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ZONAL INSTITUTE OF
EDUCATION AND TRAINING
Bhubaneswar
STUDY MATERIAL 2012- 13
CLASS XI
ECONOMICS
PATRON : Ms Usha Aswath Iyer
MATERIAL PRODUCTION: Mr. Parsuram Shukla
[1]
STUDY MATERIAL
ECONOMICS
CLASS. XI
Marks
Introduction
03
2.
12
3.
30
4.
5
50
Part. B
5.
10
6.
08
7.
25
8.
07
50
[2]
UNIT 3
It Facilitates Comparison.
Simplicity in calculation
Easy to understand
Rigidly Defined
Precise Value
5. Arithmetic Means ( X ):It is the most common type of measures of central tendency. It is obtained by
dividing the sum of all observations in a series by the total numbers of
observations.
6. Calculation of Arithmetic Mean :For Individual series / ungrouped Data :(i)
X
N
Direct Method
(ii) X A
(iii) X A
d' i
N
N
fx or fm
f
f
(ii) X A
fd
(iii) X A
fd ' i
( Direct method )
(Assumed Mean Method / Short-cut method.)
(step deviation method)
7. Mathematical Properties Of Arithmetic Mean :The algebraic sum of deviations of items from arithmetic mean X is alwayss
Zero, i.e.
X X 0 .
The Sum of the squared deviations of the item from A.M. is minimum i.e.
2
X X X A
2
th
item.
th
item
N
c. f
M l1 2
i
F
th
item.
N 1
Q3= Size of 3
4
th
item.
th
item
N
c. f
Q1 = L1 4
i
f
N
Q3=Size of 3
4
Q3 = L1 +
th
item
N
3 c. f
4
i
f
[6]
16 MODE (Z) :It is defined as the value which occurred most frequently in a series. In other words,
it is the value which has highest Frequency in a distribution. For example : Mode in
the series: 20,21,23,23,23,23,25,26,26 would be 23 as this value occurs most
Frequently than any other value. There is greatest concentration of items around
this value.
17. CALCULATION OF MODE :For Individual Series :(i) To identify the value that occurs most frequently in a series.
(ii) By conversion into discrete series and then identify the value corresponding
to which there is highest frequency.
For Discrete Series:(i) By Inspection method.
(ii) Grouping method.; By preparing grouping table and then preparing
analysis table.
For Continuous Series :(I) Determination of modal class interval by inspection method or grouping
table and analysis table.
(II) Applying the Formula:
Z L1
f1 f 0
i
2 f1 f 0 f 2
[7]
(ii)
(a)
When the distribution is positively skewed, i.e. skewed to the right, then
XMZ.
(b)
When the distribution is negatively skewed, i.e. skewed to the left, then
XMZ.
Note :- The median (m) always lie between arithmetic mean X and mode (Z).
21. Empirical Relationship between x,m and z:
In a moderately asymmetrical distribution, the values of mean, median and mode
are observed to have the following relationship :
Mode = 3 median 2 mean.
[8]
Mark Questions :-
1. Define an average?
Ans.
Three important types of statistical averages are :Arithmetic Mean, median and mode.
3. What is median?
Ans.
4. What is mode ?
Ans.
6. Average daily wage of 50 workers of a factory was Rs. 200. Each worker is
given a raise of Rs 20. What is the new average daily wage ?
Ans.
50
Ans.
In a symmetrical distribution, X M Z
[9]
8.
Ans.
9.
Ans.
Arithmetic mean is affected by very large and very small values but median
and mode are not affected by them. Explain.
Ans.
11.
Ans.
(i) Mode, (ii) Median, (iii) Mean(iv) Mean, (V) Median, (vi) Median or mode.
