Question

why do we use averages? Are there any limitations for their use?
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Answer 1

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Answer:-

Averages are used to compare different countries, states, or regions. Since countries have different populations, comparing total income will not tell us what an average person is likely to earn. Averages have many limitations.

(a) They don’t give us the true picture regarding the distribution of income.

(b) Averages don’t give us any information regarding the non-materialistic goods and services.

Limitations of Average Income 

While averages are useful for comparison, they also hide disparities.

For example let us consider two countries- A and B. For the sake of simplicity, we have assumed that they have only five citizens each. Based on the data given in the table, let us calculate the average income for both the countries.

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Answer 2

We use averages because they are useful for comparing differing quantities of the same category.

For example, to compute the per capita income of a country, averages have to be used because there are differences in the incomes of diverse people. However, there are limitations to the use of averages. This does not show the distribution of thing between people. For an example, suppose in a country, the annual income of a rickshaw puller is Rs 8,000 while an MNC employee earns an annual package of Rs 12,00,000. The average income of this country, therefore, will be Rs 6,05,000. Here actual income or status remains unknown. One can clearly consider this as a rich country thereby ignoring the income disparity between two individuals. Averages are useful for comparison, they also hide disparities.