Statistics for Economics & Introductory Microeconomics for CBSE CLASS 11

Complete Academic Notes By Rashid K. (RK) Sir

PART A: STATISTICS FOR ECONOMICS

Unit 1: Introduction

What is Economics?

Definition: Economics is a social science that studies how individuals, businesses, governments, and societies make choices about allocating scarce resources to satisfy unlimited wants and needs.

Key Characteristics:

Studies human behavior in relation to resource allocation
Deals with scarcity and choice
Analyzes production, distribution, and consumption of goods and services

Statistics in Economics

Definition: Economic statistics is the application of statistical methods to collect, analyze, interpret, and present economic data.

Meaning: Statistics in economics refers to the systematic collection, organization, analysis, and interpretation of numerical data related to economic phenomena.

Scope:

Data collection from various economic sectors
Analysis of economic trends and patterns
Forecasting economic variables
Policy formulation and evaluation

Functions:

Descriptive Function: Summarizes and describes economic data
Analytical Function: Analyzes relationships between economic variables
Predictive Function: Forecasts future economic trends
Policy Function: Aids in economic policy formulation

Importance:

Helps in understanding economic phenomena
Facilitates evidence-based decision making
Enables comparison across time and regions
Supports economic planning and policy formulation
Aids in testing economic theories

Example: GDP statistics help governments understand economic growth patterns and make informed policy decisions.

Unit 2: Collection, Organisation and Presentation of Data

Collection of Data

Definition: Data collection is the systematic process of gathering information relevant to the research objectives.

Sources of Data

1. Primary Data

Definition: Data collected directly from the source for the first time for a specific purpose
Characteristics: Original, first-hand, current, specific to research needs
Methods: Surveys, interviews, observations, experiments
Example: A researcher conducting a survey on consumer spending habits

2. Secondary Data

Definition: Data that has been collected by someone else for a different purpose but is used by the researcher
Characteristics: Already exists, less expensive, time-saving
Sources: Government publications, research reports, databases
Example: Using census data to study population demographics

Sampling Concepts

Definition: Sampling is the process of selecting a subset of individuals from a population to estimate characteristics of the whole population.

Types:

Random Sampling: Every member has equal chance of selection
Systematic Sampling: Selecting every nth member
Stratified Sampling: Dividing population into strata and sampling from each

Methods of Data Collection

Direct Personal Investigation: Researcher directly collects data
Indirect Oral Investigation: Information collected through third parties
Information through Correspondence: Data collected via mail/email
Information through Enumerators: Trained persons collect data

Important Secondary Data Sources

1. Census of India

Conducted every 10 years
Provides demographic, social, and economic data
Covers entire population

2. National Sample Survey Organisation (NSSO)

Conducts sample surveys on various socio-economic subjects
Provides data on employment, consumption, housing, etc.

Organisation of Data

Variables

Definition: A variable is a characteristic or attribute that can take different values.

Types:

1. Quantitative Variables

Can be measured numerically
Example: Income, age, height

2. Qualitative Variables

Cannot be measured numerically
Example: Gender, religion, occupation

3. Discrete Variables

Can take only specific values
Example: Number of children (1, 2, 3...)

4. Continuous Variables

Can take any value within a range
Example: Height, weight, temperature

Frequency Distribution

Definition: A frequency distribution is a tabular representation showing the number of times each value or range of values occurs in a dataset.

Components:

Class Interval: Range of values
Frequency: Number of observations in each class
Class Boundaries: Exact limits of classes
Class Mark: Midpoint of class interval

Example:

Income Range (₹) Frequency
10,000-20,000 15
20,001-30,000 25
30,001-40,000 20
40,001-50,000 10

Income Range (₹)	Frequency
10,000-20,000	15
20,001-30,000	25
30,001-40,000	20
40,001-50,000	10

Presentation of Data

Tabular Presentation

Definition: Systematic arrangement of data in rows and columns.

