1

Statistics for Economics Class 11

Notes 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
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Statistics – A Plural Sense Statistics refers to information in terms

of numbers or numerical data, such as population statistics,
employment statistics etc.
Accqrding to Bowley, “Statistics are numerical statements of facts
in any department of enquiry placed in relation to each other.”

Features of Statistics in the Plural Sense

• Aggregate of facts
• Numerically expressed
• Affected by multiplicity of causes
• Reasonable accuracy
• Placed in relation to each other
• Predetermined purpose
• Estimated

Statistics – 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

• Inter-sectoral and inter-temporal comparisons
• Working out cause and effect relationship
• Construction of economic theories or economic models
• Economic forecasting
• Formulation of policies
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Limitations of Statistics:

• Study of numerical facts only

• Study of aggregates only
• Results are true only on an average
• Without reference, results may prove to be wrong
• Can be used only by the experts
• Prone to misuse

Statistics for Economics Class 11

Notes 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.
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• 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
• 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
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• 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

• 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
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(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
• Unpublished sources

(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
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(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
• 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

(vi) Sample Method

It is that method in which data is collected about the sample on a
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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

• 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
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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.

Statistics for Economics Class 11

Notes 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.
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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.
• Qualitative Classification This classification is according to
qualities or attributes of the data.
This classification may be of two types
•
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• 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

• According to serial numbers

• 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.
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• 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

• 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 b 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.
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• Bivariate Distribution A bivariate distribution is the frequency

distribution of two variables.

Statistics for Economics Class 11

Notes Chapter 4 Presentation of Data
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
• Title
• Head note
• Stubs
• Caption
• Body or field
• Footnotes
• Source

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

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• 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.
• 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.
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• 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
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• 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.

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

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• 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

Statistics for Economics Class 11

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

X¯¯¯¯=x1+x2+x3+……xNN or ΣX¯¯¯¯¯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

X¯¯¯¯=ΣXN or X¯¯¯¯= Total value of the item Number of items

• Short-cut Method By short cut method, we find the

Arithmetic Mean from the following formula

X¯¯¯¯=A+ΣdN
Here, X¯¯¯¯ = Arithmetic Mean, A = Assumed average of Ed =
Net sum of the deviations of the different values from the
assumed average; and 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

X¯¯¯¯=ΣfXΣf
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• Short-cut Method Short cut method of estimating mean of

the discrete frequency series uses the following formula

X¯¯¯¯=A+ΣfdΣf
• 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

X¯¯¯¯=A+ΣfdΣf×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

X¯¯¯¯=ΣfmΣf
m = mid-value, mid-value = L1+L22
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

X¯¯¯¯=A+ΣfdΣf
(c) Step Deviation Method According to this method, we find the
Arithmetic Mean by the following formula

X¯¯¯¯=A+Σfd′Σf×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
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X¯¯¯¯W=ΣWXΣW
(i) Merits

• Simplicity
• Certainty
• Based on all items
• Algebraic treatment
• Stability
• Basis of comparison
• Accuracy test

(ii) Demerits

• Effect of extreme value

• 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

M = Size of (N+12)th item

When N of the series is an even number, Median is estimated using
the following formula
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(b) Discrete Series Calculation of Median in case of discrete series or

frequency array involves the following formula

M = Size of (N+12)th item

(c) Frequency Distribution Series
The following formula is applied to determine the Median Value

Quartiles
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

(b) Frequency Distribution Series In frequency distribution series,

the class interval of Q1 and Q3 are first identified as under
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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

(ii) Frequency Distribution Series

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
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• 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

Z=L1+f1−f02f1−f0−f2xi

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.

Statistics for Economics Class 11

Notes Chapter 6 Measures of
Dispersion
Dispersion
“It is the measure of the variation of the item”. According to
Spiegel, ‘The degree to which numerical data tend to spread about
an average value is called the variation or dispersion of the data”.
Different methods of measuring dispersion are

• Range
• Quartile deviation
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• Mean deviation
• Standard deviation

Range Range is the difference between the highest value and the
lowest value in a series.
R = H – L or L – S
H or L = Highest or Largest value of series
L or S = Lowest or Smallest value of series

Coefficient of range = H−LH+L or L−SL+S

Calculation of Range and Coefficient of Range

(i) Individual Series and Discrete Series
Range = H – L or L – S

Coefficient of Range = H−LH+L or L−SL+S

(ii) Frequency Distribution Series

• Mid values of the class interval are found, difference between

the highest and lowest values would be the range.
• According to this method, we find the difference between
lower limit of the first class interval and upper limit of the
last class interval in the series would be the range.

