Business Statistics

(Unit – I)

Q1. Define statistics and discuss its nature and scope.

OR
What is the nature of statistics? Explain its importance.
OR
“Statistics is said to be both science and art.” Do you agree? Discuss the scope of statistics.

Q2. Explain the functions and limitations of statistics.

Q3. What are the causes of distrust of statistics? How these distrust may be removed?

Q4. What do you mean by Measure of Central Tendency? Explain.

OR
What is meant by measures of central tendency? Discuss the merits and demerits of various
types of average.
OR
What do you mean by Mode? Explain its merits and demerits. How Mode is calculated?
OR
What do you mean by Median? Explain its merits and demerits. How Median is calculated?
OR
What do you mean by Arithmetic Mean? Explain its merits and demerits. How Mean is
calculated?

Q5. Explain different types of statistical tools.

Q6. What do you mean by Dispersion? What is the importance of Dispersion? Explain the
methods of measuring Dispersion.
OR
What do you mean by Range? Explain its advantages and disadvantages. How Range is
calculated? Explain.
OR
What do you mean by Mean Deviation? Explain its advantages and disadvantages. How
Mean Deviation is calculated? Explain.
OR
What do you mean by Standard Deviation? Explain its advantages and disadvantages. How
Standard Deviation is calculated? Explain.

Q7. What do you mean by Skewness? What are the different methods of Skewness?

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Q1. Define statistics and discuss its nature and scope.
OR
What is the nature of statistics? Explain its importance.
OR
“Statistics is said to be both science and art.” Do you agree? Discuss the scope of
statistics.
Ans.

Statistics
The term ‘Statistics’ means a body of theories and techniques or methods employed in
analysing the numerical information. It is concerned with the collection, classification,
tabulation, presentation and analysis of data relating to a particular field of study. In other
words, the Science of Statistics includes the methods of collecting, analysing and interpreting
numerical facts and taking decisions on their basis.

Nature of Statistics
Very often the question whether statistics is science or art or both is raised. In order to know
whether statistics is a science or art or both, it is necessary to understand the meaning of
science or art.

 Is Statistics a Science?
Science is a body of systematised knowledge. It studies cause and effect and tries to find out
generalisation which are called laws of the science. Thus, any branch of knowledge can be
called a science if it possesses the following characteristics:

1. Its knowledge should be systematic and its methods should be logical.

2. Based on cause and effect relationship.
3. Laws are universal.
4. Its laws should be capable of forecasting the future course of action of a phenomenon.

If statistics is examined on the basis of these characteristics, it is clear that statistics possesses
all these qualities. It is a systematic study of knowledge. It consists of various laws and
principles (e.g., Law of Statistical Regularity, Law of Inertia of Large Numbers, Theories of
Probability etc.) and most of the laws of statistics are also universal. Hence, statistics should
be called a science.

 Is Statistics an Art?
Art has the following characteristics:

1. Art is a group of actions to solve a problem.

2. Art does not describe facts, but examines merit and demerit to achieve the objectives.
3. Artist possesses special skill, experience and restraints.

We know that to solve a problem of statistics, the statistician have to take various types of
actions and he also need special skill and experience to understand how and which statistical
tools will be more appropriate to solve a problem. Thus, we can say that statistics is an art.
From the above discussion we can say that statistics is both a science as well as art.

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 Importance of Statistics
OR
Scope of Statistics
The importance or scope of statistics is as under:

1. Statistics and Government: For efficient governance, any State Government collects
the large amount of data relating to prices, production, consumption, income and
expenditure, investment and profits. Data are also collected on population dynamics
in order to initiate and implement various welfare policies and programmes within a
state or for whole country.

2. Statistics and Economics: Various statistical methods are extensively used to derive
empirical results for setting economic policies. Statistical methods such as Time-
series, Index Numbers, Demand Analysis etc. are extensively used in formulating
economic policies.

3. Statistics in Business Management: Statistics helps in business in all the fields:

 Marketing: Before a product is launched, market research team analyse data on

population, purchasing power, habits of the consumers, competitors, pricing etc.
Such studies reveal the possible market potential for the product.

 Production: Statistical Quality Control techniques are used for improvement in

the quality of the existing products. Make or buy decisions are based on
statistically analysed data.

