resemblances and affinities and gives expression to the unity of attributes that may exist
amongst a diversity of individuals.

Objectives of Classification

 Simplification and Briefness

 Utility

 Distinctiveness

 Comparability

 Scientific arrangement

 Attractive and effective

Characteristic of a Good Classification

 Comprehensiveness

 Clarity

 Homogeneity

 Suitability

 Stability

 Elastic

Basis of Classification

 Geographical Classification: This classification of data is based on the geographical or

locational differences of the data.

 Chronological Classification: When data are classified on the basis of time, it is known
as chronological classification.

Statistics Economics - XI
 Qualitative Classification: This classification is according to qualities or attributes of the
data.

This classification may be of two types:

Simple classification

Manifold classification

 Quantitative or Numerical Classification: Data are classified in to classes or groups on

the basis of their numerical values. Quantitative classification is also called classification
by variables.

 Concept of Variable: A characteristic or a phenomenon which is capable of being

measured and changes its value overtime is called a variable.

The variable may be either discrete or continuous:

Discrete Variable: These are those variables that increase in jumps or in compete numbers.

Continuous Variable Variable: that assume a range of values or increase not in jumps but
continuously or in fractions are called continuous variables.

 Raw Data: A mass of data in its crude form is called raw data.

Types of Statistical Series Statistical series are of two types:

 Individual Series: These are those series in which the items are listed singly.

These series may be presented in two ways:

1. According to serial numbers 2. Ascending or descending order of data

 Frequency Series:

Frequency series may be of two types

Discrete Series or Frequency Array: It is that series in which data are presented in way that
exact measurement of items are clearly shown. In this series there are no class intervals and
a particular item in the series.

Frequency Distribution: It is that series in which items cannot be exactly measured. The
items assume a range of values and are placed within the limits is called class interval.

Frequency distribution is also known as continuous series or series with class-intervals, or

series of grouped data.

Types of Frequency Distribution:

Statistics Economics - XI
 Exclusive Series: It is that series in which every class-interval excludes items
corresponding to its upper limit.

 Inclusive Series: An inclusive series is that series which includes all items upto its upper
limit.

 Open End Series: An open end series is that series in which lower limit of the first class-
interval and the upper limit of last class- interval is missing like as below – 5, 20 and
above

 Cumulative Frequency Series: It is that series in which the frequencies are continuously
added corresponding to each class-interval in the series.

There are two ways of converting this series into cumulative frequency series:

Cumulative frequencies may be expressed on the basis of upper class limits of the class-
intervals.

Cumulative frequencies may be expressed on the basis of lower class limits of the class-
intervals.

 Mid Values Frequency Series: Mid value frequency series are those series in which we
have only mid values of the class intervals and the corresponding frequencies.

 Univariate Distribution: The frequency distribution of a single variable is called a

univariate distribution.

 Bivariate Distribution: A bivariate distribution is the frequency distribution of two

variables.

Multiple Choice Questions

1. Which of the following is the first step in the organization of data?

a) Collection of data b) Classification of data

c) Tabulation of data d) Presentation of data

2. The difference between the upper limit of a class interval and the lower limit of the class
interval next to it is known as:

a) Class width b) Class mark

c) Frequency d) Relative frequency

3. The number of times a particular item occurs in a data set is known as:

a) Frequency b) Relative frequency

c) Class mark d) Class width

Statistics Economics - XI
4. The graphical representation of a cumulative frequency distribution is known as:

a) Histogram b) Frequency polygon

c) Ogive d) Pie chart

5. Which of the following is not a method of classification of data?

a) Alphabetical b) Numerical

c) Chronological d) Geometric

6. The graphical representation of a relative frequency distribution is known as:

a) Histogram b) Frequency polygon

c) Ogive d) Pie chart

7. Which of the following is not a graphical method of presenting data?

a) Histogram b) Ogive

c) Pie chart d) Bar graph

8. Which of the following is not a method of tabulation of data?

a) Simple frequency table b) Cumulative frequency table

c) Percent frequency table d) Cumulative percent frequency table

9. The percentage of the total frequency that a particular class interval represents is
known as:

a) Frequency b) Relative frequency

c) Class mark d) Class width

10. The graphical representation of a frequency distribution is known as:

a) Histogram b) Frequency polygon

c) Ogive d) Pie chart

True or False
State whether the following statements are True or False:

1. Raw data are collected by investigator during the investigation. (True/False)

2. In case of discrete variable data are expressed in fractions. (True/False)

Statistics Economics - XI
3. In an inclusive series, the upper limit of one class interval is the lower limit of the next class.
(True/False)

4. The number of variables or items that come under any class is called class frequency. (True/False)

5. Arranging the data in different classes according to a given order is called 'series' (True/False)

Answer the following questions (1 Mark Each)

Q1. What is meant by classification of data?

