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Unit 1: Statistics

1.2 Importance of Statistics Notes

It is perhaps difficult to imagine a field of knowledge which can do without statistics. To begin
with, the State started the use of statistics and now it is being used by almost every branch of
knowledge such as physics, chemistry, biology, sociology, geography, economics, business, etc.
The use of statistics provides precision to various ideas and can also suggest possible ways of
tackling a problem relating to any of the above subjects. The importance of statistics has been
summarized by A.L. Bowley as, “A knowledge of statistics is like a knowledge of foreign
language or of algebra. It may prove of use at any time under any circumstances.”
We shall discuss briefly, the importance of statistics in the following major areas:
1. Importance to the State: We know that the subject of statistics originated for helping the
ancient rulers in the assessment of their military and economic strength. Gradually its
scope was enlarged to tackle other problems relating to political activities of the State. In
modern era, the role of State has increased and various governments of the world also
take care of the welfare of its people. Therefore, these governments require much greater
information in the form of numerical figures for the fulfillment of welfare objectives in
addition to the efficient running of their administration.
In a democratic form of government, various political groups are also guided by the
statistical analysis regarding their popularity in the masses. Thus, it can be said that it is
impossible to think about the functioning of modern state in the absence of statistics.
2. Importance in economics: Statistics is an indispensable tool for a proper understanding of
various economic problems. It also provides important guidelines for the formulation of
various economic policies.
Almost every economic problem is capable of being expressed in the form of numerical
figures, e.g., the output of agriculture or of industry, volume of exports and imports,
prices of commodities, income of the people, distribution of land holding, etc. In each
case, the data are affected by a multiplicity of factors. Further, it can be shown that the
other conditions prescribed for statistical data are also satisfied. Thus, we can say that the
study of various economic problems is essentially the one of a statistical nature.
Inductive method of generalisation, popularly used in economics, is also based on statistical
principles. Various famous laws in economics such as, the law of diminishing marginal
utility, the law of diminishing marginal returns, the theory of revealed preference, etc.,
are based on generalisations from observation of economic behaviour of a large number
of individuals. Statistical methods are also useful in estimating a mathematical relation
between various economic variables. For example, the data on prices and corresponding
quantities demanded of a commodity can be used to estimate the mathematical form of
the demand relationship between two variables. Further, the validity of a generalisation
or relation between variables can also be tested by using statistical techniques.
Statistical analysis of a given data can also be used for the precise understanding of an
economic problem. For example, to study the problem of inequalities of income in a
society, we can classify the relevant data and, if necessary, compute certain measures to
bring the problem into focus. Using statistics, suitable policy measures can also be adopted
for tackling this problem. Similarly, statistical methods can also be used to understand
and to suggest a suitable solution for problems in other areas such as industry, agricultural,
human resource development, international trade, etc.

Realising the importance of statistics in economics, a separate branch of economics, known
as econometrics has been developed during the recent years. The techniques of econometrics
are based upon the principles of economics, statistics and mathematics.

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