 Finance: Statistics tools are also used to analyse data on assets and liabilities,
income and expenditure, and investment decisions to understand the financial
results of various operations.

 Personnel: Statistical studies of wage rates, incentive plans, cost of living,

attrition rates, employment trends, accident rates, performance appraisal, need for
training and development, etc. helps Human Resource Managers in manpower
planning and designing policies.

4. Statistics in Physical Sciences: Various statistical methods such are used effectively
in most of physical sciences such as astronomy, engineering, geology and certain
branches of physics.

5. Statistics in Social Science: Statistics is also used in social science. Statistical

methods are also used to study death rates, birth rates, population growth and other
aspects of life.

6. Statistics in Medical Science: Statistics is also helpful in medical science. For

example, proper diagnosis of a disease, a doctor requires data relating to pulse rate,
body temperature, blood pressure, heart beats and body weight.

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Q2. Explain the functions and limitations of statistics.
Ans.
Functions of Statistics

Statistics has the following main functions:

1. Definite Expression of Facts: Under the statistics we can present a statement in some
data and facts. For example, we can say population of India is increasing. By this
statement we can understand that Indian population is increasing, but how much it is
increasing we cannot assess. But with the help of statistics we can present this fact
with some numeric explanation, if we say that the Indian population is increasing by 4
percent every year, then this information is more precise than previous one.

2. Simple and Condensed Presentation of Facts: Human mind is incapable of

remembering a large number of facts and figures at any one time. Therefore, the
important function of statistical methods is to simplify the complex data into
diagrammatic and graphic representation, averages etc.

3. To Provide Techniques for Making Comparison: Comparison is one of the chief

functions of statistics for finding out many useful information. When we calculate
national income, our main purpose is to compare it with previous year national
income and interpreting whether national income is increasing or decreasing.
Statistical devices like

4. Establishment of Relationship: Statistics also make relationship between two or

more facts. It is possible to observe the relationship income and expenditure, demand
and supply, literacy and employment etc. through statistical methods.

5. Helpful in Formulation of Policies: Statistics helps in formulating policies in social,

economic and business fields. Various government policies in the field of planning,
taxation, foreign trade, social security etc. are formulated on the basis of analysis of
statistical data and the inferences drawn from them.

6. Formulates and Tests hypothesis: Statistical methods are extremely useful in

formulating and testing hypothesis. For example, hypothesis like ‘whether coaching is
effective in improving the performance of the students’ can be tested by appropriate
statistical tools.

7. Helpful in Forecasting: Almost all our activities are based on estimates about future.
The statistical techniques for extrapolation, time series and forecasting are highly
useful for forecasting future events.

Limitations of Statistics
The following are few limitations of statistics that restrict its scope and utility:

1. Statistics Does Not study Qualitative Aspects: Statistics studies only the
quantitative aspect of a problem. Those facts which may not be presented in data like,
intelligence, poverty, honesty etc. cannot be studied in statistics.

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 2. Statistics Does Not Study Individuals: Statistical methods do not give any
recognition to an object or a person or an event in isolation. For instance, we can
never say that inflation is going down if the price of a single product is going down.
But, if Consumer price Index, which involve prices of various commodities, going
down, only then we can say inflation is going down.

3. Statistical Data Should be Uniform and Homogeneous: Comparison is one of the

important characters of statistical data. Uniform and homogeneous data can be
compared. It would be of no use to compare the heights of trees with the heights of
men because these data are of heterogeneous nature.

4. Statistics Can be used Only by Experts: The greatest limitation of statistics is that
they are liable to be misused. The data placed in the hands of untrained persons may
reveal wrong results. Persons having fundamental knowledge of statistical methods
alone can handle the data properly.

5. Statistical Results are True Only on an Average: Statistical results reveal the
average behaviour and general trend. These are useful only for general opinion and
not for substitution of any particular event or item. For example, the per capita income
cannot be used for forming an idea about the income of an individual without
knowing the dispersion of income.

6. Statistical Laws are not Perfectly Accurate: The laws of Physics, mathematics,
Chemistry etc. are exact and universally applicable. But the laws of statistics are not
so. Statistics deals with such phenomena which are affected by various causes and it
is not possible to study the effects of each causes.