Q2. What is meant by geographical classification?

Q3. What is quantitative classification?

Q4. Define qualitative classification.

Q5. What is an open end series?

Statistics Economics - XI
Chapter - 4 Presentation of Data (only theory)
Textual Presentation

In textual presentation, data are a part of the text of study or a part of the description of the
subject matter of study.

Tabular Presentation of Data

“Tabulation involves the orderly and systematic presentation of numerical data in a form
designed to elucidate the problem under consideration”

Components of a Table

Following are the principal components of a table:

 Table number - First of all, a table must be numbered. Different tables must have
different numbers, eg., 1, 2, 3, ..., etc. These numbers must be in the same order as the
tables. Numbers facilitate location of the tables.

 Title - A table must have a title Title must be written in bold letters. It should attract the
attention of the readers. The title must be simple, clear and short. A good title must
reveal:

(i) the problem under consideration.

(ii) the time period of the study.

(iii) the place of study.

(iv) the nature of classification of data.

A good title is short but complete in all respects.

 Head note - If the title of the table does not give complete information, it is
supplemented with a headnote. Headnote Completes the information in the title of the
table. Thus, units of the data are generally expressed in the form of lakhs, tonnes, etc.,
and preferably in brackets as a headnote.

 Stubs - Stubs are titles of the rows of a table. These titles indicate information
contained in the rows of the table.

 Caption - Caption is the title given to the columns of a table. A caption indicates
information contained in the columns of the table. A caption may have sub-heads when
information contained in the columns is divided in more than one class.

 Body or field - Body of a table means sum total of the items in the table. Thus, body is
the most important part of a table. It indicates values of the various items in the table.
Each item in the body is called 'cell'.

Statistics Economics - XI
 Unit of Measurement - The unit used for the measurement of figures in the table must
be specified alongwith the title. Thus, if the table shows population figures, it must be
specified whether the figures are expressed in terms of lakhs or crores.

 Footnotes - Footnotes are given for clarification of the reader. These are generally given
when information in the table need to be supplemented.

 Source - When tables are based on secondary data, source of the data is to be given.
Source of the data is specified below the footnote. It should give: name of the
publication and publisher, year of publication, reference, page number, etc.

Classification of Data and Tabular Presentation:

(i) Qualitative Classification of Data and Tabular Presentation: Qualitative classification

occurs when data are classified on the basis of qualitative attributes or qualitative.

(ii) Characteristics of a Phenomenon:

 Quantitative Classification of Data These occurs when data are classified on the basis ot
quantitative characteristics of a phenomenon.

 Temporal Classified of Data In this, data are classified according to time, and time
becomes the classifying variable.

(iii) Spatial Classification In spatial classification place, location becomes the classifying
variable. It may be a village, a town, a district, etc.

(iv) Merits of Tabular Presentation:

 Simple and brief presentation

 Facilitates comparison
 Easy analysis
 High lights characteristics of data
 Economical

Diagrammatic Presentation of Data:

These translates quite effectively the highly abstract ideas contained in numbers into more
concrete and easily comprehensible form.

Diagrammatic presentation is classified as given below:

(i) Bar Diagrams: Bar diagrams are these diagrams in which data are presented in the form
of bars or rectangles.

Types of Bar Diagram are as follows:

 Simple Bar Diagrams: Simple bar diagrams are those diagrams which are based on a
single set of numerical data.

Statistics Economics - XI
 Multiple Bar Diagrams: These are those diagram which show two or more sets of data
simultaneously.

 Sub Divided Bar Diagram: Sub-divided bar diagram are those diagrams which
simultaneously present total values as well as part values of a set of data.

 Percentage Bar Diagram: Percentage bar diagrams are those diagrams which show
simultaneously, different parts of the values of a set of data in terms of percentages.

(ii) Pie or Circular Diagrams: Pie diagram is a circle divided into various segments showing
the per cent values of a series. This diagram does not show absolute values.

(iii) Frequency Diagram: Data in the form of grouped frequency distributions are generally
represented by frequency diagram like histogram, frequency polygon, frequency curve and
ogive.