[ 10 ]
23. Some Numerical Questions : 1. Calculate Arithmetic mean from the following data using direct and short cut
method / Assumed mean method:
Size:
10
20
30
40
50
60
12
15
Frequency
2. Calculate Arithmetic mean from the following data using step- deviation
method:Size
20-29 30-39
Frequency
10
40-49
50-59
60-69
10
13
26
35
22
11
10
20
30
40
50
60
No of students:
10
20
0-10
No of Students:
10-20
20-30
10
30-40
40-50
0-10
2
10-20
20-30 30-40
8
[ 11 ]
10
40-50
8
50-60
5
60-70
2
MEASURES OF DISPERSION :1. Dispersion refers to the variation of the items around an average. According to
Dr Bowley : Dispersion is the measure of variations of items. To quote
CONNOR : - Dispersion is a measure of the extent to which the individual items
vary.
2. Objectives of Dispersion :
(i) To determine the reliability of an average
(ii) To compare the variability of two or more series
(iii) It serves the basis of other statistical measures such as correlation etc.
(iv) It serves the basis of statistical quality control.
3. Properties of a good measure of dispersion:
(i) It should be easy to understand.
(ii) It should be simple to calculate
(iii) It should be uniquely defined.
(iv) It should be based on all observations.
(v) It should not be unduly affected by extreme items.
4. Measures of dispersion may be either absolute or relative.
Absolute measures of dispersion are expressed in the some units in which data
of the series are expressed i.e., rupees kgs, tons etc. where as relative measures
of dispersion are independent of the units of measurement. They are expressed
in percentage these are used to compare two or more series which are expressed
in different units.
5. Absolute measures of dispersion are:(i) Range
(ii) Quartile Deviation
(iii) Mean Deviation
(iv) Standard deviation and variance.
[ 12 ]
LS
.
LS
Q3 Q1
2
Q3 Q1
D
N
Discrete/Continuous series :- MD
f D
N
MD
Coefficient of M.D. = MD X or M
16. Merits of mean Deviation:(i) It is based on all observations.
(ii) It is least affected by extreme items.
(iii) It is simple to understand and easy to calculate.
[ 14 ]
X X
(ii)
d 2 d
(iii)
d '2 d '
(iv)
X 2 X
N
2
n Or
X 2 X
F X X
(i)
[ 15 ]
f d 2 fd
f d '2 fd '
f X 2 fX
19. The important properties of standard deviation are:(i) The standard deviation of 1st n natural number is given by
1 n2 1
12
(ii) The standard deviation is computed from A.M. because the sum of squares
of the deviations taken from the A.M. is least.
(iii) If a constant a is added or subtracted from each item of a series then S.D.
remains unaffected i.e. S.D. is independent of the change of origin.
(iv) If each item of a series is multiplied or divided by a constant a the S.D. is
affected by the same constant i.e. S.D. is affected by change of scale.
20. Merits of standard Deviation :(i) It is rigidly defined.
(ii) It is based on all observations where as range and quartile- deviations are
not based on all items.
(iii) It takes algebraic signs in consideration where as these are ignored in meanDeviation.
(iv) It can be algebraically manipulated , i.e. we can find the combined S.D. of
two or more series.
(v) It serves the basis of other measures like correlation etc.
[ 16 ]
21. Demerits of standard deviation:(i) As compared to range and quartile deviation, it is difficult to understand
and compute.
(ii) It gives more importance to extreme items.
22.
23.
100
Selected Questions
1. What do you mean by dispersion ?
2. What is range?
3. What is meant by quartile deviation?
4. What do you mean by mean deviation?
5. What do you mean by standard deviation?
6. What is variance ?
7. What is relative measure of dispersion?
8. What is coefficient of variation?
9. What is a Lorenz curve?
10. If Q1=41, Q3=49, find the value of coefficient of Quartile deviation.
11. Name the important absolute and relative measures of dispersion.
12. Why standard deviation is measured from the mean?
13. Find out the standard deviation, if variance is, 1444 ?
14. Write the formula of calculating mean deviation from mean.
[ 17 ]
10
20
30
40
50
60
70
No of students
12
30
10
18. Calculate quartile deviation and coefficient of quartile deviation from the
data given below.