Q3. What are the causes of distrust of statistics? How these distrust may be removed?
Ans.

How to Lie with Statistics?

OR
Distrust of Statistics
Statistical techniques are most important tools of mankind in its social, political, economic
and business life. Despite wide use of statistical methods in research, government, industry,
banks and insurance statistics is still distrusted and considered one of the three types of lies:
“lies, damn lies and statistics”.

Causes of Distrust of Statistics

These are various causes responsible for distrust of statistics. Some of the important causes
are as follows:

1. Figures can be Easily Believed: Figures are innocent and believable, and the facts
based on them are psychologically more convincing. But it is a pity that figures do not
have the label of quality on their face.

2. Availability of Contradictory Data: If the available data in different publications or

at different places are contradictory then distrust arises.

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 3. Contradiction Between facts and Figures: Data may lead to confusion, if there is
contradiction between data and actual position. For instance, if it is being felt in
general that prices are increasing but government shows with the help of data that
price level is going down, then there will be definitely be distrust upon data.

4. Misuse of the Figures: Sometimes data are misused by some persons and are
presented according to their own requirement. This situation also cause distrust in
minds of some persons.

5. Lack of Subject Knowledge: Most of the people are not aware of the subject
statistics. If we get data collected through such people, the collected data would be
incomplete and unreliable and the results based on such data would also be unreliable.

Suggestions for the Removal of Distrust of Statistics

The following aspect should be kept into consideration in order to remove distrust of
statistics:

1. Need of Caution: Investigator should be careful while collecting, analysing and using
statistical data. Through this, results achieved would be more reliable.

2. Statistical Limitations should be taken into Consideration: To remove the distrust

of statistics, limitations of statistics should be taken into consideration.

3. Self-restraint: By self-restraint we mean that the investigators should not be biased

while collecting and making the use of data. If the investigator thinks that, data are
not reliable, he should not accept them.

4. Statistics must be Used by Experts: Statistics must be used by only those people
who understand statistics and know properly how to use statistical methods.

5. Analytical Study of Data: Analytical study of statistical data is necessary before they
are used. Properly analysed data will provide more reliable results.

Q4. What do you mean by Measure of Central Tendency? Explain.

OR
What is meant by measures of central tendency? Discuss the merits and demerits of
various types of average.
OR
What do you mean by Mode? Explain its merits and demerits. How Mode is calculated?
OR
What do you mean by Median? Explain its merits and demerits. How Median is
calculated?
OR
What do you mean by Arithmetic Mean? Explain its merits and demerits. How Mean is
calculated?

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Ans.

Measures of Central Tendency

OR
Averages
An ‘Average’ or ‘Measure of Central Tendency’ is a figure which represents the large
number of observations in a concise or single numerical data. It is a value which describes the
central tendency. It is a representative value around which all the values of variable cluster or
concentrate.
Various Measures of Central Tendency
OR
Types of Statistical Averages
Main types of statistical averages are as follows:
 Mode
 Median
 Mean

(A). MODE
Mode or the Modal Value is that value in a series of observations which has the highest
frequency. In other words, the Mode of a distribution is the value at the point around which
the items tend to be most heavily concentrated.

Merits:
1. Easy to Compute and understand: It is easy to calculate and understand. It can be
located by mere inspection in most of the cases.
2. Not Affected by Extreme values: The Mode is not affected by extreme values, and
for this reason would be more representative average for many purposes.
3. Important Measure of the series: It is usually an actual value as it occurs most
frequently in the series.
4. Application in Qualitative Facts: It can be used to describe qualitative phenomenon.
For example, if we want to compare the consumer preferences for different media of
advertising we should complete the Modal preferences expressed by different groups
of people.
5. Graphical Determination: The value of Mode can also be determined graphically.
6. Best Representative Averages: It is the most representative average because it lies at
the position of greatest density.

Demerits:
1. Indefinite and Ill-defined: There are several formulae for calculating the Mode, all
of which usually give somewhat different answers. In addition to it, the value of Mode
cannot always be determined if all the values is repeating same number of times. In
some cases, we may have a ‘Bimodal’ or Multi-modal’ distribution.
2. Ignorance of Extreme Values: It does not give importance to extreme values in the
series. Therefore, it is not useful in those cases where weights are to be given to
extreme values.

