Dcom203 DMGT204 Quantitative Techniques I PDF

Quantitative Techniques-I
DCOM203/DMGT204
QUANTITATIVE TECHNIQUES – I
Copyright © 2012 R S Bhardwaj
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SYLLABUS
Quantitative Techniques – I
Objectives: To familiarize the student with the theoretical foundation of qualitative business research. To familiarize the
students with different statistical techniques used in business decisions.
Sr. No. Description

1. Statistics: Introduction, Importance, Scope and Limitations of Statistics
2. Classification, Tabulation and Presentation of Data: Geographical, Chronological, Qualitative and
Quantitative Classification, Formation of Frequency Distribution, Tabulation of Data, Types of Tables, Bar
Diagrams, Pie Diagrams, Pictograms and Cartograms.
3. Collection of Data: Primary and Secondary Data, Method of Collecting Data, Drafting the Questionnaire,
Sources of Secondary Data.
4. Measures of Central Tendency: Mean, Harmonic Mean, Geometric Mean, Median and Mode
5. Measures of Dispersion: Range, Mean deviation, Quartile deviation, Standard deviation, Coefficient of
variation
6. Correlation Analysis and Regression Analysis: Scatter Diagram, Karl Pearson’s, Rank Correlation, Regression
Equations – Deviation taken from Assumed mean and Arithmetic Mean, Least square method, Graphing
Regression Lines
7. Index Number: Methods of Constructing index Number – Laspeyres, Paasche, Bowley’s, Fisher and Marshall-
Edgeworth method, Chain base Index Number
8. Analysis of Time Series: Method of Semi-average, Moving average, Simple average, Ratio-to-trend method,
Ratio-to-Moving average Method
9. Probability and Expected value: Addition Theorem, Multiplicative Theorem
10. Probability Distribution: Binomial, Poisson and Normal Distribution
CONTENTS
Unit 1: Statistics 1
Unit 2: Classification of Data 20
Unit 3: Tabulation 41
Unit 4: Presentation of Data 54
Unit 5: Collection of Data 77
Unit 6: Measures of Central Tendency 90
Unit 7: Measures of Dispersion 130
Unit 8: Correlation Analysis 166
Unit 9: Regression Analysis 185
Unit 10: Index Number 200
Unit 11: Analysis of Time Series 224
Unit 12: Probability and Expected Value 247
Unit 13: Binomial Probability Distribution 267
Unit 14: Poisson Probability Distribution 284
Unit 15: Normal Probability Distribution 298
Unit 1: Statistics
Unit 1: Statistics Notes
CONTENTS
Objectives
Introduction
1.1 Meaning, Definition and Characteristics of Statistics
1.1.1 Statistics as a Scientific Method
1.1.2 Statistics as a Science or an Art
1.2 Importance of Statistics
1.3 Scope of Statistics
1.4 Limitations of Statistics
1.5 Summary
1.6 Keywords
1.7 Review Questions
1.8 Further Readings
Objectives
After studying this unit, you will be able to:

Define and explain the meaning, origin and growth of statistics
Discuss the importance of statistics
State the characteristics of statistics
Discuss Statistics as a Science or an Art
Describe the limitations and scope of statistics
Introduction
Modern age is the age of science which requires that every aspect, whether it pertains to natural
phenomena, politics, economics or any other field, should be expressed in an unambiguous and
precise form. A phenomenon expressed in ambiguous and vague terms might be difficult to
understand in proper perspective. Therefore, in order to provide an accurate and precise
explanation of a phenomenon or a situation, figures are often used. The statement that prices in
a country are increasing, conveys only an incomplete information about the nature of the
problem. However, if the figures of prices of various years are also provided, we are in a better
position to understand the nature of the problem. In addition to this, these figures can also be
used to compare the extent of price changes in a country vis-a-vis the changes in prices of some
other country. Using these figures, it might be possible to estimate the possible level of prices at
some future date so that some policy measures can be suggested to tackle the problem. The
subject which deals with such type of figures, called data, is known as Statistics.
LOVELY PROFESSIONAL UNIVERSITY 1

