Arsi University

Collage of Business & Economics (COBE)

Department of Economics
Course title: Basic Statistics
Chapter: Probability

5.1. Introduction
5.2. Basic concept
Probability theory is building block for making inference in decision process. Before going to the detail
issues of probability, let’s introduce ourselves with concepts in probability theory. Some of these
concepts are: trial, experiment, outcomes, sample space points, events & it operations. Let’s look each
in some detail

Some of the important concept common in statistics

1.3.1. Trial, experiment and experimental out comes
I. Trial: Trial is any act performed under specific conditions. In everyday life, we see several acts
being performed under a given condition. The act can be anything tossing a fair coin, rolling a die,
doing laboratory experiment, doing personal business, collecting data, etc. The conditions under which
above acts are performed can be
i. structured & carefully organized which is referred to as Scientific approach
ii. Randomly & subjectively defined. It is the case when the act relate to any activity which is
not planned.
Not that
For a trial, we are not worried about
a) Ways of doing trial /sample or -rules and regulations

b) Out come

II. Experiment
Many definitions can be listed depending on the situations and area of focus, because there are many
types of experiments. For example,
o Field experiment in medicine or agriculture
o Programming or simulation experiment in computer
o etc.

But, we are concerned with statistical experiment. Aims of statistical experiments are generation of
information’s for decision making.
Formal defn. Experiment is an act or a process of observation that lead to single outcomes that cannot
be predicted with certainty. Example
o Recording customer’s performances or one of two computer operating system
o Recording the weekly sales of a business firm
o Tossing a coins
  It is sometimes referred to as random experiment. As a class of occurrence that can happen
repeatedly for unlimited number of times under the some situations. The circumstances under
which the various trials of random experiment are performed are virtually the same in long run.
III. Random Experiment: An experiment or trial is an act that can be repeated under given
identical conditions. Example: Throwing a die, tossing a coin are the examples of
experiment or trial.

IV. Outcomes of experiment

Outcomes of experiment are result of act being performed.
Examples-1: Let an experiment consisting of tossing a die and observing the number on the up face.
Define experiment & possible outcomes
Solution
Experiment Experimental outcomes
 Tossing a die & observing up face 1, 2, 3, 4, 5, 6

Six possible out comes

Examples-2: If a fair coin is tossed, and number on the up face is recorded.
Experiment Trail Experimental outcomes
Tossing coin once Head, Trail
Examples-3: Playing a football game
Experiment Trail Experimental outcomes
Football game one play win ,loss, tie
IV. Relation between trial & experiment
Many people interchangeable use trial and experiment. Even though they are related concept , they
differ in meaning. For certain act or process to be called experiment, four conditions should be fulfilled.
a) Natures of act perform: We refer to random experiment or process in which the way the act
performed matter. For any two or more act, whether these acts are performed one after another
under the same conditions or simultaneously under same conditions. Examples-4: In coin
tossing experiment, whether the acts are performed by tossing coin one after another or tossing
simultaneously.
b) Possible outcomes: all random experiment generates a collection of potential experiment
generate a collection of potential outcome or the possible outcomes are known.
c) Uncertainty: Even though, potential outcomes are known, the actual/realized outcomes on any
given trial cannot be ascertained with complete certainty.
d) Repeated trial: Numbers of times trial are performed are many. As the trial of random
experiment progress, it is assumed that the results of the same do not exhibit any systematic
fevering of one outcome relative to any other possible outcomes. Except these, they are the
same

Example
1. An act of tossing coin (s)
- Tossing a coin once
- It is a trial
- It is also an experiment consisting of one trial

ii. Tossing two coins together once

iii. Tossing a coin twice under the same condition
- Is an experiment which involve two trial
2. Case of throwing an ordinary die
i. When one throw an ordinary die once, it is an experiment consisting of one trial
ii. When the same die it thrown twice , and then thrice ,two more experiment
consisting of two or three trial respectfully
iii. One may throw two or three dies together (with proper identification of die) so that
each one is an experiment consisting of one trial only.
D1 D2 D3 D1 D2
together together
1.3.2. Sample space & Sample points
I. Sample space
Sample space simply a set whose elements describe the outcomes of the experiment in which we are
interested in. Or It is a set of all possible experimental outcomes or a universal set of all outcomes.
One can develop sample space, by specifying out possible experimental outcomes. It is usually denoted
by bold face letter S. It is usually represented /expressed using a set notation as a set containing
elements. It is synonymous with set in set theory.

II. Sample points

It is an element of the sample space or each experimental outcome. It is sometimes, termed as event if it
is simple. It is synonymous with element of set in set theory. , we identify the sample pace of an
experiment.
Relationships between sample space and sample points.
It is usually represented /expressed using set notation as a set containing elements

Examples-1: In an experiment of tossing a coin and observing up face. Determine; experiment, sample
space and sample points.
Solution
 Experiment : tossing a coin & observing up face
 Experimental outcomes : 1. Observe a head (H) 1st trial

2. Observe a trial (T) 2nd trial

 Sample space: set of all possible outcomes or set of head and trial
 Samples points: H,T each experimental outcomes
 It is represented in set notion as a set containing two sample points

Examples-2: If Abebe roll a die and wants to record up face on a die, state the experiment, sample
space points? Solution
Experiment: roll a die and observe the up face on the die
Sample space : all possible outcomes of this experiment
These are
1. Observe 1
2. Observe 2
3. Observe 3
4. Observe 4
5. Observe 5
6. Observe 6
These sample space can be represented in set notation as a set of six sample points
Sample points: each elements of sample space 1,2,3,4,5,6
Then the description can be
Examples-3: These coins are tossed, and their up face are recorded. List the sample points for this
experiment
Solution: Experiment:
Trial 1 Trial 2 Experimental outcomes
H H H H
H T H T
T H T H
T T T T
Sample space: all possible outcome of this experiment. These are
1. Observe HH
2. Observe HT
3. Observe TH
4. Observe TT
Sample points are: HH, HT, TH, TT
This can be represented using set notation as

1.3.3. Description of sample space

1. Conditions for sample space description
In sample space description, one should be clear with the following issues
A. What we are measuring /observing
In order to describe a sample space associated with an experiment, we must have very clear idea of
what we are measuring/observing. We should speak of ‘a’ sample space associated with an experiment
rather than ‘The’ sample space. It can be
- a letter - like tossing a coin
- Number- like rolling a die
- Other outcomes –like diagram
B. How we formulate sample space
The nature of the particular problem under consideration will dictate which sample space to be used.
The sample space depend on problem at hand
Example
- If an experiment consists of one roll of a die and we are interested in which face is turned
up, we would use sample space
S1= {1, 2, 3, 4, 5, 6}
- However , if we are interested only in whether the face turned up is even or add, we would
use the sample space
S2= {even ,odd}
Thus, different sample space can be associated with the same experiment.
In general, the only physical requirement of S is that given performance of the experiment must
produce a result corresponding to exactly one of the points of S.

C) Countability of sample space/Points

Sample spaces are usually classified depending on the countability of sample points.
- These are
 i. discrete possibilities/discrete possible outcomes.
ii. Continuous possible outcomes//continuous sample space

Let’s look at them in some detail

I. Discrete possible outcomes
Sample space which take discrete number or can be measured using descript members like 1,2,3…….
They can be of two types;
a) Finite number of elements
- If a sample space has finite number of elements
- Example: The sample space for the possible outcomes of one flip of a fair coin may be
writer as S={H,T}
- It can be represented in many ways depending on sample points

b) Countable infinite or large sample points

- if sample space has large or infinite elements. It is usually described by statement or
rules. For example
 If the possible outcomes of an experiment are the set of outmobile equipped with citizen land
radio’s . The sample space can be written as

S={x/x is an automobile with a citizen band radio}

 If S is set of add positive integers, we write
S={2k+1/k =0,1,2,3,……}
Formally, it can be represented by partial using method or set builder method
II. Continues sample space
If a sample space consists of a continuum, such as all the point on line segment all the points in a plane,
it is said to be continuous. Continuous sample space arise in practice whenever the outcomes of
experiments are measurement of physical properties such as temperature, speed, pressure, length …etc
that are measured on continuous scales.