 Histogram: A histogram is a two dimensional diagram. It is a set of rectangles with

passes as the intervals between class boundaries and with areas proportional to the
class frequency

Histogram frequency distribution are of two types:

Histogram of equal class intervals

Histogram of unequal class intervals

 Polygon: Polygon is another form of diagrammatic presentation of data. It is formed by

joining mid points of the tops of all rectangles in a histogram. However, a polygon can
be drawn even without constructing a histogram.

 Frequency Curve: A frequency curve is a curve which is plotted by joining the mid points
of all tops of histogram by free hand smoothed curves and not by straight lines.

 Ogive or Cumulative Curve: Ogive or cumulative curve is the curve which is constructed
by plotting cumulative frequency data on the group paper, in the form of a smooth
curve.

A cumulative frequency curve or ogive may be constructed in two ways:

 Less than Method: In this method, beginning from upper limit of the 1st values we go
on adding the frequencies corresponding to every next upper limit of the series.

 More than Method: In this method, we take cumulative total of the frequencies
beginning with lower limit of the 1st class interval.

(iv) Arithmetic Line Graph: An arithmetic line graph is also called time series graph. In it time
is plotted along x-axis and the value of the variable along y-axis. A line graph by joining these
plotted points, these obtained is called time series graph.

Statistics Economics - XI
Rules for Constructing a Graph:

 Choice of scale

 Proportion of axis

 Method of plotting the points

 Lines of different types

 Table of data

 Use of false line

 To draw a line or curve

 One Variable Graph: One variable graph are those graphs in which values of only one
variable are shown with respect to some time period.

 Two or More than Two Variable Graphs: These are the graphs in which values of two
variables are simultaneously shown with respect to some period of time.

Merits of Diagrammatic and Graphic Presentation:

 Simple and understandable information

 Lasting impact

 No need of training or specialised knowledge

 Attractive and effective means of presentation

 A quick comparative glance

 Information and entertaining

 Location of averages

 Study of correlation

Limitations of Diagrammatic and Graphic Presentation:

 Limited use

 Misuse

 Only preliminary conclusions

Multiple Choice Questions

Statistics Economics - XI
1. Which of the following is not a method of presenting data?

(a) Tabulation (b) Diagrammatic representation

(c) Statistical analysis (d) None of these

2. Which of the following is not a basis for the classification of a table?

(a)According to time (b) According to space

(c) According to size (d) According to the order

3. Which of the following is not a graphical method of presenting data?

(a) Bar diagram (b) Pie chart

(c) Histogram (d) Frequency polygon

4. Which of the following is not a limitation of tabulation?

(a) It is not suitable for large data sets.

(b) It is not suitable for comparing data sets.

(c) It is not suitable for presenting data in a clear and attractive manner.

(d) None of these

5. Which of the following is not a limitation of diagrammatic representation?

(a) It is not suitable for presenting large data sets.

(b) It is not suitable for comparing data sets.

(c) It is not suitable for presenting data in a clear and attractive manner.

(d) It is not suitable for showing the relationship between different variables.

6. The number of rows in a table is known as the _______.

(a) Width (b) Length

(c) Body (d) Columns

7. The number of columns in a table is known as the _______.

(a) Width (b) Length

(c) Body (d) Rows

Statistics Economics - XI
8. The title of a table is placed _______.

(a) Above the table (b) Below the table

(c) In the middle of the table (d) None of these

9. The headings of the rows and columns of a table are called _______.

(a) Captions (b) Labels

(c) Subtitles (d) None of these

10. The data in a table is arranged in _______ order.

(a) Sequential (b) Alphabetical

(c) Numerical (d) None of these

True or False
State whether the following statements are True or False:

1. The collection and classification of data leads to the problem of analysis of data.
(True/False)

2. Tabulation is an orderly arrangement of data in columns and rows.

(True/False)

3. The title of a table must be provided at the bottom centre of the table.
(True/False)

4. In derived table, data are presented in the raw form.

(True/False)

5. In tabulation, the table number should be followed by title.

(True/False)

Answer the following questions (1 Mark Each)

1. What is meant by tabulation?

2. What is a table?

3. What is a simple table?

4. What is a complex table?

5. Define derived table.

Statistics Economics - XI
Chapter - 5 Measures of Central Tendency
Central Tendency

A central tendency refers to a central value or a representative value of a statistical series.