Components:

Title: Brief description of the table
Stub: Left-hand side showing row categories
Caption: Top showing column categories
Body: Main content with data
Source: Origin of data

Diagrammatic Presentation

1. Geometric Forms

Bar Diagrams

Definition: Rectangular bars representing data
Types: Simple, multiple, component bars
Example: Comparing GDP of different countries

Pie Diagrams

Definition: Circle divided into sectors proportional to data values
Use: Showing parts of a whole
Example: Government budget allocation by sectors

2. Frequency Diagrams

Histogram

Definition: Bar chart for continuous data with no gaps between bars
Use: Showing frequency distribution of continuous variables

Polygon

Definition: Line graph connecting midpoints of histogram bars
Use: Comparing two or more frequency distributions

Ogive

Definition: Graph of cumulative frequency
Types: Less than and more than ogive
Use: Finding median and quartiles graphically

3. Arithmetic Line Graphs

Time Series Graph

Definition: Graph showing data changes over time
Components: X-axis (time), Y-axis (variable)
Example: Stock price movements over months

Unit 3: Statistical Tools and Interpretation

Measures of Central Tendency

Definition: Central tendency measures represent the typical or central value in a dataset.

Arithmetic Mean

Definition: The sum of all values divided by the number of values.

Formula:

Simple Mean: X̄ = ΣX/N
Weighted Mean: X̄ = ΣWX/ΣW

Properties:

Affected by extreme values
Algebraically tractable
Used in further calculations

Example: Marks: 80, 85, 90, 75, 95 Mean = (80+85+90+75+95)/5 = 425/5 = 85

Median

Definition: The middle value when data is arranged in ascending or descending order.

Formula:

For odd n: Median = (n+1)/2 th value
For even n: Median = average of n/2 and (n/2+1) th values

Properties:

Not affected by extreme values
Suitable for ordinal data
Positional average

Example: Values: 10, 15, 20, 25, 30 Median = 20 (middle value)

Mode

Definition: The value that appears most frequently in the dataset.

Properties:

Not affected by extreme values
May not exist or may not be unique
Suitable for qualitative data

Example: Values: 2, 3, 4, 4, 4, 5, 6 Mode = 4 (appears thrice)

Correlation

Definition: Correlation measures the strength and direction of linear relationship between two variables.

Properties:

Ranges from -1 to +1
+1 indicates perfect positive correlation
-1 indicates perfect negative correlation
0 indicates no linear correlation

Scatter Diagram

Definition: Graphical representation showing the relationship between two variables.

Interpretation:

Points moving upward from left to right: Positive correlation
Points moving downward from left to right: Negative correlation
Scattered points with no pattern: No correlation

Karl Pearson's Method

Formula: r = Σ(x-x̄)(y-ȳ)/√[Σ(x-x̄)²Σ(y-ȳ)²]

Alternative Formula: r = (NΣxy - ΣxΣy)/√[(NΣx² - (Σx)²)(NΣy² - (Σy)²)]

Example: If correlation between price and demand is -0.8, it indicates strong negative relationship.

Spearman's Rank Correlation

Definition: Measures correlation between ranks of two variables.

Formula: rs = 1 - (6Σd²)/(n(n²-1))

For Repeated Ranks: Assign average ranks and use correction factor.

Example: Correlation between ranks in two subjects given to students.

Index Numbers

Definition: Statistical measure showing changes in a variable or group of variables over time relative to a base period.

Types of Index Numbers

1. Wholesale Price Index (WPI)

Measures price changes at wholesale level
Used for policy formulation
Base year methodology

2. Consumer Price Index (CPI)

Measures price changes affecting consumers
Used for inflation measurement
Different for different groups (urban, rural, industrial workers)

3. Index of Industrial Production (IIP)

Measures production changes in industrial sector
Covers mining, manufacturing, electricity

Uses of Index Numbers

Economic Policy: Formulation of monetary and fiscal policies
Business Planning: Price forecasting and budgeting
Real Income Calculation: Deflating nominal values
International Comparisons: Comparing economic performance

Inflation and Index Numbers

Definition: Inflation is the sustained increase in general price level.