1.2.2. Description of sample space

There are three ways to describe sets or characterize sets. These are:
- The complete listing method
- The partial listing method
- Set builder method
A. The complete listing method
It is a method used to list all elements of a space. It is used, if it is possible to list all the elements of a
set. E.g. Let A= {a, e, f, h} , B= {1, 2, 3, c, d}
Note that: in this method all the elements of the set are listed in braces, {, , , }, with each element
separated by a comma. This method is only possible for sets with finite number of elements (limited
number).
B. The partial listing method
If a space consists of many elements that cannot be listed but have certain pattern, we list few elements
and use three dots either after or before or both before and after listing. Any set finite or infinite with
elements forming definite sequence can be described using partial listing method.
Example
1. The space A= {1, 2, 3… 20}. It describes the set of all counting numbers that are less than 21.
2. Let space A= {…-3,-2,-1, 0, 1, 2……..}. It denote the set of all integers
3. Let set B= {1, 2, 3……}. It is to denote that set B involve counting number
Note that
 - The elements are separated by comma and enclosed by braces
- The dots are to suggest the continuation of the sequence beyond the elements displayed

C. The set builder method

If elements of a space A cannot be listed, we may use open proposition to describe the type of elements
that belong to a set. This can be expressed as A= {x/p(x)} or A={x:p(x)}. The notation (/) or ( : ) stand
for “such that” It is read as A is the set of all x such that p(x) is true when x is substituted (the set of all
x such that x satisfies p(x) ).
For example:

i. A= {x/x is a multiple of 3}, 15 A, but 8 A

ii. A= {x/0 X 1}, A is set of all x’s, where x is a real number between o and 1, inclusive
¿
iii. B= {x/x N, x 5}, Where N is set of natural numbers
iv. B={x/x is an integer}

One can convert set denotation from one form to other; from partial listing to set builder method or vice
versa

Write the following in set builder notation

a) A= {0, 1 ,2,3….} Solution , A={x: x w,}
b) A= {2, 4,6,8….} Solution A={x: x N, x=2N} even positive number
Example 2: List the following sets
i. {x/x N and x<10}
ii. {x/x z and x<6}
iii. {x/x z and 2<x<10}
where N= natural number & z= the sets of integers.
Solution
i. They are 1,2,3,4,5,6,7,8,9. It can be described as {1,2,3,4,5,6,7,8,9}
i. They are all negative integers and the integers 0, 1, 2, 3, 4, 5 so. The set may be
as { ……..,-3,-2,-1,0,1,2,3,4,5}
ii. We have to find integers lying between 2 and 10. They are 3,4,5,6,7,8,9
So is can be described as {3, 4, 5 ,6,7,8,9}
Example 3 Give the verbal translation of the following sets
i. {2,4,6,8,}
ii. {1, 3, 5, 7, 9…..}
iii. {-1,1}

Solutions
i. It consists of all positive even integers less than 10
ii. It consists of all positive odd integers
iii. It consists of those integers x which satisfy x2-1=0

Similarly
a) The set B= {x:x is a solution of x2+y2=1} is well defined
b) F={x:x is a citizen of Ethiopia } is a well-defined set.
c) Sometimes, set may not be defined well. That is, it involve certain level of ambiguity
 For instance,
i. The set of interesting courses you can take
ii. The set of nice people in Addis Ababa
iii. The set of beautiful girls in the class. None of these sets are well-defined because
there is no common agreement as to what it means by ‘interesting courses,” nice people’
or ‘beautiful girls’

1.3.5 Events
In many problems in statistics, we are interested in results that are not given directly by specific
elements of a sample space. Rather. We focus on specific elements of sample space and /or
combination of sample points.
o Simple elements of sample space
o A combination of elements of sample space

For Example
i. In an experiment of tossing a die or recording up face, the sample space (S): {1, 2, 3, 4, 5.6}
ii. ii. If the especial outcomes is defined as the number of sample point rolled with the die is
divided by 3.

Solution
Sample space of tossing a die S= {1, 2, 3, 4, 5, 6}. Among the number above (sample points) number
divided by 3 are only 3 and 6. That is, A ={3,6}. The above, is usually termed as events
What is event?
A. Event

Event is simply a set of possible outcomes which constitute of a subset of an appropriate sample space
or “event” associated with a random experiment correspondence to a question about the experiment that
has a yes or no answer. It is denoted by E or A
Examples
i. If a coin is tossed twice and we are interested with sample point with at most one head.
Sample space
Trial -1 Trial-2 Outcomes
H H HH
H T HT
T H TH
T T TT
S= {HH, HT, TH, TT}
Especial outcome of interest are outcomes with at least one head

E=”the number of heads is 1”

It will be a condition that either occurs or does not occur in a given performance of the experiment but
we do not know before the experiment. After the experiment is performed, the question “is the number
of heads 1 per outcome? “Can be answered by yes or no. The subset of S corresponding to a “yes”
answer is E= {HT, TH, TT}. That is the desired outcome of the experiment is HT, TH, Or TT. If the
outcome is HH, the answer is no
ii. The subset of S associated with the “event” that the result of the first toss is the same as result of the
second toss of the example a is B={HH,TT}.
iii. With reference to sample space of throwing two dies described, especial out comes (B) with the
total number of points rolled with a pair of die is seven(7). Among the 36 possibilities, only pair of
numbers (1, 6) ,(2,5), (3,4),(4,3),(5,2),(6,1).
So we can write event A as A={(1,6),(2,5),(3,4),(4,3),(5,2),(6,1)}
Note that:
An event may be described by (characterized by)
- Listing all of its points
- Describing the conditions under which the event will occur.
For example
I. In coin tossing experiment just considered we write
i. A={the number of heads is less than or equal to one}. The expression is to be read
as “A is the set consisting of these outcomes which satisfy the condition that the
number of heads is less than or equal to one”
ii. “A is the event that the number of heads is less than or equal to one”

The event A consist of the points HT, TH,TT. Therefore we write A= {HT, TH, TT}

II. If B is the event that the result of the first toss is the same as the result of the second toss, we
may describe B by writing B={first toss, second toss}
B={HH,TT}

Note that
It will be tacitly assumed that whenever we speak of an event it will be of the kind we are allowed to
consider. We shall cite a large number of examples illustrating what we have in mind.
Example: For the following experiment, determine sample space & then event?
i. S,= Toss a die and observe number that shows on top; Solution, S= {1, 2, 3, 4, 5,
6} E=Event: an even number occurs, An event occur when any of the three outcomes
{2, 4, 6) a obtained. E={2, 4, 6}. i.e. our interest lies in the event of a die resulting
in outcomes divided by 2. This set is sub set of S.
ii. S= manufacture items on a production line which count the number of defective
items produced during a 24-hour period. E={0,1,2…N} where N is the maximum
number that could be produced in 24 hours. E2= {0}, case where all items where non
defective
 iii. An air plane wing is assembled with a large number of rivets. The outcomes of
interest are the number of rivets. A= {0,1,2,…..} where m is the number of rivets
installed. A={3,4,…..m} ; that is, more than two events were defective
iv. S is A light bulb is manufactured. It is then tested for its life length by inserting it
into a socket and time elapsed (in hours) until it burn out is recorded. E1= {t/t≥0}.
E2= light bulb burn less three hours. A5= {t/t¿3}

B. Types of event

What do (does) event (s) contains? To answer this question, let’s recall subset of a given set in set
theory. The subset of a given set can be
 empty set (null set)
 each elementary elements
 set which combines elements
 the entire set

Similar analogy holds for events. An event as a subsets of the sample space may take the following
forms
I. null space/empty space

