2. 3 Economic Data
Economists use real-world observations to test their theories. For
example, did the amount that people saved last year rise—as the theory
predicts it should have—when a large tax cut increased their after-tax
incomes? To test this prediction we need reliable data for people’s
incomes and their savings.
Political scientists, sociologists, anthropologists, and psychologists often
collect the data they use to formulate and test their theories themselves.
Economists are unusual among social scientists in mainly using data
collected by others, often government statistical agencies. In economics
there is a division of labour between collecting data and using them to
test theories. The advantage is that economists do not need to spend
much of their scarce research time collecting the data they use. The
disadvantage is that they are often not as well informed about the
limitations of the data collected by others as they would be if they had
collected the data themselves.
After data are collected, they can be displayed in various ways, many of
which we will see later in this chapter. They can be laid out in tables.
They can be displayed in various types of graphs. And when we are
interested in relative movements rather than absolute ones, the data can
be expressed in index numbers. We begin with a discussion of index
numbers.