320, 400 450
530
550
580
600
610
700
780
800
19. Find out mean deviation of the following data (use median method)
Item
12
18
25
35
47
55
62
75
Frequency
12
15
23
16
18
31
12
20. Calculate mean and standard deviation from the following data:Class interval:
0-10
Frequency:
10-20
20-30
13
16
30-40
40-50
100
200
400
500
800
80
75
50
30
20
10-19
3
20-29
4
30-39
40-49
50-59
2
24. Calculate mean and standard deviation from the following data :
C.I.
10-20
20-30
30-40
40-50
F:
13
16
[ 18 ]
Correlation Analysis: 1.
2.
ii. We can estimate the value of one variable on the basis of the value of
another variable correlation serves the basis of regression.
iii. Correlation is useful for economists. An economist specifies the relationship
between different variables like demand and supply, money supply and
price level by way of the correlation.
3.
4.
Positive and Negative Correlation :Correlation is classified into positive and negative correlation when two
variables move in the same direction, i.e. if the value of Y increases ( or
decreases) with an increase (or decrease) in the value of X, they are said to be
positively related. On the other hand when two variables move in the opposite
direction i.e. if the value of variable X increase (or decrease) with the decrease
or increase in the value of Y variable, they one said to be negatively correlated.
5.
Linear and Non- linear correlation:Correlation may be linear or non-linear . If the amount of change in one variable
tends to have a constant relation with the amount of change in the other
variable then the correlation is said to be liner. It is represented by a straight
line. On the otherhand if the amount of change in one variable does not have
constant proportional relationship to the amount of change in the other
variable, then the correlation is said to be non-linear or curvi-linear.
[ 19 ]
6. Simple , multiple and partial correlation :Correlation may also be simple, multiple and partial correlation. When two
variables are studied to determine correlation, it is called simple correlation on
the other hand when more than two variables are studied to determine the
correlation it is called multiple correlation. When correlation of only two variables
is studied keeping other variables constant, it is called partial correlation.
7. Methods of studying correlation :- The correlation between the two variables
can be determined by the following three methods:(a) Scatter diagram
(b) Karl Pearsons method of correlation coefficient
(c) Spearmans method of Rank correlation.
8. Scatter Diagram: It is a graphic (or visual) method of studying correlation. To
construct a scatter diagram, x. variable is taken on X axis and Y Variable is taken
on Y-axis. The cluster of points so plotted is referred to as a scatter diagram. In a
scatter diagram, the degree of closeness of scatter points and their overall
direction gives us an idea of the nature of the relationship:(i)
If the dots move from left to the right upwards, correlation is said to be
positive where as the movements of dots from left to right downward
indicates negative correlation.
(ii)
(iii)
(iv)
Dots falling close to each other in a straight line indicate high degree of
correlation.
(i) (a) Y
(i) (b) Y
Positive correlation
Negative correlation
[ 20 ]
(ii) (a) Y
(ii) (b) Y
X
Perfect Positive correlation
(iii)
X
No correlation
XY
X 2 . Y 2
X X Y Y
2
2
X X Y Y
[ 21 ]
(ii)
N dxdy dx . dy
N . dx 2 dx
N . dy 2 dy
Where dx'
(iv)
dx'
N . dy '2
dy'
dx
dy
, dy '
ix
iy
N xy x . y
N . x 2 x
N . y 2 y
6 D 2
N3 N
6 D 2
M 3 M ........
12
R 1
3
N N
(12)
10
20
30
40
50
60
70
80
10
15
20
25
30
35
40
Marks in Economics
15
18
21
24
27
25
25
27
31
32
(13) Calculate karl- persons coefficient of correlation between the two variable
x and y and interpret the result.