Relationship: Inflation rate = [(CPI current - CPI base)/CPI base] × 100

Simple Aggregative Method

Formula: P₀₁ = (Σp₁/Σp₀) × 100

Where:

P₀₁ = Price index
Σp₁ = Sum of current year prices
Σp₀ = Sum of base year prices

Example: Base year prices: ₹10, ₹20, ₹30 (Total: ₹60) Current year prices: ₹12, ₹24, ₹36 (Total: ₹72) Index = (72/60) × 100 = 120

PART B: INTRODUCTORY MICROECONOMICS

Unit 4: Introduction

Microeconomics vs Macroeconomics

Microeconomics

Definition: Study of individual economic units (consumers, firms, industries)
Focus: Individual behavior and decision-making
Examples: Consumer choice, firm's production decisions, market prices

Macroeconomics

Definition: Study of economy as a whole
Focus: Aggregate economic variables
Examples: National income, inflation, unemployment, economic growth

Positive vs Normative Economics

Positive Economics

Definition: Describes what is or what was
Characteristics: Objective, factual, testable
Example: "Increase in price leads to decrease in demand"

Normative Economics

Definition: Prescribes what ought to be
Characteristics: Subjective, value-based judgments
Example: "Government should provide free healthcare"

What is an Economy?

Definition: An economy is a system of production, distribution, and consumption of goods and services within a geographic area.

Components:

Economic agents (households, firms, government)
Economic activities (production, consumption, investment)
Economic institutions (markets, laws, regulations)

Central Problems of an Economy

Definition: Fundamental questions every economy must answer due to scarcity of resources.

The Three Central Problems:

1. What to Produce?

Which goods and services to produce
In what quantities
Example: Should resources be used for cars or buses?

2. How to Produce?

Choice of production technique
Labor-intensive vs capital-intensive methods
Example: Should farming use manual labor or machines?

3. For Whom to Produce?

Distribution of output among people
Income distribution issues
Example: Should luxury goods be produced for rich or necessities for poor?

Production Possibility Frontier (PPF)

Definition: A curve showing maximum combinations of two goods that can be produced with available resources and technology.

Assumptions:

Fixed resources
Given technology
Full employment
Two goods only

Shape: Typically concave to origin due to increasing opportunity cost

Example: If an economy can produce either 100 guns or 50 butter units:

Point A: (100 guns, 0 butter)
Point B: (50 guns, 25 butter)
Point C: (0 guns, 50 butter)

Key Points:

Points on PPF: Efficient production
Points inside PPF: Inefficient (unemployment)
Points outside PPF: Unattainable with current resources

Opportunity Cost

Definition: The value of the next best alternative foregone when making a choice.

Formula: Opportunity Cost = Value of Next Best Alternative Sacrificed

Example: If a student chooses to study economics instead of mathematics, the opportunity cost is the benefits from studying mathematics.

Relationship with PPF: The slope of PPF represents opportunity cost.

Unit 5: Consumer's Equilibrium and Demand

Consumer's Equilibrium

Definition: A situation where a consumer maximizes satisfaction given their income and prices of goods.

Utility Analysis

Utility

Definition: Satisfaction derived from consuming a good or service
Types: Total Utility (TU), Marginal Utility (MU)

Total Utility

Definition: Total satisfaction from consuming all units of a good
Characteristic: Generally increases with consumption

Marginal Utility

Definition: Additional satisfaction from consuming one more unit
Formula: MU = ΔTU/ΔQ = TUn - TUn-1

Law of Diminishing Marginal Utility

Statement: As consumption of a good increases, marginal utility decreases
Assumptions: Rational consumer, standard units, continuous consumption
Example: First slice of pizza gives high satisfaction, subsequent slices give decreasing satisfaction

Conditions of Consumer's Equilibrium (Cardinal Approach)

Single Commodity: MU = Price (in terms of money)

Multiple Commodities: MUx/Px = MUy/Py = MU of money

Example: If MU of apple is 20 utils and price is ₹4, and MU of orange is 15 utils and price is ₹3:

MU/P for apple = 20/4 = 5
MU/P for orange = 15/3 = 5
Consumer is in equilibrium

Indifference Curve Analysis

Consumer's Budget

Budget Set

Definition: All combinations of goods a consumer can afford
Mathematical Expression: PxX + PyY ≤ M (where M is income)

Budget Line

Definition: Boundary of budget set showing maximum affordable combinations
Equation: PxX + PyY = M
Slope: -Px/Py (rate at which goods can be substituted in market)

Properties:

Downward sloping
Shifts with income changes
Rotates with price changes

Indifference Curve

Definition: Curve showing combinations of goods yielding same satisfaction
Properties:
1. Downward sloping
2. Convex to origin
3. Higher curves represent higher satisfaction
4. Cannot intersect

Indifference Map: Family of indifference curves

Marginal Rate of Substitution (MRS)

Definition: Rate at which consumer is willing to substitute one good for another
Formula: MRS = -ΔY/ΔX
Diminishing MRS: MRS decreases along the curve

Consumer's Equilibrium (Ordinal Approach)

Condition: MRS = Price ratio (Px/Py)

Graphical Representation: Point where budget line is tangent to highest possible indifference curve

Demand

Definition: Quantity of a good that consumers are willing and able to purchase at different prices during a specific time period.

Market Demand

Definition: Sum of individual demands of all consumers in the market.

Determinants of Demand

Price of the good (main determinant)
Income of consumer
Prices of related goods (substitutes and complements)
Tastes and preferences
Future expectations
Number of buyers

Demand Schedule and Curve

Demand Schedule: Tabular representation of price-quantity relationship

Example:

Price (₹) Quantity Demanded
10 100
20 80
30 60
40 40

Price (₹)	Quantity Demanded
10	100
20	80
30	60
40	40

Demand Curve: Graphical representation, typically downward sloping

Slope: Negative (inverse relationship between price and quantity)

Movement vs Shifts in Demand

Movement Along Demand Curve

Cause: Change in price of the good
Types: Expansion (price falls) and Contraction (price rises)

Shift in Demand Curve

Cause: Change in factors other than price
Types: Increase (rightward shift) and Decrease (leftward shift)

Price Elasticity of Demand

Definition: Responsiveness of quantity demanded to changes in price.

Formula: Ed = (% change in Quantity Demanded)/(% change in Price)

Types:

Perfectly Elastic (Ed = ∞): Horizontal demand curve
Perfectly Inelastic (Ed = 0): Vertical demand curve
Unitary Elastic (Ed = 1): Proportionate change
Relatively Elastic (Ed > 1): More responsive
Relatively Inelastic (Ed < 1): Less responsive

Factors Affecting Price Elasticity

Availability of substitutes: More substitutes = more elastic
Nature of commodity: Necessities are inelastic
Proportion of income spent: Higher proportion = more elastic
Time period: Long run more elastic than short run
Number of uses: More uses = more elastic

Measurement Methods

1. Percentage Method Ed = (% change in Qd)/(% change in P)

2. Total Expenditure Method

Elastic: Price ↑, Total expenditure ↓
Inelastic: Price ↑, Total expenditure ↑
Unitary: Price ↑, Total expenditure unchanged

Example: If price of petrol increases by 10% and quantity demanded decreases by 5%: Ed = -5%/10% = -0.5 (inelastic demand)

Unit 6: Producer Behaviour and Supply

Production Function

Definition: Relationship between inputs used and maximum output produced.

Mathematical Expression: Q = f(L, K, N, T) Where Q = Output, L = Labor, K = Capital, N = Land, T = Technology

Short-Run vs Long-Run

Short-Run

Definition: Period where at least one factor is fixed (usually capital)
Variable factors: Can be changed (labor, raw materials)

Long-Run

Definition: Period where all factors can be varied
Characteristics: No fixed factors, plant size can change

Product Concepts

Total Product (TP)

Definition: Total output produced by given inputs
Characteristics: Generally increases with more variable input

Average Product (AP)

Definition: Output per unit of variable input
Formula: AP = TP/Variable Input

Marginal Product (MP)

Definition: Additional output from one more unit of variable input
Formula: MP = ΔTP/ΔVariable Input = TPn - TPn-1

Relationships

When MP > AP: AP rises
When MP < AP: AP falls
When MP = AP: AP is maximum

Returns to a Factor

Law of Variable Proportions (Law of Diminishing Returns)

Statement: As more units of variable factor are applied to fixed factor, initially marginal product increases, reaches maximum, then decreases.