Notes 1.1 Meaning, Definition and Characteristics of Statistics
The meaning of the word ‘Statistics’ is implied by the pattern of development of the subject.
Since the subject originated with the collection of data and then, in later years, the techniques of
analysis and interpretation were developed, the word ‘statistics’ has been used in both the plural
and the singular sense. Statistics, in plural sense, means a set of numerical figures or data. In the
singular sense, it represents a method of study and therefore, refers to statistical principles and
methods developed for analysis and interpretation of data.
Statistics has been defined in different ways by different authors. These definitions can be
broadly classified into two categories. In the first category are those definitions which lay
emphasis on statistics as data whereas the definitions in second category emphasise statistics as
a scientific method.
Statistics used in the plural sense implies a set of numerical figures collected with reference to a
certain problem under investigation. It may be noted here that any set of numerical figures
cannot be regarded as statistics. There are certain characteristics which must be satisfied by a
given set of numerical figures in order that they may be termed as statistics. Before giving these
characteristics it will be advantageous to go through the definitions of statistics in the plural
sense, given by noted scholars.
1. “Statistics are numerical facts in any department of enquiry placed in relation to each
other.” – A.L. Bowley
The main features of the above definition are:
(i) Statistics (or Data) implies numerical facts.
(ii) Numerical facts or figures are related to some enquiry or investigation.
(iii) Numerical facts should be capable of being arranged in relation to each other.
On the basis of the above features we can say that data are those numerical facts which
have been expressed as a set of numerical figures related to each other and to some area of
enquiry or research. We may, however, note here that all the characteristics of data are not
covered by the above definition.
2. “By statistics we mean quantitative data affected to a marked extent by multiplicity of

causes.” — Yule & Kendall
This definition covers two aspects, i.e., the data are quantitative and affected by a large
number of causes.
3. “Statistics are classified facts respecting the conditions of the people in a state – especially
those facts which can be stated in numbers or in tables of numbers or in any other tabular
or classified arrangement.” — Webster
On the basis of the above definitions we can now state the following characteristics of statistics
as data:
1. Statistics are numerical facts: In order that any set of facts can be called as statistics or data,
it must be capable of being represented numerically or quantitatively. Ordinarily, the
facts can be classified into two categories: (a) Facts that are measurable and can be
represented by numerical measurements. Measurement of heights of students in a college,
income of persons in a locality, yield of wheat per acre in a certain district, etc., are
examples of measurable facts. (b) Facts that are not measurable but we can feel the presence
or absence of the characteristics. Honesty, colour of hair or eyes, beauty, intelligence,
smoking habit, etc., are examples of immeasurable facts. Statistics or data can be obtained
in such cases also, by counting the number of individuals in different categories. For
2 LOVELY PROFESSIONAL UNIVERSITY

Unit 1: Statistics
example, the population of a country can be divided into three categories on the basis of Notes
complexion of the people such as white, whitish or black.
2. Statistics are aggregate of facts: A single numerical figure cannot be regarded as statistics.
Similarly, a set of unconnected numerical figures cannot be termed as statistics. Statistics
means an aggregate or a set of numerical figures which are related to one another. The
number of cars sold in a particular year cannot be regarded as statistics. On the other hand,
the figures of the number of cars sold in various years of the last decade is statistics
because it is an aggregate of related figures. These figures can be compared and we can
know whether the sale of cars has increased, decreased or remained constant during the
last decade.
It should also be noted here that different figures are comparable only if they are expressed
in same units and represent the same characteristics under different situations. In the
above example, if we have the number of Ambassador cars sold in 1981 and the number of
Fiat cars sold in 1982, etc., then it cannot be regarded as statistics. Similarly, the figures of,
say, measurement of weight of students should be expressed in the same units in order
that these figures are comparable with one another.
3. Statistics are affected to a marked extent by a multiplicity of factors: Statistical data refer
to measurement of facts in a complex situation, e.g., business or economic phenomena are
very complex in the sense that there are a large number of factors operating simultaneously
at a given point of time. Most of these factors are even difficult to identify. We know that
quantity demanded of a commodity, in a given period, depends upon its price, income of
the consumer, prices of other commodities, taste and habits of the consumer. It may be
mentioned here that these factors are only the main factors but not the only factors affecting
the demand of a commodity. Similarly, the sale of a firm in a given period is affected by
a large number of factors. Data collected under such conditions are called statistics or
statistical data.
4. Statistics are either enumerated or estimated with reasonable standard of accuracy: This
characteristic is related to the collection of data. Data are collected either by counting or by
measurement of units or individuals. For example, the number of smokers in a village are
counted while height of soldiers is measured. We may note here that if the area of
investigation is large or the cost of measurement is high, the statistics may also be collected
by examining only a fraction of the total area of investigation.
When statistics are being obtained by measurement of units, it is necessary to maintain a