According to Clark, “An average is a figure that represents the whole group”.

Types of Statistical Averages

Averages are broadly classified into two categories:

 Mathematical Averages

 Positional Averages

Arithmetic Mean

Arithmetic Mean is the number which is obtained by adding the values of all the items of a
series and dividing the total by the number of items.

Arithmetic Mean is generally written as X. It may be expressed in the form of following

formula

X =
x 1+ x 2+ x 3+… … ..+ x n
OR
∑X
N N

Types of Arithmetic Mean

 Simple Arithmetic Mean

 Weighted Arithmetic Mean

Methods of Calculating Simple Arithmetic Mean:

(i) Individual Series: In the case of individual series, Arithmetic Mean may be calculated by
two methods

Direct Method: According to this method, we find the Arithmetic mean from the following
formula

= ∑N
X Total Value of tℎe item
X or X = Numbers of items

Statistics Economics - XI
Short-cut Method: By short cut method, we find the Arithmetic Mean from the following
formula

= A + ∑N
d
X

Here, X = Arithmetic Mean

A = Assumed average of Ed = Net sum of the deviations of the different values from the
assumed average

N = Number of items in the series

(ii) Discrete Series: There are three methods of calculating mean of the discrete series

 Direct Method: Direct method of estimating mean of the discrete frequency series uses
the formula

∑ fX
X = ∑f

 Short-cut Method: Short cut method of estimating mean of the discrete frequency
series uses the following formula

∑ fd
X = A + ∑f
 Step-deviation Method: This method is a variant of short-cut method. It is adopted
when deviations from the assumed mean have some common factor

∑ fd
X = A + ∑f x c

(iii) Frequency Distribution

There are three methods of calculating mean in frequency distribution:

(a) Direct Method: Direct method of estimating mean of the discrete frequency series uses
the formula

∑ fm
X = ∑f
L1+ L 2
m = mid-value, mid-value =
2

Statistics Economics - XI
L1 = lower limit of the class

L2 = upper limit of the class

(b) Short-cut Method: Short cut method of estimating mean of the frequency distribution
uses the formula

∑ fd
X = A + ∑f
(c) Step Deviation Method: According to this method, we find the Arithmetic Mean by the
following formula

∑ fd '
X = A + ∑f x c
(d) Weighted Arithmetic Mean: It is the mean of weighted items of the series. Different
items are accorded different weights depending on their relative importance. The weighted
sum of the items is divided by the sum of the weights.

Calculation of Weighted Mean

According to this way, we find weighted mean from the following information

∑ WX
Xw = ∑W
(i) Merits

 Simplicity

 Certainty

 Based on all items

 Algebraic treatment

 Stability

 Basis of comparison

 Accuracy test

(ii) Demerits

 Effect of extreme value

Statistics Economics - XI
 Mean value may not figure in the series at all

 Laughable conclusions

 Unsuitability

 Misleading conclusions

Median

“The Median is that value of the variable which divides the group into two equal parts, one
part comprising all values greater than the Median value and the other part comprising all
the values smaller than the Median value”.

(i) Calculation of Median:

(a) Individual Series Calculation of Median in individual series involves the following
formula

N +1
M = Size of ( 2 )th item

When N of the series is an even number, Median is estimated using the following formula

N N
¿( )th item+ ¿( +1)thitem
M= 2 2
2

(b) Discrete Series Calculation of Median in case of discrete series or frequency array
involves the following formula

N +1
M = Size of ( 2 )th item

(c) Frequency Distribution Series

The following formula is applied to determine the Median Value

N
M = Size of ( 2 )th item

or

N
−cf i
M = L1 + 2 xi or L1 + F (m-c)
F

Quartiles

Statistics Economics - XI
If a statistical series is divided in to four equal parts, the end value of each part is called a
Quartile.

(i) Calculation of Quartiles Quartile values (Q1 and Q3) are estimated differently for different
sets of series,

(a) Individual and Discrete Series:

N +1
Q1 = Size of ( 4 )th item of the series

N +1
Q3 = Size of 3( 4 )th item of the series

(b) Frequency Distribution Series In frequency distribution series, the class interval of Q1 and
Q3 are first identified as under

N +1
Q1 = Size of ( 4 )th item

3
− cf i
Q = L1 + 4 xi or Q1 = L1 + F (Q1 -c)
F

N +1
Q3 = Size of 3( 4 )th item

3N
− cf i
Q = L1 + 4 xi or Q3 = L1 + F (Q3 -c)
F

Percentiles

Percentiles divide the series into 100 equal parts, and is generally expressed as P.

