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58 Chapter 1 Economic Questions and Data

Key Concept Cross-Sectional, Time Series, and Panel Data

1.1 • Cross-sectional data consist of multiple entities observed at a single time
period.

• Time series data consist of a single entity observed at multiple time periods.
• Panel data (also known as longitudinal data) consist of multiple entities,

where each entity is observed at two or more time periods.

Some data from the cigarette consumption data set are listed in Table 1.3. The
first block of 48 observations lists the data for each state in 1985, organized alpha-
betically from Alabama to Wyoming. The next block of 48 observations lists the
data for 1986, and so forth, through 1995. For example, in 1985, cigarette sales in
Arkansas were 128.5 packs per capita (the total number of packs of cigarettes sold
in Arkansas in 1985 divided by the total population of Arkansas in 1985 equals
128.5). The average price of a pack of cigarettes in Arkansas in 1985, including
tax, was $1.015, of which 37¢ went to federal, state, and local taxes.

Panel data can be used to learn about economic relationships from the expe-
riences of the many different entities in the data set and from the evolution over
time of the variables for each entity.

The definitions of cross-sectional data, time series data, and panel data are
summarized in Key Concept 1.1.

Summary

1. Many decisions in business and economics require quantitative estimates of
how a change in one variable affects another variable.

2. Conceptually, the way to estimate a causal effect is in an ideal randomized
controlled experiment, but performing such experiments in economic appli-
cations is usually unethical, impractical, or too expensive.

3. Econometrics provides tools for estimating causal effects using either observa-
tional (nonexperimental) data or data from real-world, imperfect experiments.

4. Cross-sectional data are gathered by observing multiple entities at a single
point in time; time series data are gathered by observing a single entity at
multiple points in time; and panel data are gathered by observing multiple
entities, each of which is observed at multiple points in time.