reasonable degree or standard of accuracy in measurements. The degree of accuracy needed
in an investigation depends upon its nature and objectivity on the one hand and upon time
and resources on the other. For example, in weighing of gold, even milligrams may be
significant where as, for weighing wheat, a few grams may not make much difference.
Sometimes, a higher degree of accuracy is needed in order that the problem, to be
investigated, gets highlighted by the data. Suppose the diameter of bolts produced by a
machine are measured as 1.546 cms, 1.549 cms, 1.548 cms, etc. If, instead, we obtain
measurements only up to two places after decimal, all the measurements would be equal
and as such nothing could be inferred about the working of the machine. In addition to
this, the degree of accuracy also depends upon the availability of time and resources. For
any investigation, a greater degree of accuracy can be achieved by devoting more time or
resources or both. As will be discussed later, in statistics, generalisations about a large
group (known as population) are often made on the basis of small group (known as
sample). It is possible to achieve this by maintaining a reasonable degree of accuracy of
measurements. Therefore, it is not necessary to always have a high degree of accuracy but
whatever degree of accuracy is once decided must be uniformly maintained throughout
the investigation.

Notes 5. Statistics are collected in a systematic manner and for a predetermined purpose: In order
that the results obtained from statistics are free from errors, it is necessary that these
should be collected in a systematic manner. Haphazardly collected figures are not desirable
as they may lead to wrong conclusions. Moreover, statistics should be collected for a well
defined and specific objective, otherwise it might happen that the unnecessary statistics
are collected while the necessary statistics are left out. Hence, a given set of numerical
figures cannot be termed as statistics if it has been collected in a haphazard manner and
without proper specification of the objective.
6. Statistics should be capable of being placed in relation to each other: This characteristic
requires that the collected statistics should be comparable with reference to time or place
or any other condition. In order that statistics are comparable it is essential that they are
homogeneous and pertain to the same investigation. This can be achieved by collecting
data in identical manner for different periods or for different places or for different
conditions.
Hence, any set of numerical facts possessing the above mentioned characteristics can be termed
as statistics or data.
The use of the word ‘STATISTICS’ in singular form refers to a science which provides methods of
collection, analysis and interpretation of statistical data. Thus, statistics as a science is defined on
the basis of its functions and different scholars have defined it in a different way. In order to
know about various aspects of statistics, we now state some of these definitions.
1. “Statistics is the science of counting.” — A.L. Bowley
2. “Statistics may rightly be called the science of averages.” — A.L. Bowley
3. “Statistics is the science of measurement of social organism regarded as a whole in all its
manifestations.” — A.L. Bowley
4. “Statistics is the science of estimates and probabilities.” — Boddington
All of the above definitions are incomplete in one sense or the other because each consider only
one aspect of statistics. According to the first definition, statistics is the science of counting.
However, we know that if the population or group under investigation is large, we do not count
but obtain estimates.
The second definition viz. statistics is the science of averages, covers only one aspect, i.e., measures
of average but, besides this, there are other measures used to describe a given set of data.
The third definition limits the scope of statistics to social sciences only. Bowley himself realised
this limitation and admitted that scope of statistics is not confined to this area only.
The fourth definition considers yet another aspect of statistics. Although, use of estimates and
probabilities have become very popular in modern statistics but there are other techniques, as
well, which are also very important.
The following definitions covers some more but not all aspects of statistics.
5. “The science of statistics is the method of judging collective, natural or social phenomena
from the results obtained by the analysis or enumeration or collection of estimates.”
— W.I. King