Stages:

Stage I: Increasing Returns

MP increases
AP increases
TP increases at increasing rate

Stage II: Diminishing Returns

MP decreases but positive
AP decreases
TP increases at decreasing rate
Rational stage of production

Stage III: Negative Returns

MP becomes negative
AP continues to decrease
TP starts declining

Example: Adding workers to a factory with fixed machinery will initially increase productivity, but beyond a point, additional workers will cause overcrowding and reduce efficiency.

Cost Concepts

Short-Run Costs

Total Cost (TC)

Definition: Total expenditure on production
Formula: TC = TFC + TVC

Total Fixed Cost (TFC)

Definition: Cost that doesn't change with output
Examples: Rent, insurance, interest on loans
Characteristic: Remains constant at all output levels

Total Variable Cost (TVC)

Definition: Cost that changes with output
Examples: Raw materials, labor wages, electricity
Characteristic: Increases with output

Average Cost (AC)

Definition: Cost per unit of output
Formula: AC = TC/Q = AFC + AVC

Average Fixed Cost (AFC)

Definition: Fixed cost per unit
Formula: AFC = TFC/Q
Shape: Rectangular hyperbola (always decreasing)

Average Variable Cost (AVC)

Definition: Variable cost per unit
Formula: AVC = TVC/Q
Shape: U-shaped

Marginal Cost (MC)

Definition: Additional cost of producing one more unit
Formula: MC = ΔTC/ΔQ = TCn - TCn-1

Cost Relationships

MC cuts AC and AVC at their minimum points
When MC < AC: AC falls
When MC > AC: AC rises
When MC = AC: AC is minimum

Revenue Concepts

Total Revenue (TR)

Definition: Total income from sales
Formula: TR = Price × Quantity = P × Q

Average Revenue (AR)

Definition: Revenue per unit sold
Formula: AR = TR/Q = P
Note: AR is same as price

Marginal Revenue (MR)

Definition: Additional revenue from selling one more unit
Formula: MR = ΔTR/ΔQ = TRn - TRn-1

Revenue Relationships

Under Perfect Competition:

AR = MR = Price (constant)
TR increases linearly

Under Imperfect Competition:

AR > MR
Both AR and MR are downward sloping

Producer's Equilibrium

Definition: Output level where producer maximizes profit.

Conditions:

First Order: MR = MC
Second Order: MC curve cuts MR from below (MC is rising)

Profit Maximization:

Profit = TR - TC
Maximum profit where: d(Profit)/dQ = 0
This gives: MR = MC

Example: If MR = ₹50 and MC = ₹45, producer should increase output. If MR = ₹50 and MC = ₹55, producer should decrease output.

Supply

Definition: Quantity of good that producers are willing and able to offer at different prices during a specific time period.

Market Supply

Definition: Sum of individual supplies of all producers in the market.

Determinants of Supply

Price of the good (main determinant)
Cost of production
Technology
Prices of related goods
Future expectations
Number of sellers
Government policies

Supply Schedule and Curve

Supply Schedule: Tabular representation

Example:

Price (₹) Quantity Supplied
10 20
20 40
30 60
40 80

Price (₹)	Quantity Supplied
10	20
20	40
30	60
40	80

Supply Curve: Generally upward sloping (positive relationship)

Movement vs Shifts in Supply

Movement Along Supply Curve

Cause: Change in price
Types: Extension (price rises) and Contraction (price falls)

Shift in Supply Curve

Cause: Change in factors other than price
Types: Increase (rightward shift) and Decrease (leftward shift)

Price Elasticity of Supply

Definition: Responsiveness of quantity supplied to price changes.

