Q.(Q17, attempt any three) Explain any two merits of Arithmetic mean.

Arithmetic Mean in Economics — A First Look

You already use the arithmetic mean every day without thinking about it. If your marks in five subjects are 72, 85, 68, 91, and 79, and someone asks "what did you average?", you add them up and divide by 5. That's the arithmetic mean. In Economics, we do exactly the same thing — but with data that matters for the whole economy.

The Intuition

Imagine you want to know the "typical" monthly rent in your city. You can't ask every single tenant, so you collect rents from, say, 100 households. Some pay ₹8,000, some pay ₹25,000. The arithmetic mean gives you one number that represents the whole group — the rent that would result if everyone paid the same amount and the total rent collected stayed unchanged.

That's the core idea: the arithmetic mean is the value that each observation would take if the total sum were distributed equally.

The Formula

For a set of $n$ observations $x_1, x_2, x_3, \dots, x_n$, the arithmetic mean $\bar{x}$ is:

Where:

• $\bar{x}$ (read "x-bar") = the arithmetic mean
• $\sum$ (sigma) = "sum of"
• $x_i$ = each individual observation
• $n$ = total number of observations

Why It Matters in Economics

Economics deals with aggregates — total income, total output, total consumption. But aggregates alone don't tell you about the typical experience. A country's total national income might be huge, but if the population is also huge, the average person might still be poor. The arithmetic mean of per capita income (national income divided by population) gives you that picture.

You'll use it constantly:

• Average price of a basket of goods (to track inflation)
• Average propensity to consume (total consumption divided by total income)
• Average product of labour (total output divided by number of workers)
• Mean wage in an industry

A Worked Example

Suppose five firms in a market have the following annual profits (in ₹ lakh):

Firm A: 12

Firm B: 18

Firm C: 25

Firm D: 30

Firm E: 45

The mean profit is ₹26 lakh per firm. If all five firms had equal profits, each would earn ₹26 lakh.

A Word of Caution …