Unit 1: Statistics
6. “Statistics or statistical method may be defined as collection, presentation, analysis and Notes
interpretation of numerical data.” — Croxton and Cowden
This is a simple and comprehensive definition of statistics which implies that statistics is
a scientific method.
7. “Statistics is a science which deals with collection, classification and tabulation of numerical
facts as the basis for the explanation, description and comparison of phenomena.”
— Lovitt
8. “Statistics is the science which deals with the methods of collecting, classifying, presenting,
comparing and interpreting numerical data collected to throw some light on any sphere
of enquiry.” — Seligman
The definitions given by Lovitt and Seligman are similar to the definition of Croxton and
Cowden except that they regard statistics as a science while Croxton and Cowden has termed it
as a scientific method.
With the development of the subject of statistics, the definitions of statistics given above have
also become outdated. In the last few decades the discipline of drawing conclusions and making
decisions under uncertainty has grown which is proving to be very helpful to decision makers,
particularly in the field of business. Although, various definitions have been given which include
this aspect of statistics also, we shall now give a definition of statistics, given by Spiegel, to
reflect this new dimension of statistics.
9. “Statistics is concerned with scientific method for collecting, organising, summarising,
presenting and analysing data as well as drawing valid conclusions and making reasonable
decisions on the basis of such analysis.”
On the basis of the above definitions we can say that statistics, in singular sense, is a science
which consists of various statistical methods that can be used for collection, classification,
presentation and analysis of data relating to social, political, natural, economical, business or
any other phenomena. The results of the analysis can be used further to draw valid conclusions
and to make reasonable decisions in the face of uncertainty.
1.1.1 Statistics as a Scientific Method
We have seen above that, statistics as a non-experimental science can be used to study and
analyse various problems of social sciences. It may, however, be pointed out that there may be
situations even in natural sciences, where conducting of an experiment under hundred per cent
controlled conditions is rather impossible. Statistics, under such conditions, finds its use in
natural sciences, like physics, chemistry, etc.
In view of the uses of statistics in almost all the disciplines of natural as well as social sciences,
it will be more appropriate to regard it as a scientific method rather than a science. Statistics as
a scientific method can be divided into the following two categories:
1. Theoretical Statistics: Theoretical statistics can be further sub-divided into the following
three categories:
(a) Descriptive Statistics: All those methods which are used for the collection,
classification, tabulation, diagrammatic presentation of data and the methods of
calculating average, dispersion, correlation and regression, index numbers, etc., are
included in descriptive statistics.

Notes (b) Inductive Statistics: It includes all those methods which are used to make
generalisations about a population on the basis of a sample. The techniques of
forecasting are also included in inductive statistics.
(c) Inferential Statistics: It includes all those methods which are used to test certain
hypotheses regarding characteristics of a population.
2. Applied Statistics: It consists of the application of statistical methods to practical problems.
Design of sample surveys, techniques of quality control, decision-making in business,
etc., are included in applied statistics.
1.1.2 Statistics as a Science or an Art
We have seen above that statistics is a science. Now we shall examine whether it is an art or not.
We know that science is a body of systematized knowledge. How this knowledge is to be used
for solving a problem is work of an art. In addition to this, art also helps in achieving certain
objectives and to identify merits and demerits of methods that could be used. Since statistics
possesses all these characteristics, it may be reasonable to say that it is also an art.
Thus, we conclude that since statistical methods are systematic and have general applications,
therefore, statistics is a science. Further since the successful application of these methods depends,
to a considerable degree, on the skill and experience of a statistician, therefore, statistics is an art
also.
Did u know? R.A. Fisher is a notable contributor to the field of statistics. His book ‘Statistical
Methods for Research Workers’, published in 1925, marks the beginning of the theory of
modern statistics.
Self Assessment
Multiple Choice Questions

1. Who gave the following definitions of statistics?
“Statistics is the science of counting”.
(a) Bowley (b) Boddington
(c) King (d) Saligman
2. “Statistics is the science of estimates and probabilities”.
(a) Webster (b) Secrist

(c) Boddington (d) Yule & Kendall
3. “The science of statistics is the method of judging collective, natural or social phenomena
from the results obtained by the analysis or enumeration or collection of estimates”.
(a) Achenwall (b) Marshall

(c) W.I. King (d) Croxton & Cowden

Unit 1: Statistics
1.2 Importance of Statistics Notes
It is perhaps difficult to imagine a field of knowledge which can do without statistics. To begin
with, the State started the use of statistics and now it is being used by almost every branch of
knowledge such as physics, chemistry, biology, sociology, geography, economics, business, etc.
The use of statistics provides precision to various ideas and can also suggest possible ways of
tackling a problem relating to any of the above subjects. The importance of statistics has been
summarized by A.L. Bowley as, “A knowledge of statistics is like a knowledge of foreign
language or of algebra. It may prove of use at any time under any circumstances.”
We shall discuss briefly, the importance of statistics in the following major areas:
1. Importance to the State: We know that the subject of statistics originated for helping the
ancient rulers in the assessment of their military and economic strength. Gradually its
scope was enlarged to tackle other problems relating to political activities of the State. In
modern era, the role of State has increased and various governments of the world also
take care of the welfare of its people. Therefore, these governments require much greater
information in the form of numerical figures for the fulfillment of welfare objectives in
addition to the efficient running of their administration.
In a democratic form of government, various political groups are also guided by the
statistical analysis regarding their popularity in the masses. Thus, it can be said that it is
impossible to think about the functioning of modern state in the absence of statistics.
2. Importance in economics: Statistics is an indispensable tool for a proper understanding of