Event may take a null set when it refers to a subset containing no elements of the sample space. It is
denoted by ∅ & it corresponds with empty set. It is sometimes known as null space or impossible event.
Example1: Rolling a die, we are interested with number seven
S= {1, 2, 3, 4, 5, 6}
E1= {7} or E1= {0}
II. Entire sample space
Event may be the whole sample space (sample points). It corresponds with entire set of set theory
Example 2 : In an experiment of tossing a coin twice, we are interested with the outcomes with at least
“one head or one tail”. Determine the event?
Solution
The event is entire sample space N(s) :{ HH, HT, TH, TT}
Example 3: In an experiment of throwing a die twice, the event that we get a sum “greater than or
equal to 2(two) and less than or equal to 12”. Determine the sample space.
Solution: We refer to subsets comprising all of the 36 elements (sample points). It is entire space.
III. Elementary event
It corresponds with elementary element of a set. Event can be an elementary event when each element
of the sample space is seen as a subset.
Example 4: Occurrence of a head in the single toss of a coin. The sample space (S) :{H,T}. The event
(E)={H}.
Example 5: In an experiment of rolling a die, the occurrence of number six on up face.
Solution: sample space (S) : (1,2,3,4,5,6}, Event (E1) :{6}
IV. Compounds event
It is subset of sample space which has two or more sample points. It corresponds with combined sets
Example 6: In an experiment of rolling a die, and recording number divisible by 3
Solution: Sample space (S) : {1,2,3,4,5,6,}, Event (E) :{3,6}

Possible event listing

One can list all possible events in a manner similar with the set theory for subset (S).
Example 7: In coin tossing experiment, describe the possible events.
Solution
Define sample space S= {H, T}
-define possible subsets (Events)
-null space……{ }
- Elementary set….{H},{T}
Example 8:. In an experiment of rolling a die, describe the possible events?
Soln.
 Define the sample space S= {1, 2, 3, 4, 5, 6}
 Define the possible subset or events
o Null space……………..{}
o Elementary event …..{1},{2},{3},{4},{5},{6}
o Compound event
 (1,2},(1,3},{1,4},{1,5},{1,6}
 (2,3},{2,4},{2,5},{2,6}
 (3,3},{3,4},{3,5},{3,6}
 {4,5},{4,6},5,6}
 1,2,3}……e,t,c}
o entire space S={1, 2, 3, 4, 5, 6}

1.3.4 Number of sample points in sample space

Given the experiment and number of trial one can specify/determine the number of elements or sample
points. It is synonymous with the number of subsets and proper subsets in set theory. The formula for
finding the number of sample point is given by

Where Q= number of all possible sample points of an experiment

S= Sample space or ne of experiment or trial
Examples-1:
i. Single- trial experiment
a) If a fair coin is tossed once, determine all possible outcomes

Solution
because , Q=2 , there are only two possible outcomes of this experiment
S= 1, sample is one:
b) A fair die thrown once and the up face is recorded, determine the number of sample
points?
Q=6 : six possible outcomes or an experiment {1,2,3,4,5,6}
S= 1, sample space which is one

Thus,
ii. Two- trial experiment
a) A fir coin is tossed twice, determine the sample point?

Solution
Q=2 , two possible outcomes for a single trial (H or T)
S=2, sample space is two, b/c it is either tossing two coins together with proper
identification once or tossing a coin twice.
 Tabular presentation
Sample space of tossing a coin twice
Trial 1 Trial 2 outcomes
H H HH
H T HT
T H TH
T T TT

b) If die thrown twice , determine number of sample points ?

Solution.
Q= 6 (six possible outcomes for a single trial)
S=Sample space is two- two trial

Table : Sample space of throwing a die twice

(1,1) (2,1) (3,1) (4,1) (5,1) (6,1)
(1,2) (2,2) (3,2) (4,2) (5,2) (6,2)
(1,3) (2,3) (3,3) (4,3) (5,3) (6,3)
(1,4) (2,4) (3,4) (4,4) (5,4) (6,4)
(1,5) (2,5) (3,5) (4,5) (5,5) (6,5)

ii. Three trial experiment

This is a case of conducting experiment three times simultaneously.

a) For an experiment of tossing a coin three times or tossing once three properly
numbered coins together, the sample space

b) The experiment of throwing a die three times (throwing once three properly
numbered dies to ether ) , will have sample space of 216

In general
The various experiments consisting of one, two and three trials considered above lead to an important
generalization. To determine the number of sample point comprising the sample space of an experiment
consisting of n trials are can use formula. The total number of sample point generated by an experiment
consisting of n number of trials is given by Q multiplied n times. It may b stated as .
Where Q is the number of outcomes in a single trial and n is number of trials.
1.3.6Number of Events in Sample space
Number of possible events can be found using formula under set theory for finding number of subsets.
The total number of events of a given sample space can be found using 2n . Where n is number of
sample points in sample space.
Example 8: Find the number of possible event for a coin tossing experiment
Solution: S={H,T} N(S) =2. Then, number of event s are =22=4
Note that: If an experiment is designed in a manner in which many coins (dies) are tossed one, we can
find the sample points as follows. Let’s
- Number of trial is one (two) ….n
- Number of sample space in a given trial of experiment…..i
- Number of sample points of a single sample space…..0
- Then, the total number of sample points can be found
- .

Example 9: if a two coins are tossed simultaneously, find the number of sample points
Soln. trial is =1, sample space per trail are 2. Then, total number of sample points are
N (S) =O i.n =(2)1.2 = 22=4

1.3.7. Compound event & its operation

We have seen many possibilities for an event in previous sections, mainly elementary case. Besides,
events can be formed by combining any two or more event (elementary) or by finding common sample
points of two or more events. Such events are known as compound events
Example 10: Consider the experiment of throwing a die. In first case, let the die showing any face
number below 5 be an event A. A is a subset consisting of {1, 2, 3, 4}. In the second case, let there be
another event B of getting a face number 3 or more. It is also a subset of S and be B= {3, 4,5,6}.
One can form an event from the two events A&B. The operation used in forming events can be
 union
 intersections
 complements

These are some operations by which new events can be formed from old once.
Note that : informing such event using above operation one use rules of algebra of sets theory.
A. Union
Defn.
The union of two event A& B is the event that occur of either of A or B or Both occur on a single
performance of experiments. It can be denoted A u B: B u A. It result in another event containing all
elements which belongs to A or B, provides that they are mutually exclusive (no common elements)
Note that
Where the two events have some common element, their union will result in another event containing
and the elements which belong to A or to B or to both. Such an event can be expressed as AuB -A ∩ B
where A∩B is a sub set of elements in common.
From above examples A u B: {1, 2, 3, 4, 5, 6,} =A u B- A∩B Venn- diagram

Diagram
  not that

One can extend the rules to three events in similar manner AuBuC: BuAuC: CuAuB
B. Intersection
The intersection of two events A&B is the event that occurs if both A &B occurs in a single
performance of experiment. It is denoted as A ∩B=B∩A or A∩B∩C where C is the third event. It
results in another event containing all such elements that are common to A&B.
A∩B: {3, 4}

It can be extended to three or more events (A∩B) nC: A∩(B∩C ¿

Complement of events
The complement of an event A is the event that A does not occur.
That is, the event consisting of all sample points that and that in event A.
We denote the complement of A by A’

Example
Consider the experiment involving the toss of a single die, with N= the result. For convince, label the
points of the sample space by the integers 1 through 6.
Let: event A= {(N is even } and event B= {N≥3}
Then
AuB= {N is even or N≥3} = {2, 3, 4, 5, 6}
A∩B= {N is even and N≥3} = {4,6}
A1= {N is not even} = {1, 3, 5}
B1= {N is not ≥3} =and {N¿3}={1,2}
One can extent the operation to any number of events
i.e. Let n events A,A2….A n be exist. The union of these events are set of points belonging to at least
one of the event A1,A2….An
Notation
A1UA2UA3….UAn=Ui=1n Ai
-The intersectioAn of events A1,A2….An is elements or set of points belonging to evry event
A1 A2 n A3n…….An=Ai2 Ai

Mutually Exclusive event:

When an event occurs and none of the other events will occur at the same time, then the event is called
mutually exclusive event. Two events in a sample space are said to be mutually exclusive or dis joint
of A and B a have no points in common. That is, if it is impossible that both A and B occur during the
same performance of the experiment. In symbols, A and B are mutually exclusive of A∩B=∅

Example

If we toss a coin two outcomes head (H) and tail (T) are mutually exclusive event. Because if it appears
head (H) or tail (T) not both head and tail at the same time.