Percentiles are estimated for different types of series as under

(i) Individual and Discrete Series

N +1
P1 = Size of ( 100 )th item

N +1
Or P4 = Size of 4( )th item
100

Statistics Economics - XI
 N +1
Or P99 = Size of 99( )th item
100

(ii) Frequency Distribution Series

N
N −cf
P1 = Size of ( 100 )th item, P1 = L1 + [ 100 ]xi
F

N
N 4 −c
P4 = Size of 4( 100 )th item, P4 = L1 + [ 100 ]xi
F
N
N −c
P99 = Size of 99( 100 )th item, P99 = L1 + [ 100 ] x i
100

Mode

The value of the variable which occurs most frequently in a distribution is called the mode.

According to Croxton and Cowden, “ The mode may be regarded as the most typical of a
series of value”.

(i) Calculation of Mode:

Individual Series

There are two ways of calculating Mode in individual series

 By inspection

 By converting individual series into discrete series

Discrete Series

There are two methods for calculation of mode indiscrete frequency series

 Inspection Method

 Grouping Method

Frequency Distribution Series:

The exact value of Mode can be calculated with the following formula

f1−f0
Z = L1 + 2 f − f − f xi
1 0 2

Statistics Economics - XI
Relative Position of Arithmetic Mean, Median and Mode Suppose we express,
Arithmetic Mean = Me
Median = Mi
Mode = Mo
The relative magnitude of the three are Me > Mi > Mo or Me < Mi < Mo The Median is always
between the Arithmetic Mean and the Mode.

Multiple Choice Questions

1. Formula for finding arithmetic mean is

(a) X = ∑ X (b) X =
∑X
N
N
(c) X = ∑ X - N (d) X =
∑X
2. What is the formula to find out arithmetic mean through short-cut method in individual
series?

(a) X =
∑X (b) X = A +
∑d
N N

(c) X =
∑ X +A (d) X =
∑ fX
N ∑f
3. Which of the following is not a measure of central tendency?

(a) Mean (b) Mode

(c) Standard deviation (d) Median

4. Which is not a method to find arithmetic mean?

(a) Direct method (b) Short-cut method

(c) Step-deviation method (d) Karl Pearson's method

5. Assumed mean is taken in which method?

(a) Direct method (b) Step-deviation method

(c) Kar Pearson's method (d) Spearman's method

6. Which of the following formulae is used to find out median?

N N
−C . f . −C . f .
(a) M = l1 + 4 xi (b) M = l2 + 4 xi
f f

N −C.f .
(c) M = l1 + xi (d) None of these
f

Statistics Economics - XI
7. What is the relationship between mode, mean and median?

(a) Z = 3M + 2 X (b) Z = 3M - 2 X

3M −Z
(c) X = (d) Both (b) and (c)
2

8. In case of continuous frequency distribution, the size of____________ indicates class -

interval in which the median lies.

N +1 th N th
(a) [ ] item (b) [ ] item
2 2

N − 1 th
(c) [ ] item (d) None of these
2

9. Which one of the following average can be computed with the help of ogives?

(a) Simple Mean (b) Weighted Mean

(c) Mode (d) Median

10. In case of an even number of observations, which of the following is median?

(a) Weighted average of the two middle values

(b) Simple average of the two middle values
(c) Any of the two middle-most values
(d) None of these

True or False

State whether the following statements are True or False:

1. Central tendency refers to a central value of a statistical series.

(True/False)

2. Averages help in the formulation of economic policies.

(True/False)

3. The mean of weighted items is called weighted average.

(True/False)

4. Quartile divides a series into three equal parts.

(True/False)

5. Cumulative frequency indicates 'less than' or 'more than' value of the series.
(True/False)

Answer the following questions (1 Mark Each)

Statistics Economics - XI
1. What is weighted arithmetic mean?

2. Which arithmetic mean gives relative importance to each item?

3. In which case, weighted mean will be equal to simple mean?

4. Show the empirical relationship between mean, mode and median.

5. If Mean = 150 and Mode = 190, what will be median

Chapter - 6 Correlation
Correlation

It is a statistical method or a statistical technique that measures quantitative relationship

between different variables, like between price and demand.

According to Croxton and Cowden, “When the relationship is of a quantitative nature, the
appropriate statistical tool for discovering and measuring the relationship and expressing
it in a brief formula is known as correlation.”