various economic problems. It also provides important guidelines for the formulation of
various economic policies.
Almost every economic problem is capable of being expressed in the form of numerical
figures, e.g., the output of agriculture or of industry, volume of exports and imports,
prices of commodities, income of the people, distribution of land holding, etc. In each
case, the data are affected by a multiplicity of factors. Further, it can be shown that the
other conditions prescribed for statistical data are also satisfied. Thus, we can say that the
study of various economic problems is essentially the one of a statistical nature.
Inductive method of generalisation, popularly used in economics, is also based on statistical

principles. Various famous laws in economics such as, the law of diminishing marginal
utility, the law of diminishing marginal returns, the theory of revealed preference, etc.,
are based on generalisations from observation of economic behaviour of a large number
of individuals. Statistical methods are also useful in estimating a mathematical relation
between various economic variables. For example, the data on prices and corresponding
quantities demanded of a commodity can be used to estimate the mathematical form of
the demand relationship between two variables. Further, the validity of a generalisation
or relation between variables can also be tested by using statistical techniques.
Statistical analysis of a given data can also be used for the precise understanding of an
economic problem. For example, to study the problem of inequalities of income in a
society, we can classify the relevant data and, if necessary, compute certain measures to
bring the problem into focus. Using statistics, suitable policy measures can also be adopted
for tackling this problem. Similarly, statistical methods can also be used to understand
and to suggest a suitable solution for problems in other areas such as industry, agricultural,
human resource development, international trade, etc.
Realising the importance of statistics in economics, a separate branch of economics, known

as econometrics has been developed during the recent years. The techniques of econometrics
are based upon the principles of economics, statistics and mathematics.

Notes 3. Importance in national income accounting: The system of keeping the accounts of income
and expenditure of a country is known as national income accounting. These accounts
contain information on various macro-economic variables like national income,
expenditure, production, savings, investments, volume of exports and imports, etc. The
national income accounts of a country are very useful in having an idea about the broad
features of its economy or of a particular region. The preparation of these accounts require
data, regarding various variables, at the macro-level. Since such information is very difficult,
if not impossible, to obtain, is often estimated by using techniques and principles of
statistics.
4. Importance in planning: Planning is indispensable for achieving faster rate of growth

through the best use of a nation’s resources. It also requires a good deal of statistical data
on various aspects of the economy. One of the aims of planning could be to achieve a
specified rate of growth of the economy. Using statistical techniques, it is possible to
assess the amounts of various resources available in the economy and accordingly
determine whether the specified rate of growth is sustainable or not. The statistical analysis
of data regarding an economy may reveal certain areas which might require special
attention, e.g., a situation of growing unemployment or a situation of rising prices during
past few years. Statistical techniques and principles can also guide the Government in
adopting suitable policy measures to rectify such situations. In addition to this, these
techniques can be used to assess various policies of the Government in the past. Thus, it is
rather impossible to think of a situation where planning and evaluation of various policies
can be done without the use of statistical techniques. In view of this it is sometimes said
that, “Planning without statistics is a ship without rudder and compass”. Hence statistics
is an important tool for the quantification of various planning policies.
5. Importance in business: With the increase in size of business of a firm and with the
uncertainties of business because of cut throat competition, the need for statistical
information and statistical analysis of various business situations has increased
tremendously. Prior to this, when the size of business used to be smaller without much
complexities, a single person, usually owner or manager of the firm, used to take all
decisions regarding its business. For example, he used to decide, from where the necessary
raw materials and other factors of production were to be obtained, how much of output
will be produced, where it will be sold, etc. This type of decision-making was usually
based on experience and expectations of this single man and as such had no scientific basis.
The modern era is an era of mass production in which size and number of firms have increased
enormously. The increase in the number of firms has resulted into cut throat competition among
various firms and, consequently, the uncertainties in business have become greater than before.
Under such circumstances, it has become almost impossible for a single man to take decisions
regarding various aspects of a rather complex business. It is precisely this point from where the
role of statistics started in business. Now a days no business, large or small, public or private,
can prosper without the help of statistics. Statistics provides necessary techniques to a
businessman for the formulation of various policies with regard to his business. In fact the
process of collection and analysis of data becomes necessary right from the stage of launching a
particular business. Some of the stages of business where statistical analysis has become necessary
are briefly discussed below:
1. Decisions regarding business, its location and size: Before starting a business it is necessary
to know whether it will be worth while to undertake this. This involves a detailed analysis
of its costs and benefits which can be done by using techniques and principles of statistics.
Furthermore, statistics can also provide certain guidelines which may prove to be helpful
in deciding the possible location and size of the proposed business.