Formally, two events and are mutually exclusive if and only if .

Exhaustive events

The total number of possible outcomes in any trial is known as exhaustive events or exhaustive cases.

Example

 In tossing of a coin there are two exhaustive cases viz, head and tail.
 In throwing of a die, there are six exhaustive cases since any one of the 6 faccs 1, 2, 3, 4, 5, 6
may come upper most.
1.4. COUNTING TECHNIQUES
So far we have seen experiments based on simple games involving one or more toss(s) of a coin or
throwing of a die. In all above cases, the total number of sample points of the experiments is limited.
They can be easily listed or counted. However, the real life concern/problems go beyond such simple
experiments. Experiment may involve many games of chances. Accordingly, the resultant sample space
is often too large to permit easily counting and listing sample points. It is difficult to present sample
points by complete listing method. Furthermore, sometimes actual listing may not by necessary. The
major issue is to know the number of events or sample points. These call for methods which facilitate
counting sample points and measuring the number of ways in which an event may occur.

There are four technique of counting events or sample points in sample space. These are
i. Addition rule
ii. multiplication rule
iii. permutation
iv. combination

I. Addition Rule
Suppose that certain task can be performed in two procedures. A procedure designated by 1 can be
performed in n1 ways and a second procedure can be performed in n2 ways. Suppose furthermore that it
is not possible that both and 2 are performed together. Then the number of ways in which we can
perform 1 and 2 is n1+n2.
Note that:
 sequence of the tasks are not needed
 one can perform either of the task
Example 1:
Suppose that we are planning a trip and are deciding between bus or train transportation. If there are
three bus routes and two train routes, how many ways taking the trip?
Soln
 there are 3+2=5 different routes available for the trip.

Example 2:
Suppose that either only one student from 9 th grade or only one student from 10 th grade can go
to the conferences. If there are 300 students in 9 th grade and 250 students in 10th grade , how
many different choice are there for the students that attends the conferences?
Soln
 there are 300+250=550 different choices are available.

General case
one can extend the rule to many operation with many procedures say n 1,n2,n3,…..nn. But ,it is not
possible that two or more operations can be performed together. Then the number of ways in which we
can perform n operations are n1 + n2+ n3+…..+nn.

II. The multiplication Principle

It is a rule for multiple –step experiment or rule of counting for compound events. It is sometimes known as a
rule for sequences of events.
Defn
If an experiment can be described as sequences of k steps with n 1 possible outcomes on the first step,
n2 possible outcomes on the second steps , then the total number of experimental outcomes is given by
n1.n2.

Example 3:
Suppose a man traveling from his home to office has a choice of 4 buses and from his office to his
school he has a choice of 3 buses; then from his home to school, through his office, he can make the
trip in 4x3 = 12 ways.
Example 4: A student owns 3 pairs of sneakers, 5 pairs of jeans, and 20 shirts. If she randomly selects
one of each in the morning without regard to color or matching, how many different outfits does she
have?

Solution: Here there are three operations with

Then the total number of outfits possible is .

Example 5:
A new car buyer has a choice of five body styles, two engines styles, and eight different colors. How
many different car choices does the buyer have?
Solution; there are 528=80 different choices among the cars that could be ordered.
Example 6:
A student goes to the nearest snack to have a breakfast. He can take tea, coffee, or milk with bread,
cake and sandwich. How many possibilities does he have?
Solution:
Bread
Tea Cake
Sandwich

Bread
Coffee Cake
Sandwich

Bread
Milk Cake
Sandwich

There are nine possibilities.

There are two ways of presentation;
a. complete listing

Example 7: How many sample points are in the sample space when a pair of dice is thrown once?
Solution: the first die can land in any one of six ways (N=6 ways). For each of these 6ways the second
die can also land in six ways (M=6 ways), therefore, the pair of dice can land in N M= (6) (6) =36
ways, see the following table 2.1, there are 36 possible outcomes.
Table 2.1 there are 36 possible outcomes in an experiment of throwing a pair of dice once
The second die
1 2 3 4 5 6
1 1,1 1,2 1,3 1,4 1,5 1,6
The first die

2 2,1 2,2 2,3 2,4 2,5, 2,6

3 3,1 3,2 3,3 3,4 3,5 3,6
4 4,1 4,2 4,3 4,4 4,5 4,6
5 5,1 5,2 5,3 5,4 5,5 5,6
6 6,1 6,2 6,3 6,4 6,5 6,6
 b. tree diagram

Example 8:
Exercise: An automobile manufacturer offers a certain car in 12 different colors, 3 different models
(two door four-door and wagon), and 4 different engines. In addition air conditioning is available. How
many different car packages can be put together?

General case
If an experiment consists of K steps of which the 1 st can be done in n1 ways, for each of these the
second step can be done in n 2 ways for each first two step the 3 rd steps can be done in n3 ways and so
forth, then the whole operation can be done n1.n2.n3…….nk.

III. Permutations – ordered arrangement of objects

In addition to the above counting rules there are rules for especial cases. Most of the time, we are
interested in situation where the outcomes are different ways in which a group of objects can be
ordered. That is, order of arrangement of elements in events matter.

For instance,
 we want to know in how many different ways latter a, b,and c can be arreanged?
 in how many different ways six persons can be seated around a table?
etc

Accordingly, we want to know the number of all possible arrangements of a given set of
objects/elements taken all or a part at a time in light of sample space and events.
One can find three rules
a. Permutation Rule 1.
b. Permutation Rule 2:
c. Permutation Rule 3:

A. Permutation Rule 1.
Definition: A permutation of n different objects taken all at a time denoted by nPn or nPn or
P (n,n). The number of permutation or an ordered arrangement of objects taken all at a time.

Example 9:
How many different arrangements of letters a, b, c are possible.
a bc bc a
a c b c a b There are 6 possible permutations of a set of 3 objects.
b a c c b a
Thus we see that there are 6 distinct arrangements. We could arrive at the answer 6 without actually
listing the different orders. There are N1=3 choices for the first, then N2=2 for the second, leaving only
N3=1 choice for the last position, giving a total of N 1N2N3 = (3)(2)(1)=6 permutations. In general,
N distinct objects can be arranged in N (N-1) (N-2)... (3)(2)(1) Ways. We represent this product by the
symbol N!
 This is 3! Way.
n! = n ( n – 1 ) (n – 2 ) ( n – 3 ) . . . . (.... 1
3! = 3x 2 x 1 = 6

Example 10 :
How many different ordered arrangements can be made of five samples of mathematics books in a row
of shelf?
Set the books be (A , B , C , D , E ) = n = 5
n! = 5! = 120
Example 11: In how many ways can five people be lined up to get on a bus?
Solution: 5! =120 different ways
Example 12: It is required to seat 5 men and 4 women in a row so that the women occupy the even
places. How many such arrangements are possible?
In general:
If we have n objects there are n possible permutations of n objects.
 0! = 1 (by definition)
 1! = 1
n! n!
np = = =n!

n (n − n ) ! 0!

Frequently, not objects are selected together, rather part of it or two or three can be selected at a time.
These forces as to come up with modified formula for the case
Permutation Rule 2:
Definition: A permutation of n different objects taken r at a time denoted by nPr or nPr or
P (n,r) is an ordered arrangement of only r objects out of the n – objects.
n!
nP =
r (n − r ) !
Theorem 5.1: The number of different permutations of n different objects taken r at a time is given by

Example 13:
Two lottery tickets are drawn from 20 tickets for the first and second prizes. Find the number of sample
points in the space
 Solution: the total number of sample points is
20 !
=380
P
20 2 = (20−2)!