Types of Correlation

Correlation is commonly classified into negative and positive correlation.

 Positive Correlation: When two variables move in the same direction, such a relation is
called positive correlation, e.g., Relationship between price and supply

Statistics Economics - XI
 Negative Correlation: When two variables changes in different directions, it is called
negative correlation. Relationship between price and demand.

 Linear Correlation: The two variables change in a constant proportion, it is called linear
correlation. If the two sets of data bearing fixed proportion 10 each other are shown on
a graph paper, their relationship will be indicated by a straight line. Thus, linear
correlation implies a straight line relationship.

 Non-Linear Correlation: when the two variables do not change in any constant
proportion, the relationship is said to be non-linear. Such a relationship does not form a
straight line relationship.

 Simple Correlation: Simple correlation implies the study of relationship between two
variables only. Like the relationship between price and demand or the relationship
between money supply and price level.

 Multiple Correlation: When the relationship among three or more than three variables
is studied simultaneously, it is called multiple correlation. In of such correlation, the
entire set of independent and dependent variables is simultaneously studied. For
instance, effect of rainfall, manure, water, etc., on per hectare productivity of wheat are
simultaneously studied.

 Partial Correlation: when more than two variables are involved and out of these the
relationship between only two variables is studied treating other variables as constant,
then the correlation is partial.

Degree of Correlation

(i) Degree of correlation refers to the coefficient of correlation

(ii) Absence of Correlation

(iii) Limited Degree of correlation

The degree of correlation between 0 and 1 may be rated as

 High (0.75 and 1)

 Moderate (0.25 and 0.75)

 Low (0 and 0.25)

Methods of Estimating Correlation

Statistics Economics - XI
(i) Scatter Diagram: Scattered diagram offers a graphic expression of the direction and
degree of correlation.

Karl Pearson’s Coefficient of Correlation

This is also known as product moment correlation and simple correlation coefficient.

Karl Pearson has given a quantitative method of calculating correlation Karl Pearson’s
coefficient correlation is generally written as V.

Formula According to Karl Pearson’s method, the coefficient of correlation is measured as

r=
∑ xy
N σx σ y

Where,

r = Coefficient of correlation;

x=x–x

Statistics Economics - XI
y= y – y

σx = Standard deviation of x series

σy = Standard deviation of y series

N= Number of observations

If there is no need to calculate standard deviation of x and y directly using the following
formula

∑ xy
r=
√∑ x 2 x ∑ y 2
Here, x(x – x ), y = (y – y )

Short-cut Method

This method is used when mean value is not in whole number but in fractions. In this
method, deviation is calculated by taking the assumed mean both the series.

Coefficient of correlation is calculated using the following formula

Here, dx = deviation of x series from the assumed mean = (x – A)

dy = deviation of y series from the assumed mean = (y – A)

Σ dxdy – sum of the multiple of dx and dy

Σ dx2 = sum of square of dx

Σ dy2 = sum of square of dy

Σdx= sum of deviation of x-series

Σdy = sum of deviation of y-series

N = Total number of items

Step Deviation Method

Coefficient of correlation is calculated using the following formula

Statistics Economics - XI
Spearman’s Rank Correlation Coefficient

In 1904, ‘Charles Edwards Spearman’ developed a formula to calculate coefficient

correlation of qualitative variables. It is popularly known as Spearman’s rank. Difference
formula or method.

Coefficient of Rank Correlation when Ranks are Equal formula

Here, m = number of items of equal ranks.

Importance or Significance of Correlation

 The study of correlation shows the direction and degree of relationship between the
variables.
 Correlation coefficient some times suggests cause and effect relationship.
 Correlation analysis facilitates business decisions because the trend path of one variable
may suggest the expected changes in the other.
 Correlation analysis also helps policy formulation.

Properties of correlation

(i) r has no unit. It is a pure number. It means units of measurement are not parts of r.

(ii) A negative value of r indicates an inverse relation, and if r is positive, the two variables
move in the same direction.

(iii) If r = 0, the two variables are uncorrelated. There is no linear relation between them.
However, other types of relation may be there.

(iv) If r = 1 or r = -1, the correlation is perfect or proportionate. A high value of r indicates

strong linear relationship, i.e., + 1 or -1.

Statistics Economics - XI
(v) The value of the correlation coefficient lies between minus one and plus one, i.e., - 1 ≤ r ≤
+ 1. If the value of r lies outside this range, it indicates error in calculation.