Formula: Es = (% change in Quantity Supplied)/(% change in Price)

Types:

Perfectly Elastic (Es = ∞): Horizontal supply curve
Perfectly Inelastic (Es = 0): Vertical supply curve
Unitary Elastic (Es = 1): Proportionate change
Relatively Elastic (Es > 1): More responsive
Relatively Inelastic (Es < 1): Less responsive

Measurement: Percentage Method

Es = (% change in Qs)/(% change in P)

Example: If price increases by 20% and quantity supplied increases by 30%: Es = 30%/20% = 1.5 (relatively elastic supply)

Unit 7: Perfect Competition - Price Determination

Perfect Competition

Definition: Market structure with large number of buyers and sellers, homogeneous product, and perfect information.

Features of Perfect Competition

Large Number of Buyers and Sellers: No single entity can influence price
Homogeneous Product: Products are identical substitutes
Free Entry and Exit: No barriers to entry or exit
Perfect Knowledge: Complete information about prices and products
Perfect Mobility: Factors can move freely
Price Taker: Individual firms cannot influence market price

Market Equilibrium

Definition: Situation where quantity demanded equals quantity supplied.

Equilibrium Conditions:

Qd = Qs
No tendency to change
Market clears

Graphical Representation: Intersection of demand and supply curves

Example: At price ₹30: Demand = 100 units, Supply = 100 units Market is in equilibrium at P = ₹30, Q = 100

Effects of Shifts in Demand and Supply

Increase in Demand (Demand curve shifts right)

Effect: Price ↑, Quantity ↑
Cause: Increase in income, favorable change in tastes

Decrease in Demand (Demand curve shifts left)

Effect: Price ↓, Quantity ↓
Cause: Decrease in income, unfavorable change in tastes

Increase in Supply (Supply curve shifts right)

Effect: Price ↓, Quantity ↑
Cause: Improvement in technology, decrease in input costs

Decrease in Supply (Supply curve shifts left)

Effect: Price ↑, Quantity ↓
Cause: Increase in input costs, unfavorable weather

Simple Applications of Demand and Supply

Price Ceiling

Definition: Maximum legal price set by government below equilibrium price.

Characteristics:

Price cannot rise above ceiling
Creates shortage (Qd > Qs)
Black market may emerge

Example: Rent control in housing market

Effects:

Consumer surplus may increase for those who get the good
Deadweight loss occurs
Quality may deteriorate

Price Floor

Definition: Minimum legal price set by government above equilibrium price.

Characteristics:

Price cannot fall below floor
Creates surplus (Qs > Qd)
Government may need to buy surplus

Example: Minimum wage laws, minimum support price for agricultural products

Effects:

Producer surplus may increase
Deadweight loss occurs
May lead to unemployment (in labor market)

Graphical Analysis: Both price ceiling and floor create deadweight loss, representing welfare loss to society.

Important Economic Interpretations and Problem-Solving Tips

For Statistical Problems:

Always interpret results economically: What does a correlation of -0.8 between price and demand mean for business strategy?
Context matters: An index number of 120 means 20% increase from base year - interpret its economic significance.
Compare measures: When mean > median > mode, distribution is positively skewed.

For Microeconomic Analysis:

Connect theory to real situations: Law of demand explains why sales increase during discount periods.
Use graphs effectively: Always label axes, curves, and equilibrium points clearly.
Explain economic logic: Why does MC curve cut AC at its minimum? Due to mathematical relationship between marginal and average values.
Policy implications: How does understanding elasticity help in tax policy or pricing decisions?

Key Formulas Summary:

Statistics:

Mean: X̄ = ΣX/N
Correlation: r = Σ(x-x̄)(y-ȳ)/√[Σ(x-x̄)²Σ(y-ȳ)²]
Price Index: (Σp₁/Σp₀) × 100

Microeconomics:

Elasticity: Ed = (% change in Qd)/(% change in P)
Profit: TR - TC
Equilibrium: MR = MC

This comprehensive guide covers all topics in your syllabus with definitions, examples, and economic interpretations essential for understanding both theoretical concepts and their practical applications.