Example 14:
How many different ways can 3 red, 4 yellow and 2 blue bulbs be arranged in a string of Christmas tree
lights with 9 sockets?
Solution: the total number of distinct arrangement is
9!
=1260
3! 4!2! Arrangements

Example 15: From a committee of eight people in how many ways can we choose a chairperson and a
vice- chair person, assuming one person cannot hold more than one position?
Permutations Rule 3
The number of permutation of n objects in which k 1 are alike k2 are alike . . . . etc is (k 1 , 4k2 ,
= similar object )
n!
k ! , k2 , ! . . . . kr !
Theorem 5.3: The number of permutations of n objects taken n at a time in which n 1 objects of one
kind are a like, n2 of another kind are alike,…, nk of a kind are alike is given by

Example 17: In how many ways can the letters the following words be written?
a) ECONOMICS
b) STATISTICS
Solution: a) C and O occur twice each hence the required number of ways is .
b) S, T occur twice and I thrice each. Hence the required number of ways is:
Example 18: How many different permutations can be made from the letters in word “statistics”
n = 10
k1 = 3 (  of s’ s)
k2 = 3 ( of t’s )
k3 = 2 ( of I’s )
k4 = 1 (  of o’s )
k5 = 1 ( of c’s )
The total numbers of different permutations are
n! 10 !
= = 50 . 400
k1 ! k2 ! . . . . k5 ! 3!3! 2! 2! 1! 1!
Theorem 5.4: The permutation of n distinct objects arranged in a circle is (n-1)! . Circular
permutations depend on the relative positions of objects. If there are n-objects we fix the position of
one object and arrange the remaining n-1 objects in all possible ways.
Example 20: In how many ways can four men be seated at a round table?
Solution: Let the four men be A, B, C and D. Then the different permutations of the 4 men round a table are
Hence the 4 men can seat round a table in different ways.

IV. Combinations
In above case the selection consider order of arrangement. Sometimes, we order may not matter. If a
selections of objects without regard to order is called combination.
Definition: A permutation of n different objects taken r at a time denoted by nCr or nCr or
C (n,r). It is the number of ways the distinct objects can be selected. It can be calculated

Theorem 21: The number of combinations of distinct objects selected at a time is given by

Example 22: There are 3 combinations and 6 permutations of the letters A, B, C taken 2 at a time.

Example 23: The number of ways in which a committee of 5 people can be selected form 12 people is

Example 24: Out of 5 men and 3 women a committee of three is to be formed

a) Consisting of two men and one woman.
b) Without any restriction.
In how many ways can this be done?

Solution: a) 2 men out of 5 can be selected in 10 ways, 1 woman out of 3 can be selected in

ways. By the multiplication principle, the committee can be formed in

.
 b) 3 people can be selected out of a total of 8 in .
Example 25:
A bag contains 6 white, 7 red and 5 black balls. Find the chance or probability that three balls drawn at
random are all white ?
Solution: Before we find the probability, we have to find the different combinations. Therefore, since
the number of balls are 18 = (6+7+5), how many combination of three balls can be drawn form 18
balls. This is combination of 3 balls out of 18 balls:
18 !
=816 ways
18C3 =
(18−3)!3 !
We can draw 3 balls form 18 balls in 816 different ways.
There are 6 white balls in a bag and how many combinations of 3 balls can be drawn from 6 white
balls? This is also combination of 3 balls out of 6 balls, symbolically,
6!
6 C 3= =20
( 6−3 ) !3! Ways
We can draw 3 balls out of 6 balls in 20 different ways.
Therefore, the probability that three balls drawn at a random are all white is given by:
20 5
=
816 204 =0.025
1.5. DEFINITION OF PROBABILITY
We have seen sample points, events and principle of counting. Our interest is not only measuring
number of events and sample points, rather chances of occurrences of something or probability of
sample point(s) or event(s). For instance,

 Suppose that a random experiment to be carried out and we are interested in the chance of a
particular events occurring.
 if a fair coin is tossed , we are interested in the chance of head? Or tail?
 Suppose that a random experiment is to be carried out and we are interested in measuring the
extend of our precision in making certain decisions.
 etc

The concept of probability provides a numerical measure for the likelihood of an event’s occurrences.

1.5.1.Definition of probability

Probability is generally used synonymously with “chance” , “odd” or similar concepts. It is a measure
of the likelihood that an event will occur. It can be used as a measure of degree of uncertainty associated
with certain events, or degree of risk involved in certain scenarios, or degree of precision in decision
making processes.

In fact, experts disagree about the concept of probability, since there are various conceptual
approaches in defining probability.

There are three approaches to the definition of probability.

1. Classical Approach
2. Relative Frequency Approach
3. Subjective Approach

1. Classical (Mathematical) definition of probability

If a trial (experiment) results in exhaustive, mutually exclusive and equally likely events and out of
these , only m of them are favorable to the happening of an event E, then the probability of
occurrence of E usually denoted by P(E), is given by

Remarks: 1. since m and N are non- negative integers.

Hence probability of any event is a number lying between 0 and 1.

 P(E)=0 then E is called an impossible or null event.
 If P(E) =1, then E is called a certain event (sure event).

Example 1: A fair coin is tossed twice. Find the probabilities of the events:
a) A= two heads
b) E=at least one tail

Solution: Here the sample space is

In this case each of the N=4 elements of S are exhaustive, mutually exclusive and equally likely.

a) A= two heads = {HH}

b) E=at least one tail = {HT,TH,TT}

Hence,
Example 2: A bag contains 3 red, 6white and 7 blue balls. What is the probability that the two balls
drawn are white and blue?
Solution: Total number of balls = 3+6+7=16.

Since 2 balls can be drawn out of 11 balls in ways. Exhaustive number of cases =

One white out of 6 can be drawn in ways and one blue out of 7 can be drawn in ways. Total

number of favorable case = .

Probability that the two balls drawn are white and blue =
Example 3: A uniform die is thrown at random. Find the probability that the number on it is:
a) 5 b) greater than 4 c) even
Solution: Here S= {1, 2, 3, 4, 5, 6}
a) the number on it is 5= A= {5}

Then
b) The number on it is greater than 4

Thus,

c) The number on it is even = B= {2, 4, 6}. Hence

Example 4: A set of 10 items consists of 4 defective and 6 non- defective items. If 3 of these are
selected at random, what is the probability that:
a) all the selected items will be non-defective?
b) one of selected items will be non-defective?
c) all of the selected items will be defective ?

Solutions: Total number of items = 10. 3 items out of 10 can be selected in ways.

a) 3 non- defective items out of 6 can be selected in ways.

Let A be the event that all will be non-defective.

Total way in which A occurs

P(all the selected items will be non-defective)

b) 1 item out of 6 can be selected in ways and 2 items out of 4 can be selected in ways.

c) 3 defective items out of 4 can be selected in ways.

Then P(all of the selected items will be defective

Shortcoming of the Classical Approach

The classical method was originally developed in the analysis of gambling problems, where the
assumption of equally likely and naturally exclusive outcomes is often reasonable. In many economic
and business problems, however, this assumption is not valid. Hence, we look for alternative methods
of assigning probability.

Example 5: Tossing and coin: S = {H, T}, P (H) = ½ = 0.5

Rolling dice: P (S) = 1/6

2. Relative Frequency (statistical) definition of probability

Definition: If an event A occurs n times in a series of N independent random trials, then the
probability of the event A is
Example 6: Ten of the 500 randomly selected cars manufactured at a certain auto factory are found to
be lemons. Assuming that the lemons are manufactured randomly. What is the probability that the next
car manufactured at this auto factory is a lemon?
Solution: Here total number cars in the sample are 500 and number of lemons is 10.

Example 7: The following data show the length of life of wholesale grocers in a particular city:

Length of life (years) Percentage of wholesales

0-5 65
5-10 16
10-15 9
15-25 5
25 and over 5
Total 100

a) During the period studied, what is the probability that an entrant to this profession
will fail with in five years?
b) That he will survive at least 25 years?
c) How many years would he have to survive to be among the 10 percent longest
survivors?
Solution: Here the exhaustive number of cases =100
a) An entrant to the profession of whole sale grocery will fail with in five years if his life (in this
profession) is less than 5 years and the favorable numbers of cases for this event (from the above table)
are 65.

Hence required probability

b) A wholesale grocers will survive at least 25 years if his life in this profession is over 25 years
and the favorable number of cases for this event (from the above table ) are 5.
 Hence required probability
c) From the above table we see that the number of wholesale grocers with age over 15 years is

5+5 =10, and therefore, the probability that a grocer survives at least 15 years is Thus in
order to be among the 10 percent longest survivors, the grocer should survive at least 15 years in the
business life.