Unit 1: Statistics
2. Planning of production: After a business is launched, the businessman has to plan its Notes
production so that he is able to meet the demand of its product and incurs minimum losses
on account of over or under production. For this he has to estimate the pattern of demand
of the product by conducting various market surveys. Based upon these surveys, he might
also forecast the demand of the product at various points of time in future. In addition to
this, the businessman has to conduct market surveys of various resources that will be used
in the production of the given output. This may help him in the organisation of production
with minimum costs.
3. Inventory control: Sometimes, depending upon the fluctuations in demand and supply
conditions, it may not be possible to keep production in pace with demand of the product.
There may be a situation of no demand resulting in over production and consequently the
firm might have to discontinue production for some time. On the other hand, there may
be a sudden rise in the demand of the product so that the firm is able to meet only a part
of the total demand. Under such situations the firm may decide to have an inventory of the
product for the smooth running of its business. The optimum limits of inventory, i.e., the
minimum and maximum amount of stock to be kept, can be decided by the statistical
analysis of the fluctuations in demand and supply of the product.
4. Quality control: Statistical techniques can also be used to control the quality of the product
manufactured by a firm. This consists of the preparation of control charts by means of the
specification of an average quality. A control chart shows two limits, the lower control
limit and the upper control limit for variation in the quality of the product. The samples
of output, being produced, are taken at regular intervals and their quality is measured. If
the quality falls outside the control limits, steps are taken to rectify the manufacturing
process.
5. Accounts writing and auditing: Every business firm keeps accounts of its revenue and
expenditure. All activities of a firm, whether big or small, are reflected by these accounts.
Whenever certain decisions are to be taken or it is desired to assess the performance of the
firm or of its particular section or sections, these accounts are required to be summarised
in a statistical way. This may consist of the calculation of typical measures like average
production per unit of labour, average production per hour, average rate of return on
investment, etc. Statistical methods may also be helpful in generalising relationships
between two or more of such variables.
Further, while auditing the accounts of a big business, it may not be possible to examine
each and every transaction. Statistics provides sampling techniques to audit the accounts
of a business firm. This can save a lot of time and money.
6. Banks and Insurance companies: Banks use statistical techniques to take decisions regarding
the average amount of cash needed each day to meet the requirements of day to day
transactions. Furthermore, various policies of investment and sanction of loans are also
based on the analysis provided by statistics.
The business of insurance is based on the studies of life expectancy in various age groups.
Depending upon these studies, mortality tables are constructed and accordingly the rates of
premium to be charged by an insurance company are decided. All this involves the use of
statistical principles and methods.
Did u know? The science of statistics received contributions from notable economists such
as Augustin Cournot (1801 - 1877), Leon Walras (1834 - 1910), Vilfredo Pareto (1848 - 1923),
Alfred Marshall (1842 - 1924), Edgeworth, A.L. Bowley, etc. They gave an applied form to
the subject.

Notes Self Assessment
State whether the following statements are true or false:
4. It is very difficult to imagine a field of knowledge which can do without statistics
5. Statistics is being used by almost every branch of knowledge such as physics, chemistry,
biology, sociology, geography, economics, business, etc.
6. The importance of statistics has been summarized by L.A. Bowler as, “A knowledge of
statistics is like a knowledge of foreign language or of algebra.
7. The subject of statistics originated for helping the ancient rulers in the assessment of their
military and economic strength.
8. Statistics is a dispensable tool for a proper understanding of various economic problems.

