What is the Importance of Measures of Central Tendency in Economics?

Averages are very useful in Economics. It is because of the following reasons:

(i) Helpful in knowing the structure of any economy:

For studying the structure of any economy we use per capita income, per capita consumption, per capita saving, per hectare production, per worker production, etc. All these are averages.


(ii) Helpful in comparing different economies:

Suppose we are to compare the economies of Punjab, Haryana and Himachal. For this purpose we shall use per capita income which is nothing but an average.

(iii) Helpful in studying various economic problems:

These days the different economic problems are studied with the help of Index numbers. For example problem of inflation is studied with the help of price index number. Index numbers are nothing but special type of averages.


(iv) Helpful in formulating and evaluating economic policy:

Averages are used in formulating and evaluating economic policy. For example, if we are to study the effect of economic planning on Indian economy, we may use per capita income.

(v) Helpful in research:

Measures of central tendency are used in statistical analysis. Therefore, these are used for research in Economics.



In spite of this importance, measures of central tendency have many limitations, which are as follows:

(i) It can be used properly only by skilled persons.

(ii) Sometimes, average is such value which is not in the distribution hence is not true representative. For example mean of 100, 300, 100, 50 and 250 is 160 which are not in the distribution and hence not true representative.


(iii) Sometimes average gives absurd results. For example, we find average number of members per family as 2.3.

(iv) Measures of central tendency do not describe the true structure of the distribution. Two or more than two distributions may have same mean but different structure.