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 3. Not Capable of Algebraic Treatment: It is not suitable for further algebraic
treatment. For example, from the Modes of two sets of data we cannot calculate the
overall Mode of the combined data.

Methods of Calculating Mode:

[Note: Explain formulas of Mode in Individual, Discrete & Continuous Series which are
explained in Class.]

(B). Median
Median is the value of that item in a series which divides the array into two equal parts, one
consisting of all the values less than it and the other consisting of all the values more than it.
It means, when the values of variable are arranged in an array form (either ascending or
descending order), the value of middle item of the array is the median. Median is denoted by
‘M’.

Merits:
1. Easy to Compute and Understand: It is easy to calculate and simple to understand.
2. Known by Simple Inspection Only: Median can sometimes be known by simple
inspection of the series.
3. Computation is Also Possible in Incomplete Data: Median can be computed even if
the items at the extremes are unknown. The Median may be located even when the
data are incomplete, the class-intervals are irregular and final classes are open.
4. Graphical Presentation: It can be determined graphically with the help of ‘Less
than’ and ‘More than’ frequency curves.
5. Definite and Clearly Defined: There is only one formula of Median which id
definite and clearly defined.

Demerits:
1. Necessary to Arrange the Data: It requires the data to arrange in either ascending
order or descending order. It is also required to arrange the class-intervals of equal
distance, if possible.
2. Equal Importance to All Items: While calculating Median, each item is given equal
importance which is not correct.
3. Not Suitable for Further Algebraic Treatment: It is not capable of algebraic
treatment. For example, Median cannot be used for determining the combined Median
of two or more groups.

Methods of Calculating Median:

[Note: Explain formulas of Median in Individual, Discrete & Continuous Series which are
explained in Class.]

(C). Arithmetic Mean

The Arithmetic Mean is so much in everyday use that nearly all of us are familiar with the
concept. When we speak of average cost of production, average income or average price, we
mean the arithmetic mean. Its value is obtained by adding together all the items and by
dividing this total by the number of items.

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Merits:
1. Easy to Compute and Understand: It is the simplest average to understand and
easiest to compute.
2. Based on All Items of the Series: It takes into consideration every item in the series
in computation. Thus, it is a good representative value.
3. Definite: It is defined by a rigid mathematical formula with the result that everyone
who computes the average gates the same answer.
4. Stability: In comparison to other averages mean is quite stable. It does not vary too
much when repeated samples are taken from one and the same population.
5. No Need for Arranging Data: It is not necessary to arrange data in ascending or
descending order.

Demerits:
1. Effect of Extreme Values: Since the value of Arithmetic Mean depends upon each
and every item of the series, therefore, extreme items i.e., very small and very large
items affect the average figure.
2. Unrealistic: If average persons, average animals or average machines etc. represent
the fractional figures then it may create confusion.
3. Calculation Difficulties: In comparison of Median and Mode, Arithmetic Mean is
more difficult to calculate. It cannot be calculated by mere inspection as well as it
cannot be determined even one of the values is not known.

Methods of Calculating Arithmetic Mean:

[Note: Explain formulas of Arithmetic Mean in Individual, Discrete & Continuous Series
which are explained in Class.]

Q5. Explain different types of statistical tools.

Ans.

Types of Statistical Tools

OR
Main Divisions of the Study of Statistics
OR
Subject-matter of statistics

The subject-matter of statistics deals with the various tools of statistics applied to specific
problem. It can be divided under the following broad divisions:

1. Mathematical Statistics: Mathematical statistics are the tools that are used for the
proper and systematic handling of numerical data. These tools include all the
operations involved in assembling, presentation, analysis and interpretation of data.

2. Descriptive statistics: The term descriptive statistics is confined to the treatment of

data for the purpose of describing their characteristics. It involves techniques for
summarising data and presenting them in a usable form.

3. Inferential Statistics: Under the inferential statistics, we draw inferences about the
population on the basis of analysis of samples drawn from that population.