9. The system of keeping the accounts of income and expenditure of a country is known as
domestic income accounting.
10. The modern era is an era of mass production in which size and number of firms have
decreased.
Task Conduct a debate on following statements and interpret them.
1. ”Statistics can prove anything.”
2. “Statistics can prove nothing.”
!
Caution Statistics should not be used in the same way as a drunken man uses lamppost for
support rather than for illumination.
1.3 Scope of Statistics
Statistics is used to present the numerical facts in a form that is easily understandable by human
mind and to make comparisons, derive valid conclusions, etc., from these facts. R.W. Buges
describes the functions of statistics in these words, “The fundamental gospel of statistics is to
push back the domain of ignorance, prejudice, rule of thumb, arbitrary or premature decisions,
tradition and dogmatism and to increase the domain in which decisions are made and principles
are formulated on the basis of analysed quantitative facts.”
The following are the main functions of statistics:
1. Presents facts in numerical figures: The first function of statistics is to present a given
problem in terms of numerical figures. We know that the numerical presentation helps in
having a better understanding of the nature a of problem. Facts expressed in words are not
very useful because they are often vague and are likely to be understood differently by
different people. For example, the statement that a large proportion of total work force of
India is engaged in agriculture, is vague and uncertain. On the other hand, the statement
that 70% of the total work force is engaged in agriculture is more specific and easier to
grasp. Similarly, the statement that the annual rate of inflation in a country is 10% is more
convincing than the statement that prices are rising.

Unit 1: Statistics
2. Presents complex facts in a simplified form: Generally a problem to be investigated is Notes

represented by a large mass of numerical figures which are very difficult to understand
and remember. Using various statistical methods, this large mass of data can be presented
in a simplified form. This simplification is achieved by the summarisation of data so that
broad features of the given problem are brought into focus. Various statistical techniques
such as presentation of data in the form of diagrams, graphs, frequency distributions and
calculation of average, dispersion, correlation, etc., make the given data intelligible and
easily understandable.
3. Studies relationship between two or more phenomena: Statistics can be used to investigate
whether two or more phenomena are related. For example, the relationship between
income and consumption, demand and supply, etc., can be studied by measuring correlation
between relevant variables. Furthermore, a given mathematical relation can also be fitted
to the given data by using the technique of regression analysis.
4. Provides techniques for the comparison of phenomena: Many a times, the purpose of
undertaking a statistical analysis is to compare various phenomena by computing one or
more measures like mean, variance, ratios, percentages and various types of coefficients.
For example, when we compute the consumer price index for a particular group of workers,
then our aim could be to compare this index with that of previous year or to compare it
with the consumer price index of a similar group of workers of some other city, etc.
Similarly, the inequalities of income in various countries may be computed for the sake of
their comparison.
5. Enlarges individual experiences: An important function of statistics is that it enlarges

human experience in the solution of various problems. In the words of A.L. Bowley, “the
proper function of statistics, indeed is to enlarge individual experience.” Statistics is like
a master key that is used to solve problems of mankind in every field. It would not be an
exaggeration to say that many fields of knowledge would have remained closed to the
mankind forever but for the efficient and useful techniques and methodology of the
science of statistics.
6. Helps in the formulation of policies: Statistical analysis of data is the starting point in the
formulation of policies in various economic, business and government activities. For
example, using statistical techniques a firm can know the tastes and preferences of the
consumers and decide to make its product accordingly. Similarly, the Government policies
regarding taxation, prices, investments, unemployment, imports and exports, etc. are also
guided by statistical studies in the relevant areas.
7. Helps in forecasting: The success of planning by the Government or of a business depends

to a large extent upon the accuracy of their forecasts. Statistics provides a scientific basis
for making such forecasts. Various techniques used for forecasting are time series analysis,
regression analysis, etc.
8. Provides techniques for testing of hypothesis: A hypothesis is a statement about some

characteristics of a population (or universe). For example, the statement that average
height of students of a college is 66 inches, is a hypothesis. Here students of the college
constitute the population. It is possible to test the validity of this statement by the use of
statistical techniques.
9. Provides techniques for making decisions under uncertainty: Many a times we face an
uncertain situation where any one of the many alternatives may be adopted. For example,
a person may face a situation of rain or no rain and he wants to decide whether to take his
umbrella or not. Similarly, a businessman might face a situation of uncertain investment
opportunities in which he can lose or gain. He may be interested in knowing whether to