X
24
26
32
33
35
30
15
20
22
24
27
24
(14) Calculate the Coefficient of Spear Mans rank correlation from the given
data : X:
20
10
70
60
45
29
50
Y:
60
63
26
35
43
59
37
48
33
40
16
16
65
24
16 27
Y:
13
13
24
15
20
19
Index Numbers : MEANING OF INDEX NUMBERS : Index numbers are devices which measure the change in the level of a phenomenon
with respect to time, geographical location or some other characteristic. An index
number is a statistical device for measuring changes in the magnitude of a group of
related variables. It is a measure of the average change in a group of related variables
over two different situations.
[ 24 ]
Definitions of Index Numbers : In the words of Edge worth, Index number shows by its variation the changes
in a magnitude which is not susceptible either of a accurate measurement in itself
or of direct valuation in practice.
In the words of Tuttle, An index number is a single ratio (usually in
percentage)which measures the combined (i.e., averaged) change of several
variables between two different times, places or situations.
Features/Characteristics of Index Numbers:Index numbers are specialized averages.
Index numbers are expressed in percentages.
Index numbers measure the effect of changes in relation to time or place.
PROBLEMS IN CONSTRUCTION OF INDEX NUMBERS:
Selection of Base Year. Base year is the reference year. It is the year with which
price of the Current year are compared.
(i) The base period should be a normal year.
(ii) The difference between base year and current year should not be too long.
(iii) Fixed Base or Chain Base.
Paasches Method
The wholesale price index number reflects the general price level for a group
of items taken as a whole. In India, it is the most popular price index used in the
business industry and policy market. It acts as an indicator of the rate of inflation.
ii.
The retail price index number reflects the general changes in the retail prices
of various items including food, housing, clothing, and so on. The Consumer Price
Index, a special type of retail price index, is the primary measure of the cost of
living in a country.
METHODS OF CONSTRUCTING PRICE INDEX NUMBERS
i.
ii.
iii.
(ii)
(iii)
PI 100
P0
Where,
P01= Index number of the current year.
ii.
iii.
[ 27 ]
P1 .
Simple Average of Price Relatives Method : This index is an improvement over the simple aggregative price index because
it is not affected by the unit in which prices are quoted.
Price relative : A price relative is percentage ratio between price of commodity in
the current year and that in the base year
Pr ice relative ( P01 )
Price Index number of the Current year find out by using the
following formula :
P
P01
P1 100
N
P1
The value of this index is not affected by the units in which prices of
commodities are quoted. The Price relatives are pure numbers and, therefore,
are independent of the original units in which they are quoted.
[ 28 ]
Demerits
(i) As it is an unweighted index, each price relative is given equal importance.
However, in actual practice, a few price relatives are more important than
others.
(ii) Difficulty is faced with regard to the selection of an appropriate average.
WEIGHTED INDEX NUMBERS
Weighted index numbers can be constructed by two methods:
(i) Weighted Aggregative Method; and
(ii) Weighted Average of Price Relatives Method.
Weighted Aggregative Method
1. Laspeyres method
2. Paasches Method
3. Fishers Ideal Method
1.
Laspeyres Method
Mr. Laspeyres in 1871 gave an weighted aggregated index, in which weights are
represented by the quantities of the commodities in the base year. It helps in
answering the question that, if the expenditure in the base year on a basket of
commodities was Rs.100, then, how much should be that expenditure in the current
period on the same basket of commodities.
Formula:
P01
P1q0 100
P0 q0
Steps:
1. Multiply the current year prices (p 1) by base year quantity weights (q 0) and
total all such products to get
p1q0 .
2. Similarly , multiply the base year prices p0 by base year quantity weightss
3. Divided p1q0 by p0q0 and multiply the quotient by 100. This will be
the index number of the current year.
[ 29 ]
2.
P1q1 100
P0q1
Steps :
1. Multiply the current year prices (p 1) by current year quantities (q 1) and
total all such products to get
p1q1 .
p0q1 .