Example: Suppose that an insurance company knows from past actuarial data that of all males 40 years
old, about 60 out of every 100,000 will die with in a one-year period. Using this method, the company
60
=0 .0006
estimates the probability of death for that age group as: 100 , 000
Example 8: Suppose that 400 of the 50,000 fire insured houses has a fire. A fire insurance company
would like to know the probability of fire for fire insured houses, calculate this probability?
400
P( f )= =0 . 008
Solution: 50 , 000
Sometimes this approach referred as objective probability since experiments should be conducted or
recorded data must be there in order to compute probability.
Shortcoming of the Relative Frequency Approach
o People often use it without evaluating a sufficient number of outcomes.
o This approach seems to imply that probability can play no part in situation that occurs
only once.
Thus, another method is required to compute probabilities.
3.Subjective (Personal) Approach
Subjective probability can be defined as the probability assigned to an event by an individual, based on
whatever evidence is available. This evidence may be in the form of relative frequency of past
occurrences, or it may be just educated guess.

a. Subjective probability assignments are frequently found when events occur only once
or at most a very few times.
b. In fact, most high-level social and managerial decisions are concerned with specific
unique situations, rather than with a long series of identical situations, decisions makers
at this level make considerable use of subjective probabilities.

This approach is used when outcomes are not mutually exclusive and there is no objective data.
Generally, though there are three approaches of probability, we can use any of the aforementioned
approach determined depending up on the problem under consideration.
1.5.2. Axiomatic Approach to the definition of probability
A. General rule
Let S be a sample space associated to random experiment. A set function denoted by P(.) defined in a
sample space S, is called a probability measure ( or simply probability) if it satisfies the following
axioms.

3. If A1, A2, A3, …, An are mutually exclusive subsets of S, then

, We call is the probability of A.

Example 9: The distribution of blood types in the United States is roughly 41% type A,9% type B, 4%
type AB, and 46% type O. An individual is brought in to an emergency room and is to be blood-typed.
What is the probability that the type will be A, B or AB?

Solution: The sample space for this experiment is

S= {A, B, AB, O}
The Sample points are not equally likely so the classical approach to probability is not applicable.
Let A1, A2, and A3 denote the events that the patient has type A, B and AB blood, respectively. The

events A1, A2, and A3 are mutually exclusive and we are looking for .

Chapter six: Correlation and regression

6.1. correlation

6.1.1. Bivariate data

Bivariate data is data for which there are two variables for each observation. As an example, the
following bivariate data show the ages of husbands and wives of 10 married couples.
 Husban
36 72 37 36 51 50 47 50 37 41
d
Wife 35 67 33 35 50 46 47 42 36 41

6.1.2. Correlation

Correlation is a statistical technique which measure and analyses the degree or extent to which two or
more variables fluctuate with reference to one another.

Correlation thus denotes the interdependence amongst variates. The degrees are expressed by a
coefficient which ranges between and . The direction of change is indicated by or signs.

If the increase (decrease) in one variable results in the corresponding increase (decrease) in the others
i.e. if the changes are in the same directions the variables are positively correlated. For example, the
heights and weights of a group of persons are positively correlated, advertising and sales.

If the increase (decrease) in one variable results in the corresponding decrease (increase) in the others
i.e. if the changes are in the opposite directions the variables are negatively correlated. For example,
T.V registration and cinema attendance is negatively correlated.

An absence of correlation is indicated by zero.

Correlation thus expresses the relationship through a relative measure of change and it has nothing to
do with the units in which the variables are expressed.

Q. What are the uses of Correlation?

Uses

Economic theory and business studies relationships between variables like price and
quantity demanded, advertising, expenditure scales promotion measure etc. The
correlation analysis helps in deriving precisely the degree and direction of such
relationships.

The concepts of regression are also based upon the measure of correlation.

Scatter Diagram

Scatter diagram (or Dotogram or Scattergram) is a simple and attractive method of diagrammatic
represent of bivariate distribution for ascertaining the nature of correlation between the variables. Thus
for the bivariate distribution if the values of the variables and be plotted
along the -axis and -axis respectively in the plane, the diagram of dots so obtained is known
as scatter diagram.
On the other hand, a scatter plot of two variables shows the values of one variable on the -axis and
the values of the other variable on the -axis. Scatter plots are well suited for revealing the
relationship between two variables.

Scatter Diagram

70
60
............... y ........ 50
40
30
20
10
0
0 20 40 60 80 100 120
............. x ........

6.1.3. Types of Correlation

Correlation is described or classified in several different ways. Three of the most important are:

 Positive and negative Correlation

 Simple, partial and multiple Correlation

 Linear and non-linear Correlation

Positive and negative correlation

If two variables changes in the same direction (i.e. if one increases the other also increase or if one
decreases the other also decreases) then this is called a positive correlation. For example:

Positive Positive
Correlation Correlation
X Y X Y
10 15 80 50
12 20 70 45
14 22 60 30
18 25 40 20
20 37 30 10
If two variables change in the opposite direction (i.e. if one increases, the other decreases and vice
versa), then the correlation is called a negative correlation. For example: T.V registrations and cinema
attendance.

Negative Negative
Correlation Correlation
X Y X Y
20 40 100 10
30 30 90 20
40 22 60 30
60 15 40 40
80 12 30 50

2. Simple, Partial and Multiple Correlation

 When only two variables are studied it is a problem of simple correlation.

 When three or more variables are studied it is a problem of either multiple or partial correlation.

In multiple correlation three or more variables are studied simultaneously. For example, when we study
the relationship between the yield of rice per acre and both the amount of rainfall and the amount of
fertilizers used, it is problem of multiple correlation. Similarly the relationship of plastic hardness,
temperature and pressure is multivariate.

In partial correlation we recognize more than two variables. But consider only two variables to be
influencing variable being kept constant. For example, in the rice problem taken above if we limit our
correlation analysis of yield and rainfall to periods when a certain average daily temperature existed, it
becomes a problem of partial correlation.

3. Linear and non-linear correlation

The nature of the graph gives us the idea of the linear type of correlation between two variables. If the
graph is in a straight line, the correlation is called a “linear correlation” and if the graph is not in a
straight line, the correlation is non-linear and curve-linear.

The distinction between linear and non-linear correlation is based upon the constancy of the ratio of
change between the variables. If the amount of change in one variable tends to bear a constant ratio to
the amount of change in the other variable then the correlation is said to be linear. For example, observe
the following two variables X and Y:

X: 10 20 30 40 50
Y: 70 140 210 280 350

It is clear that the ratio of change between the two variables is the same. If such variables are plotted on
a graph paper all the plotted points would fall on a straight line.
 Scatter Diagram

400

........... y ............
300
200
100
0
0 20 40 60
........... x ............

Correlation would be called non-linear or curvilinear if the amount of change in one variable doesn’t
bear a constant ratio to the amount of change in the other variable. For example, if we double the
amount of rainfall, the production of rice or wheat etc. would not necessarily be doubled.

Scatter Diagram
........... y ..........

2000
1000
0
0 10 20 30 40 50
....... x ...........

Properties of the Coefficient of Correlation

The following are the important properties of the coefficient of correlation, :

 The coefficient of correlation lies between and , .

 The coefficient of correlation is the geometric mean of the two regression coefficients.

Symbolically:
 If X and Y are independent variables then coefficient of correlation is zero. However, the
converse is not true.

6.1.4. Degrees of Correlation

Through the coefficient of correlation, we can measure the degree or extent of the correlation between
two variables. On the basis of the coefficient of correlation we can also determine whether the
correlation is positive or negative and also its degree or extent.
 Perfect correlation: If two variables changes in the same direction and in the same proportion,
the correlation between the two is perfect positive. According to Karl Pearson the coefficient of

correlation in this case is . On the other hand, if the variables change in the opposite direction

and in the same proportion, the correlation is perfect negative. Its coefficient of correlation is
. In practice we rarely come across these types of correlations.

Absence of correlation: If two series of two variables exhibit no relations between them or
change in variable does not lead to a change in the other variable, then we can firmly say that
there is no correlation or absurd correlation between the two variables. In such a case the
coefficient of correlation is 0.