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 4. Applied Statistics: Applied statistics deal with the application of statistical methods
to specific problems. It can be divided into two parts:

(i) Descriptive Applied Statistics: It deals with the study of such data which are
known and related to either present or past data. For example; Business
Statistics are descriptive applied statistics as they deal with the analysis,
measurement and presentation of business facts relating to past or present.

(ii) Scientific Applied Statistics: It deals with the formulation of definite laws,
doctrines etc. Relating to a specific problem. For Example; Law of demand,
law of supply, Law of Diminishing Returns etc. Comes under it.

Q6. What do you mean by Dispersion? What is the importance of Dispersion? Explain
the methods of measuring Dispersion.
OR
What do you mean by Range? Explain its advantages and disadvantages. How Range is
calculated? Explain.
OR
What do you mean by Mean Deviation? Explain its advantages and disadvantages. How
Mean Deviation is calculated? Explain.
OR
What do you mean by Standard Deviation? Explain its advantages and disadvantages.
How Standard Deviation is calculated? Explain.

Ans.
Dispersion
A measure of dispersion is designed to demonstrate the extent to which the individual
measures differ on an average from the mean or from any other positional average.
Dispersion, thus, refers to the variability in the size of items. Thus, dispersion (also known as
scatter, spread or variation) measures the extent to which the items vary from some central
value. If the variation is substantial, dispersion is said to be considerable and if the variation
is little, dispersion is insignificant.

Classification of Measures of Dispersion

The measures of dispersion may be expressed in two ways:

1. Absolute Measure: When we measure the dispersion and express it in terms of the
original data, it is called an absolute dispersion. The absolute measures are expressed
in terms of original units and they are not suitable for comparative studies. For
example, if dispersion in income of persons is expressed in ‘Rs’, dispersion in height
in ‘cms’, dispersion in age in ‘years’ etc. they will be known as Absolute Measure.

2. Relative Measure: Absolute measure of dispersion cannot be used for comparison

purposes. Therefore, for the purpose of comparison relative measurement is used
which is measured in terms of ratios or percentages. Such measurement is called
‘Coefficient of Dispersion’.

Objective or Importance of Measure of Dispersion

The following are the main objectives of measures of dispersion:

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 1. To Get Information about the Composition of the Series: We can get full
information about frequency distribution of the series on the basis of measures of
dispersion. Infact dispersions reveals the entire picture of the distribution.

2. To Judge the Reliability of an Average: The measure of dispersion is the only

means to test the representative character of an average. If dispersion is small then the
average is properly representing the series. On the other hand if dispersion is large, it
means average is not properly representing the series.

3. Helpful in Controlling Variability: Another purpose of measuring dispersion is to

determine nature and cause of variation in order to control the variation itself. In
matters of health, variations in body temperature, pulse beat and blood pressure is
measured on the basis of dispersion.

4. To Compare Two or more Series with regard to their variability: Measure of

dispersion also helps in determining the variability or stability of series. If coefficient
of variation is high, it means that series is more variable or stable.

5. Basis of Other Statistical Measurements: Various statistical measurement such as

Correlation Analysis, Regression, Quality Control etc. are based on measures of
dispersion.

Methods of Measuring Dispersion

 Range
 Mean Deviation
 Standard Deviation

(A). Range
It is the simplest method of studying dispersion. “Range” represents the difference between
the largest value and the smallest value. The ‘Range’ gives an extremely simple indicator of
the variability of a set of observations.

Advantages:
1. Simplest: It is the simplest measure of dispersion. Range is simplest to understand
and easiest to compute.
2. Indicator of Limits: It is an indicator of the limits within which all of the items
occur.
3. Useful in Quality Control: It is useful in statistical methods of quality control
techniques. When statistical methods of quality control are used, control charts are
prepared and in preparing these charts Range play a very important role.

Disadvantages:
1. Not Based on All Items: It is not a reliable measure because it is not based on each
and every item of the distribution. It is completely depending upon the two extreme
values only.

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 2. Unstable Measurement: Range is not a stable measurement. A little change in the
value of an extreme item effects the value of the Range. Moreover, it is also varies
from sample to sample.
3. Problem in Open-end Distribution: In case of open-end classes it is not possible to
calculate Range because in such a distribution lower limit of the smallest class and the
upper limit of the highest class are not known.
4. Not Suitable In Frequency Distribution: Usually frequency distribution may be
concentrated in the middle of the series; but Range depends on extreme items. Hence,
Range is not suitable in frequency distribution.

