Question

Why do we use averages? What are the limitations to thier use?

Answer 1

We use averages for comparison purposes due to the following reasons:

1) It indicates the distribution of total income among the total population of the country

2)It is easy to calculate understand

3)It helps in comparison among different countries based on their income and population

Following are the limitations to use of averages

1)It does not indicate the difference in distribution of income among rich and poor people

2)It does not show health status and the level of education available to the people of the country

3) It is not too easy to understand but it ignores a lot of qualitative factors of the economy like law order defence discipline of the people accept

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.