3. Divide p1q1 by p0 q1 and multiply the quotient by 100. This will be the
index number of the current year.
3.
Fishers Method
Prof. Irving fisher has given a number of formulae for constructing index
numbers and of these, he calls one as the ideal index. The Fishers Ideal Index is
given by the following formula:
P01
P1q0 P1q1
P0q0 P0q1
100
From the above formula, it is clear that Fishers Ideal Index is the geometric
mean of the Laspeyre and Paasche indices.
[ 30 ]
p1q0 100
.
p0q0
Multiply prices of the base year (p 0) with quantities of the base year (q 0) and
add it to get aggregate expenditure for the base year
p0q0 ;
2.
Multiple prices of the current year(p 1) with quantities of the base year (q 0)
3.
of base year
RW
W
3. Multiply the price relatives (R) with weight (W) of each commodity and obtain
its total to get
RW ;
W ;
RW
W
q1 W
100
Where,
q1 = Level of production in the current year
q0 = Level of production in the base year
w = Weight or relative importance of industrial output
USES OF INDEX NUMBERS:1. Helps in Policy Formulation
2. Index numbers act as Economic Barometers
3. Help in studying trends and forecasting demand and supply
4. To measure and compare changes
5. Index numbers help to measure purchasing power
6. Index numbers help in deflating various values
7. Indicator of rate of Inflation.
LIMITATIONS OF INDEX NUMBERS : 1. Provides relative changes only
2. Lack of Perfect Accuracy
3. Difference between purpose and method of construction
4. Ignores qualitative changes
5. Manipulations are possible
WHOLESALE PRICE INDEX NUMBERS: (WPI) Wholesale price index numbers are those price index numbers which measure
the general changes in the wholesale prices of goods in a country.
Groups of Commodities for Wholesale Price Index (WPI):1. Primary Articles : Ex : Rice, Fruits, Pukes, vegetables and non - food articles
like cotton, Jute.
2. Energy Articles : Ex. : LPG, Electricity, Petroleum of Coal.
3. Manufactured Articles : Ex. : Textiles, Sugar, Paper Machinery & Chemicals.
Utility of Wholesale Price Index Number:1. Indicator of Inflaction
2. Forecasting Demand and Supply
3. Helps in determining real changes in aggregates
4. Useful in Cost Evaluation of various projects
[ 34 ]
Some selected questions:Short Answer type Questions (3-4 Marks each): 1. What are the desirable properties of the base period?
2. Why is it essential to have different CPI for different categories of consumers?
3. Discuss the limitations of simple aggregative of actual price method.
4. Discuss the merits and demerits of average price relative index.
5. Mention the steps involved for calculating index number by Laspeyres
Method.
6. Why Fishers method is considered to be an ideal method?
7. Mention the difficulties in construction of consumer price index.
8. Write a short note on index of industrial production.
9. Explain clearly the classification of commodities in the formation of wholesale
price index.
10.Write a short note on inflation and index Numbers.
Very Short Answer type Questions (1 Mark each):1. Define index number.
2. State any one feature of index numbers.
3. Define base period.
4. What are three types of index numbers?
5. What is the difference between a price index and quantity index?
6. State any one limitation of index number?
7. Mention the types of price index numbers?
8. What is the difference between unweighted and weighted index numbers?
9. What is meant by price relative?
10. What does a Consumer price index for industrial workers measure?
11. Whether change in price is reflected by price index number?
12. State any one use of index number.
13. Mention one problem in constructing index numbers.
14. What does consumer price index number reflect ?
[ 36 ]
Price
Weights
Wheat
241
10
Rice
150
Pulses
170
Oil
125
Milk
40
Laspeyres Method
(ii)
Poasches Method
(iii)
Fishers Method
Items
Base Year
Current Year
Quantity
Price
Quantity
Price
10
3. Construct cost of living Index for 2006 based on 2011 from the following data.
Group
122
140
112
116
106
Weights
32
10
10
42
[ 37 ]