Methods of Calculating Range:

[Note: Explain formulas of Range in Individual, Discrete & Continuous Series which are
explained in Class.]

(B). Mean Deviation

Mean Deviation is the arithmetic average of the variations (deviations) of the individual items
of the series from a measure of their central tendency (Arithmetic Mean, Median or Mode). It
is concerned with the extent to which the values are dispersed about the Mean or the Median
or the Mode.

Advantages:
1. Calculation is Possible from Any Average: Mean Deviation may be computed on
the basis of deviations from any of three averages i.e., Mean, Median or Mode.
2. Based on All Values: This measure of dispersion makes use of all the observations or
items of the data.
3. Less Affected by Extreme Values: It is less affected by extreme values of variables.

Disadvantages:
1. Ignoring Algebraic Signs: It ignores the negative deviation and treats them as
positive which is not justified mathematically.
2. Uncertain: Mean Deviation is an uncertain measure because it can be computed from
any average.
3. Open-end Classes: Mean Deviation cannot be computed accurately for distributions
with open-end classes.
4. Not Capable of Further Mathematical Treatment: Mean Deviation ignores the
algebraic signs of the deviations, and as such, it is not capable of further mathematical
treatment.

Methods of Calculating Mean Deviation:

[Note: Explain formulas of Mean Deviation in Individual, Discrete & Continuous Series
which are explained in Class.]

(C). Standard Deviation

Standard Deviation is an ideal, scientific and most popular measures of dispersion. It was first
used by Karl Pearson in the year 1893. In short, Standard Deviation is the root-mean-square
average of all the deviations from the mean.

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Merits:
1. Certain and Best Measure of dispersion: Standard Deviation is based on Arithmetic
Mean which is already a best measure of central tendency moreover, its value is
always definite. Therefore, it is considered as certain and best measure of dispersion.
2. Based on All Values: It is based on all the values of series. Thus, it is a reliable
measure of dispersion.
3. Least Affected by the Fluctuations of sampling: If several independent samples are
drawn from the same normal population, Standard Deviation will be almost same in
all the samples because Standard Deviation is least affected by fluctuations in
sampling.
4. Use in Higher Algebraic Analysis: Standard Deviation possesses many
mathematical properties. For example, combined Standard Deviation may be
calculated from various samples.

Demerits:
1. Difficult to Calculate: It is difficult to calculate and understand.
2. More Weightage to Extreme Values: It gives more weight to extreme values as the
deviations are squared.

Methods of Calculating Standard Deviation:

[Note: Explain formulas of Standard Deviation in Individual, Discrete & Continuous Series
which are explained in Class.]

Q7. What do you mean by Skewness? What are the different methods of Skewness?
Ans.

Skewness
The literal meaning of the word ‘Skewness’ is ‘Lack of Symmetry’. In other words,
Skewness means a tendency of ‘Turn’. This measure gives a degree of turn by which we can
have the clear picture of the formation of the distribution. It is clear that, Skewness is such
type of statistical measure which explains the asymmetrical nature and its degree in
frequency distribution of a series.

Direction of Skewness
Direction of Skewness may be positive or negative:
1. Positively Skewed Distribution: When we plot the frequencies on a graph, if most of
the frequencies are spreading on the right side, this graph is called positively skewed.

2. Negatively Skewed Distribution: When we plot the frequencies on a graph, if most

of the frequencies are spreading on the left side, this graph is called positively
skewed.

Types of Measures of Skewness

Measure of Skewness may be of two types:

1. Absolute Measure of Skewness: Absolute measures of Skewness tells us the extent

of asymmetry and the direction of Skewness (positive or negative). It is denoted by
‘SK’. These measures are expressed in terms of original units of data. Hence, they
cannot be compared.

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 2. Relative Measure of Skewness: Relative measure of Skewness is useful in
comparing the Skewness between two or more distributions. Relative measure of
Skewness is denoted by ‘J’.

Methods of Calculating Skewness:

[Note: Explain formulas of Skewness in Individual, Discrete & Continuous Series which are
explained in Class.]

*************************************The End*******************************

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