Limited degrees of correlation: If two variables are not perfectly

correlated or is there a perfect absence of correlation, then we term the
correlation as Limited correlation. It may be positive, negative or zero but

lies with the limits .

High degree, moderate degree or low degrees are the three categories of this kind of correlation. The
following table reveals the effect (or degree) of coefficient or correlation.

Degrees Positive Negative

Absence of
Zero 0
correlation 

Perfect correlation  +1 -1

High degree  + 0.75 to + 1 - 0.75 to -1

Moderate degree  + 0.25 to +

- 0.25 to - 0.75
0.75

Low degree  0 to 0.25 0 to - 0.25

Methods of Determining Correlation

We shall consider the following most commonly used methods.

 Scatter Plot.
 Karl Pearson’s coefficient of correlation.
 Spearman’s Rank-correlation coefficient.
  Method of Least Squares.

Scatter Plot (Scatter diagram or dot diagram)

In this method the values of the two variables are plotted on a graph paper. One is taken along the

horizontal ( -axis) and the other along the vertical ( -axis). By plotting the data, we get points (dots)
on the graph which are generally scattered and hence the name ‘Scatter Plot’.

The manner in which these points are scattered, suggest the degree and the direction of correlation. The

degree of correlation is denoted by ‘ ’ and its direction is given by the signs positive and negative.

If all points lie on a rising straight line the correlation is perfectly positive and .

Scatter Diagram

150
............. y ...........

100

50

0
8 13 18 23
......... x .............

If all points lie on a falling straight line the correlation is perfectly negative and .

Scatter Diagram
.......... y .........

100
80
60
40
20
0
10 20 30 40 50 60
.............. x ..........
 If the points lie in narrow strip, rising upwards, the correlation is high degree
of positive.
If the points lie in a narrow strip, falling downwards, the correlation is high
degree of negative
If the points are spread widely over a broad strip, rising upwards, the
correlation is low degree positive.
If the points are spread widely over a broad strip, falling downward, the
correlation is low degree negative.
If the points are spread (scattered) without any specific pattern, the

correlation is absent. i.e. .

Scatter Diagram

60
............ y ...........

50
40
30
20
10
0
0 10 20 30 40
............ x ..........

Though this method is simple and is a rough idea about the existence and the
degree of correlation, it is not reliable. As it is not a mathematical method, it
cannot measure the degree of correlation.

Merits and Limitations of the Method

Merits

It is simple and non-mathematical method of studying correlation between the variables .As
such it can be easily understood and a rough idea can very quickly be formed as to whether or
not the variables are related.

It is not influenced by the size of extreme values whereas most of the mathematical methods of
finding correlation are influenced by extreme values.

Making a scatter diagram usually is the first step in investigating the relation ship between the
variables.
Limitations

By applying this method we can get an idea about the direction of correlation and also whether it is
high or low. But we cannot establish of correlation and also whether it is high or low. But we cannot
establish the exact degree of correlation between the variables as is possible by applying the
mathematical method.
Example1: Given the following pairs of values:

Capital employed (Crores of Rs.): 1 2 3 4 5 7 8 9 11 12

Profit (Lakhs of Rs.) : 3 5 4 7 9 8 10 11 12 14

1) Make a scatter diagram

2) Do you think that there is any correlation between profits and capital employed? Is it positive?
Is it high or low?

Correlation between profits and Capital

employed(Crores of Rs.)

16
14
12
10
Profit

8 Profit(Lakhs of Rs.)

6
4
2
0
0 5 10 15
Capital Employed

By looking at the scatter diagram we can say that the variables profits and capital employed are
correlated. Further, correlation is positive because the trend to the points is upward rising from the
lower left hand corner to the upper right hand corner of the diagram.

The diagram also indicate that the degree of relationship is high because the plotted points are in a
narrow band which shows that it is a case of high degree of positive correlation.

Karl Pearson’s Coefficient of Correlation

Of the several mathematical methods of measuring correlation, the Karl Pearson’s method, popularly
known as Pearsonian coefficient of correlation, is most widely used in practice. The coefficient of
correlation is denoted by the symbol r. If the two variables under study are X and Y, the following
formula suggested by Karl Pearson can be used for measuring the degree of relationship.
The value of the coefficient of correlation as obtained by the above formula shall always lie between
±1 .

When , it means there is perfect positive correlation between the variables.

When , it means there is a perfect negative correlation between the variables.

When , it means there is no relationship between the variables.

Example1: Calculate the coefficient of correlation between the heights of father and
his son for the following data.

Height of father 16 16 16 16 16 16 17
172
(cm): 5 6 7 8 7 9 0

Height of son 16 16 16 17 16 17 16
171
(cm): 7 8 5 2 8 2 9

Solution:

We know that. Correlation of coefficient

Let us consider the height of father is and height of son is .

By using calculator we get,

∑ X 2 = 225828 ∑ X =1344
∑ Y 2 = 228532 ∑ Y = 1352 ∑ XY = 227160

∴ = 0.603022689 = 0.603
Example2: The following data consist of observations for the weights of 10 different automobiles (in
1000 pounds) and the corresponding fuel consumptions (gallons per 100 miles).

Weight (x) Fuel Consumption (y)

3.4 5.5
3.8 5.9
4.1 6.5
2.2 3.3
2.6 3.6
2.9 4.6
2.0 2.9
2.7 3.6
1.9 3.1
3.4 4.9

We would like to find out how y is correlated to x.

Solution: We know that. Correlation of coefficient

By using calculator we get,

∑ X 2 = 89.29 ∑ X = 29
∑ Y 2 = 207.31 ∑ Y =43.9 ∑ XY =135.8

∴ = 0.976629971 = 0.976

Example3: Suppose that we took 7 mice and measured their body weight and their length from nose to
tail. We obtained the following results and want to know if there is any relationship between the
measured variables. [To keep the calculations simple, we will use small numbers]
 Mouse Units of weight (X) Units of length (Y)

1 1 2

2 4 5

3 3 8

4 4 12

5 8 14

6 9 19

7 8 22

Solution: We know that. Correlation of coefficient

By using calculator we get,

∑ X 2 = 251 ∑ X = 37
∑ Y 2 =1278 ∑ Y = 82 ∑ XY = 553

∴ = 0.901441541= 0.90

Example4:The data below are the heights (cm) and weights (Kg) of 20 female students taking STAT
201. Calculate the coefficient of correlation between the heights and weights of female students of the
following data.

SL fht fwt
1 167 60
2 164 65
 3 170 64
4 163 47
5 152 46
6 160 57
7 170 57
8 160 55
9 157 55
10 170 65
11 150 50
12 156 46
13 168 60
14 159 55
15 160 50
16 172 69
17 175 56
18 169 56
19 169 72
20 156 56

Solution
We know that. Correlation of coefficient

Let us consider fht is denoted by and fwt is denoted by .

By using calculator we get,

∑ X 2 = 534615 ∑ X = 3267
∑ Y 2 = 66113 ∑ Y = 1141 ∑ XY = 187045

∴ = 0.673318089 = 0.673
(3)Spearman’s Rank Correlation

The association between two series of rank is called rank correlation. The method of ascertaining the
coefficient of correlation by ranks was devised by Charles Edwards Spearman in 1904.This method is
especially useful in case when the actual magnitudes or item values are not given and simply their ranks
in the series are known. Spearman’s rank correlation coefficient, usually denoted by ρ (Rho) is given
by the formula:

Where d stands for the difference between the pair of ranks and n the number of paired observations.

The value of Spearman’s rank correlation coefficient ranges between and .When ρ
is , the concordance between rankings is perfect and the ranks are in the same direction. When ρ is
, there is also perfect concordance between rankings but the ranks in opposite direction.

In rank correlation we may have two types of problems:

A. Where actual ranks are given.

B. Where ranks are not given.

A. Where Actual Ranks are given

Where Actual Ranks are given the steps required for computing rank correlation are:

 Take the difference of the two ranks i.e and denote these differences by .