(iii) Inter Quartile Range

Difference between third quartile ( Q3) and first quartile of a series,
is called Inter quartile range.
IQR = Q3 – Q1

Quartile Deviation
Quartile deviation is half of inter quartile range.
QD = Q3−Q12
It is also called semi-inter quartile range.
(i) Coefficient of Quartile Deviation (Coefficient of QD)
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Coefficient of QD = Q3−Q1Q3+Q1
(ii) Calculation of Quartile Deviation
(a) Individual Series and Discrete Series First find out Q1 and
Q3 from the following equations

(b) Frequency Distribution

Mean Deviation
“Mean deviation is the arithmetic average of deviation of all the
values taken from a statistical average of series. In taking deviation
of values, algebraic signs + and – are not taken into consideration,
that is negative deviations are also treated as positive deviations”.
(i) Formulas for Mean Deviation
(a) If deviations are taken from median, the following formula is
used
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(b) If deviation are taken from arithmetic mean of the series

(ii) Coefficient of Mean Deviation

• Coefficient of mean deviation from Mean = MDX¯¯¯X¯¯¯¯¯

• Coefficient of MD from Median = MDMM
• Coefficient of MD from Mode = MDZZ

(iii) Calculation of Mean Deviation or Coefficient of Mean Deviation

(a) Individual Series
Estimating MD through Median, MD = Σ|dM|N
Estimating MD through Mean, MD = Σ|dX¯¯¯¯¯|N
Estimating Coefficient of MD through Median Coefficient of MD
= MDMM
Estimating Coefficient of MD through Mean Coefficient of MD
= MDX¯¯¯X¯¯¯¯¯

(b) Discrete Series

Estimating MD through median, MDM = Σf|dm|N
Estimating MD through mean, MDX¯¯¯¯¯ = Σf|dX¯¯¯¯¯|N

Estimating Coefficient of MD through Median Coefficient of MD

= MDMN
Estimating Coefficient of MD through Median Coefficient of MD
= MDX¯¯¯X¯¯¯¯¯
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(c) Frequency Distribution Series

Mean deviation from Median, MDM = Σf|dM|Σf
Coefficient of MD = MDMM

Mean deviation from Mean, MDX¯¯¯¯¯ = Σf|dX¯¯¯¯¯|Σf

Coefficient of MD = MDX¯¯¯X¯¯¯¯¯

Standard Deviation
Standard deviation is the square root of the arithmetic mean of
the squares of deviations of the items from their mean values.

Coefficient of Standard Deviation

This is a relative measure of the dispersion of series.
Coefficient of standard deviation (Coefficient of σ) = σX¯¯¯¯¯
(i) Calculation of Standard Deviation
(a) Direct Method

Here, σ = Standard Deviation;

ΣX2 = Sum total of the squares of deviation,

X¯¯¯¯ = Mean Value,

X−X¯¯¯¯ = Deviation from mean value;
N = number of items
(b) Short-cut Method

(c) Step Deviation Method

(ii) Calculation of Coefficient of Variation

(a) Individual series = σX × 100
28

(b) Discrete series = σX × 100

(c) Frequency distribution series = σX × 100

Lorenz Curve
It is a curve that shows deviation of actual distribution from the
showing equal distribution.
(i) Construction of the Lorenz Curve

• Calculate class mid-points

• Calculate cumulative frequencies as in column 6
• Express the grand total of column 3 and 6 as 100 and
convert the cumulative totals in these columns in to
percentage.
• Now, on the graph paper, take the cumulative percentage of
the variable on Y-axis and cumulative percentages of X-axis.
• Draw a line joining co-ordinate (0, 0) with (100,100) this is
called the line of equal distribution.
• Plot the cumulative percentages of the variable with
cumulative percentages of frequency.

Statistics for Economics Class 11

Notes Chapter 7 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.”
29

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
• Negative Correlation When two variables changes in different
directions, it is called negative correlation. Relationship
between price and demand.

Degree of Correlation
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

(i) Scatter Diagram Scattered diagram offers a graphic expression
30

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=ΣxyNσxσy
Where,
r = Coefficient of correlation;

x=x – x¯¯¯
y= y – y¯¯¯
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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

r=ΣxyΣx2×Σy2√
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
32

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.

Statistics for Economics Class 11

Notes Chapter 8 Index Numbers
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
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measuring difference in the magnitude of a group of related

variables.”

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

P01=ΣP1ΣP0×100
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 (P1) Base year price (P0)×100
We can find out price index number of the current year by using
the following formula

P01=∑[P1P0×100]N

Construction of Weighted Index Numbers

(i) Weighted Average of Price Relative Method
According to this method, weighted sum of the price relatives is
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divided by the sum total of the weight. In this method, goods are
given weight according to their quantity, thus

P01=ΣRWΣW
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.
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Construction of Consumer Price Index

• Selection of the consumer class

• Information about the family budget
• Choice of base year
• Information about prices
• 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) = ΣWRΣW

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

P01=Σq1×WΣW×100

Construction of Index Number of Industrial Production

• Classification of industries
• Statistics or data related to industrial production
• Weightage
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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

• 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.