Multiple Choice Questions

1. Which of the following equations is correct?

6 ∑ D2 H+ L
(a) rk = 1 - (b)
N 2

6 ∑ D2 6 ∑ D2
(c) rk = 1 - (d) rk = 1 -
N 3− N N 4− N

2. Formula of Karl Pearson’s coefficient of correlation is:

(a)
N σ X σY
(b)
∑ xy
∑ xy N σ X σY

(c)
σ X σY
(d)
∑ xy
∑ xy σ X σY

3. Maximum value of rank correlation coefficient is

(a) 0 (b) +1
(c) -1 (d) None of these

4. If the relationship between x and y is positive, as variable y decreases, variable x:

(a) Increases (b) Decreases

(c) Remains same (d) Changes linearly

5. The correlation coefficient will be -1 if the slope of the straight line in scatter diagram is:

(a) Positive (b) Negative

(c) Zero (d) None of these

6. The statistical tool that studies the degree of association between two variables is
called:

a) Correlation b) Regression
c) Index numbers d) None of these

7. The coefficient of correlation has the following limits:

a) -1 to +1 b) 0 to +1
c) -1 to -0.5 d) 0 to 0.5

8. The scatter diagram is a graphical representation of the:

Statistics Economics - XI
a) Coefficient of correlation
b) Strength of association between two variables
c) Linear relationship between two variables
d) None of these

9. The rank correlation coefficient is a measure of:

a) The degree of association between two variables

b) The direction of association between two variables
c) The strength of association between two variables
d) None of these

10. The coefficient of correlation is independent of:

a) The units of measurement of the variables b) The number of observations

c) The direction of association between the variables d) None of these

True or False
State whether the following statements are True or False:

1. Definite relation between two or more than two groups or series is called correlation.

(True/False)

2. Coefficient of correlation is always positive.

(True/False)

3. In scattered diagram, more the different points are close to each other, less will be the
value correlation.
(True/False)

4. If the value of coefficient of correlation is + 1, it implies that correlation between the two
variables is perfectly positive.
(True/False)

5. Karl Pearson's method of correlation apply to those series where deviations are calculated
on the basis of assumed mean.
(True/False)

Answer the following questions (1 Mark Each)

1. When can we say that the correlation coefficient is zero?

2. What is the nature of correlation of two variables when they move in the same direction?

3. When there is perfect correlation?

4. What are the two mathematical methods for measuring coefficient of correlation?

5. When is rank correlation method used?

Statistics Economics - XI
Chapter - 7 Index Number
Index Number

An index number is a statistical device for measuring changes in the magnitude of a group of
related variables. It represents the general trend of diverging ratios from which it is
calculated.

According to Croxton and Cowden, “Index numbers are devices for measuring difference in
the magnitude of a group of related variables.”

Statistics Economics - XI
Methods of Constructing Index Numbers:

Construction of Simple Index Numbers

There are two methods of constructing simple index numbers:

(i) Simple Aggregative Method: In this method, we use the following formula

∑ P1
P01 = x 100
∑ P0
Here, P01 = Price index of current year
ΣP1 = Sum of prices of the commodities in the current year
ΣP0 = Sum of prices of the commodities in the base year

(ii) Simple Average of Price Relatives Method

According to this method, we first find out price relatives from each commodity and then
take simple average of all the prices relatives.

Price relatives, P01 = Current year price ¿ ¿ x 100

We can find out price index number of the current year by using the following formula

P
P01 =
∑ 1
[ x 100]
P0
N

Construction of Weighted Index Numbers

(i) Weighted Average of Price Relative Method

According to this method, weighted sum of the price relatives is divided by the sum total of
the weight. In this method, goods are given weight according to their quantity, thus

Statistics Economics - XI
 ∑ RW
P01 =
∑W
Here, P01 = Index number for the current year in relation to the base year
W = weight
R = price relative

(ii) Weighted Aggregative Method: Under this method, different goods are accorded weight
according to the quantity bought therefore, suggested different techniques of weighting
some of well known methods are as under

Fisher’s Method is considered as ‘Ideal’ because

 It is based on variable weights.

 It takes into consideration the price and quantities of both the base year and current
year.

 It is based on Geometric Mean (GM) which is regarded as the best mean for calculating
index number.

 Fisher’s index number satisfies both the Time Reversal Test and Factor Reversal Test.