 Square these differences and obtain the total ∑ d i2

 Apply the formula

Example1:
Two managers are asked to rank a group of employees in order of potential for eventually becoming top
managers .The rankings are as follows:

Employee Ranked by manager Ranked by Manager

 I II
A 10 9
B 2 4
C 1 2
D 4 3
E 3 1
F 6 5
G 5 6
H 8 8
I 7 7
J 9 10
Compute the coefficient of rank correlation and comment on the value.

Solution:

Calculation of Rank Correlation Coefficient

Employee Ranked by Ranked by

manager I Manager II
A 10 9
B 2 4 By using
C 1 2 Calculator
D 4 3
E 3 1
F 6 5
G 5 6
H 8 8
I 7 7
J 9 10
Total

We know that,
6×14
3
=1-10 −10 = 0.915

Thus we find that there is a high degree of positive correlation in the ranks assigned by the two
managers.

B. Where Ranks are not given

When we are given the actual data and not the ranks it will be necessary to assigns the ranks .Ranks can
be assigned by taking either the highest value as 1 or the lowest value as 1. But whether we start with
the lowest value or the highest value we must follow the same method in case of all the variables.

Example1:
Calculate the rank correlation coefficient for the following data of marks of 2 tests given to candidates
for a clerical job:

Preliminary
92 89 87 86 83 77 71 63 53 50
test
Final test 86 83 91 77 68 85 52 82 37 57
Solutions:

Calculation of Rank Correlation Coefficient

Preliminary Final test

test
92 10 86 9
89 9 83 7
87 8 91 10
86 7 77 5 By using
83 6 68 4 Calculator
77 5 85 8
71 4 52 2
63 3 82 6
53 2 37 1
50 1 57 3
Total

We know that,

= = 1-0.267 = 0.733

Thus there is a high degree of positive correlation between preliminary and final test.

Merits and Limitations of the Rank Method

Merits

 This method is simpler to understand and easier to apply compared to the Karl Pearson’s
method.

 Where the data are of a qualitative nature like honesty, efficiency, intelligence etc., this method
can be used with great advantage. For example the workers of two factories can be ranked in
order of efficiency and the degree of correlation established by applying the method.
  This is the only method that can be used where we are given the ranks and not the actual data.

 Even where actual data are given rank method can be applied for ascertaining rough degree of
correlation.

Limitations:

 This method cannot be used for finding out correlation in a grouped frequency distribution.

 Where the number of observations exceed 30 the calculations becomes quite tedious and require
a lot of time. Therefore this method should not applied where n exceeding 30 unless we are
given the ranks and not the actual values of the variable.

(4) Method of Least Squares

For finding out correlation by the coefficient method of least squares we have to calculate the values of
two regression coefficients that of on and on . The correlation coefficient is the square root
of the product of two regression coefficients. Symbolically,

Coefficient of Determination

One very convenient and useful way of interpreting the value of coefficient of correlation between two
variables is to use the square of coefficient of correlation, which is called coefficient of determination.
The coefficient of determination thus equals .

*** If the value of , will be 0.81 and this would mean that 81% of the variation in the
dependent variable has been explained by the independent variable.

6.2. Regression

Regression is a mathematical measure of expressing the average of relationship between two or more
variables in terms of the original units of the data. In a regression analysis there are two types of
variables. The variable whose is influenced or is to be predicted is called dependent variable, regressed
predicted or explained variable and the variable which influences the values or is used for prediction is
called independent variable or regressor or predictor or explanator. These relationships between two
variables can be considered between say rainfall and agricultural production, price of an output and the
overall cost of product, consumer expenditure and disposable income.
Q. Discuss about regression equation and regression line.

Regression equation

Regression equations are algebraic expression of the regression lines. Since there are two regression
lines, the regression equation of on is said to describe the variation in the values of for given
changes in and the regression equation of on is used to describe the variation in the values of
for given changes in .

The regression equation of on is expressed as follows

The regression equation of on is expressed as follows

6.2.1. Regression line

If the variables in a bivariate distribution are related we will find that points in the scatter diagram will
cluster around some curve called the “Curve of regression”. If the curve is straight line of, it is called
the line of regression and there is said to be linear regression between the variables, otherwise
regression is said to be curvilinear. The line of regression is the line which gives the best estimate to the
value of one variable for any specific value of the other variable.

Q. What are the regression coefficients?

In the line of regression of on

The coefficient ‘ ’ which is the slope of the line of regression of on is called the coefficient of
regression of on . It represents the increment in the value of the dependent variable for a unit
change in the value of the independent variable . For notational convenience, coefficient of
regression of on is denoted by .

Regression coefficient of on is
∑ X∑Y
∑ XY − n
b yx =
2 (∑ X )
2
∑X − n
and the intercept
∑ Y −b ∑ X
= n n
Similarly in the regression equation of on

Regression coefficient of on is
∑ X∑ Y
∑ XY − n
b xy =
2 (∑ Y )
2
∑Y − n
and the intercept
∑ X −b ∑ Y
= n n

Note: Interpret and for the regression equation

** The slope represents the estimated average change in when increases by one unit.

** The intercept represents the estimated average value of when equals zero.
Example # 1

From the following data obtain the regression equations of on :

Sales 91 97 108 121 67 124 51 73 111 57

Purchase 71 75 69 97 70 91 39 61 80 47

Solution:

We know that,

The regression equation of on is expressed as follows

Again,

Regression coefficient of on is
 ∑ X∑Y
∑ XY − n
b yx =
∑ X 2− ∑n
( X )2

Sales Purchase
91 71 8281 5041 6461
97 75 9409 5625 7275
108 69 11664 4761 7452
121 97 14641 9409 11737
67 70 4489 4900 4690
124 91 15376 8281 11284
51 39 2601 1521 1989
73 61 5329 3721 4453
111 80 12321 6400 8880
57 47 3249 2209 2679
∑ X = 900 ∑ Y = 700 ∑ X 2 = 87360 ∑ Y 2 = 51868 ∑ XY = 66900
∑ X∑Y
∑ XY − n
b yx =
2 (∑ X )
2
∑X − n
∑ Y −b ∑ X 700 −0 .613×900
a=Y −b X = n n =10 10 = 14.81

Regression equation of on is

Example # 2

The following data give the ages and blood pressure of 10 women

Age 56 42 36 47 49 42 60 72 63 55
Blood pressure
147 125 118 128 145 140 155 160 149 150

a) Find the correlation coefficient between and

b) Determine the least squares regression equation of on .

c) Estimate the blood pressure of a women whose age is 45 years

Solution:

a) We know that, Correlation coefficient between and is given by

Blood
Age
Pressure
56 147 3136 21609 8232
42 125 1764 15625 5250
36 118 1296 13924 4248
47 128 2209 16384 6016
49 145 2401 21025 7105
42 140 1764 19600 5880
60 155 3600 24025 9300
72 160 5184 25600 11520
63 149 3969 22201 9387
55 150 3025 22500 8250
∑ X = 522 ∑ Y = 1417 ∑ X 2 = 28348 ∑ Y 2 = 202493 ∑ XY = 75188

b) We know that, the regression equation of on is expressed as follows

Again, Regression coefficient of on is

 ∑ X∑Y
∑ XY − n
b yx =
∑ X 2− ∑n
( X )2

∑ Y −b ∑ X 1417
−1 .11×
522
a=Y −b X = n n =10 10

Regression equation of on is

c) When then

Hence the most likely blood pressure of women of 45 years is 134.

Compare the correlation analysis with regression analysis.

Correlation Regression
1) Correlation coefficient is Regression co-efficients are not
symmetric i.e. symmetric in X and Y i.e.

2) Correlation co-efficient is a The regression co-efficient are

relative measure of the linear absolute measures representing the
relationship between X and Y and change in the value of the variable Y (
is independent of the units of the X ) for a unit change in the variable X (
measurement. If is a pure number Y ).
lying between ± 1.

3) Correlation analysis has limited 3) Regression analysis studies linear as

applications as it is confined only well as non-linear relationship between
to the study of linear relationship the variables and therefore has much
between the variables. wider applications.

Q. What are the uses of regression analysis?

Uses:

The relation can be used for predictive purpose.

Regression analysis is widely used in statistical estimation of demand curves, supply curves,
production functions; cost functions, consumption function etc.