Consumer Price Index or Cost of Living Index Number

The consumer price index is the index number which measures the averages change in
prices paid by the specific class of consumers for goods and services consumed by them in
the current year in comparison with base year.

Construction of Consumer Price Index

 Selection of the consumer class

 Information about the family budget

 Choice of base year

 Information about prices

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 Weightage – There are two ways of according weights

 Quantity weight

 Expenditure weight

The following formula is used to find consumer’s price index

Consumer Price Index (CPI) =

∑ WR
∑W
Wholesale Price Index (WPI)

The Wholesale Price Index (WPI) measures the relative changes in the prices of commodities
traded in the wholesale markets. In India, the wholesale price index numbers are
constructed on weekly basis.

Industrial Production Index

The index number of industrial production measures changes in the level of industrial
production comprising many industries. It includes the production of the public and the
private sector. It is a weighted average of quantity relatives. The formula for the index is

∑ q1 x W
P01 = x 100
∑W
Construction of Index Number of Industrial Production

 Classification of industries

 Statistics or data related to industrial production

 Weightage

Agricultural Production Index

Index number of agricultural production is weighted average of quantity relatives.

Sensex

Sensex is the index showing changes in the Indian stock market. It is a short form of a
Bombay Stock Exchange sensitive index. It is constructed with 1978-79 as the reference year
or the base year. It consists of 30 stocks of leading companies in the country.

Purpose of Constructing Index Number

Statistics Economics - XI
 Purpose of constructing index number of prices is to know the relative change or
percentage in the price level over time. A rising general price level over time is a pointer
towards inflation, while a falling general price level over time is a pointer towards
deflation.

 Purpose of constructing index number of quantity is to know relative change or

percentage change in the quantum or volume of output of different goods and services.
A rising index of quantity suggests a rising level of economic activity and vice-versa.

Multiple Choice Questions

3. Which of the following equation is correct

(a) P01 =
∑ RW x 100 (b) P01 =
∑ RW
∑W ∑W

(c) P01 =
∑ W x 100 (d) P01 =
∑W
∑ RW ∑ RW
4. Which of the following formula is proposed by Fisher?

(a) P01 =
∑ p1 q1 (b) P01 =
∑ p1 q0 x 100
∑ p 0 q1 ∑ p 0 q0

(c) P01 =
√ ∑ p 1 q 0 x ∑ p1 q 1 x 100
∑ p 0 q 0 ∑ p0 q 1
(d) None of these

Current Year Price

5. Price relatives = x 100
?

(a) Reference year Price (b) Periodic Year Price

(c) Base Year Price (d) Both (a) and (b)

6. Rate of inflation is equal to:

A1 A2+ A1
(a) x 100 (b) x 100
A2+ A1 A1

A1 A2− A1
(c) x 100 (d) x 100
A2− A1 A1

7. Consumer Price Index is also known as:

(a) Industrial Production Index (b) Cost of Living Index

(c) Wholesale Price Index (d) None of these

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6. An index number that can serve many purposes is known as:

(a) General purpose index (b) Special purpose index

(c) Both (a) and (b) (d) None of the above

7. For which time period is an index number determined:

(a) Base period (b) Normal period

(c) Current period (d) None of the above

8. Pick the correct limitations of using index numbers?

(a) The use of each index number is restricted to a specific object

(b) It ignores the quality of commodities

(c) It is useful only for short-term comparison

(d) All of the above

9. What is the weight used in a quantity index?

(a) Quantity (b) Values

(c) Price (d) None of the above

10. The index number that is based on the prices of the current year and the base year is
known as:

(a) Simple aggregative index number (b) Paasche's index number

(c) Fisher's index number (d) None of the above

True or False
State whether the following statements are True or False:

1. Index numbers measure relative changes in the variables over time.

(True/False)

2. A rising index of price suggest a rising level of economic activity.

(True/False)

3. In weighted index, weights are accorded to different items depending on their relative
importance.
(True/False)

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4. Consumer price index numbers are constructed to measure the effect of average changes
in wholesale prices on consumers living in different places.
(True/False)

5. Simple index number can be constructed only by the simple aggregative method.

(True/False)

Q3. Answer the following questions (1 Mark Each)

1. What is the difference between unweighted and weighted index numbers?

2. What is meant by price relative?

3. Whether change in price is reflected by price index number?

4. State any one use of index numbers.

4. State on principle limitation of index number.

Statistics Economics - XI