Notes undertake a particular investment or not. The answer to such problems are provided by
the statistical techniques of decision-making under uncertainty.
Did u know? Among the noteworthy Indian scholars who contributed to statistics are P.C.
Mahalnobis, V.K.R.V. Rao, R.C. Desai and P.V. Sukhatme.
Self Assessment
11. Honesty, intelligence, colour of eyes, beauty, etc. all are examples of qualitative
characteristics.
12. Statistics deals only with groups and not with individuals.
13. Statistical results are surely true.
14. Statistics are liable to be misused.
15. Statistics must be used by anybody.
Task Elucidate the following statements:
1. “The successful businessman is one whose estimates closely approaches accuracy.”
2. “All its best science is statistical.”
3. “Statistical results are very general estimates rather than exact statements”.
1.4 Limitations of Statistics
Like every other science, statistics also has its limitations. In order to have maximum advantage
from the use of statistical methods, it is necessary to know their limitations. According to
Newshome, “It (statistics) must be regarded as an instrument of research of great value, but
having severe limitations, which are not possible to overcome and as such they need our careful
attention.” The science of statistics suffers from the following limitations:
1. Statistics deals with numerical facts only: Broadly speaking there are two types of facts,
(a) quantitative and (b) qualitative facts.
Quantitative facts are capable of being represented in the form of numerical figures and
therefore, are also known as numerical facts. These facts can be analysed and interpreted
with the help of statistical methods. Qualitative facts, on the other hand, represent only
the qualitative characteristics like honesty, intelligence, colour of eyes, beauty, etc. and
statistical methods cannot be used to study these types of characteristics. Sometimes,
however, it is possible to make an indirect study of such characteristics through their
conversion into numerical figures. For example, we may assign a number 0 for a male and
1 for a female, etc.
2. Statistics deals only with groups and not with individuals: Statistical studies are
undertaken to study the characteristics of a group rather than individuals. These studies
are done to compare the general behaviour of the group at different points of time or the
behaviour of different groups at a particular point of time. For example, the economic
performance of a country in a year is measured by its national income in that year and by

Unit 1: Statistics
comparing national income of various years, one can know whether performance of the Notes
country is improving or not. Further, by comparing national income of different countries,
one can know its relative position vis-a-vis other countries.
3. Statistical results are true only on the average: Statistical results give the behaviour of the
group on the average and these may not hold for an individual of that very group. Thus,
the statement that average wages of workers of a certain factory is 1,500 p.m. does not
necessarily mean that each worker is getting this wage. In fact, some of the workers may
be getting more while others less than or equal to 1,500. Further, when value of a
variable is estimated by using some explanatory variable, the estimated value represents
the value on the average for a particular value of the explanatory variable. In a similar
way, all the laws of statistics are true only on the average.
4. Statistical results are only approximately true: Most of the statistical studies are based on
a sample taken from the population. Under certain circumstances the estimated data are
also used.
Therefore, conclusions about a population based on such information are bound to be true
only approximately. Further, if more observations are collected with a view to improve
the accuracy of the results, these efforts are often offset by the errors of observation. In the
words of Bowley, “When observations are extended, many sources of inaccuracy are
found to be present, and it is very frequently impossible to remove them completely.
Statistical results are, therefore, very general estimates rather than exact statements.”
Thus, whether statistical results are based on sample or census data, are bound to be true
only approximately.
5. Statistical methods constitute only one set of methods to study a problem: A given
problem can often be studied in many ways. Statistical methods are used to simplify the
mass of data and obtain quantitative results by its analysis. However, one should not
depend entirely on statistical results. These results must invariably be supplemented by
the results of alternative methods of analysing the problem. It should be kept in mind that
statistics is only a means and not an end. According to D. Gregory and H. Ward, “Statistics
cannot run a business or a government. Nor can the study of statistics do more than
provide a few suggestions or offer a few pointers as to firm’s or government’s future
behaviour.”
6. Statistics are liable to be misused: Statistical data are likely to be misused to draw any type
of conclusion. If the attitude of the investigator is biased towards a particular aspect of the
problem, he is likely to collect only such data which give more importance to that aspect.
The conclusions drawn on the basis of such information are bound to be misleading.
Suppose, for example, the attitude of the Government is biased and it wants to compute a
price index which should show a smaller rise of prices than the actual one. In such a
situation, the Government might use only those price quotations that are obtained from
markets having lower prices.
7. Statistics must be used only by experts: Statistics, being a technical subject, is very difficult
for a common man to understand. Only the experts of statistics can use it correctly and
derive right conclusions from the analysis. In the words of Yule and Kendall, “Statistical
methods are the most dangerous tools in the hands of inexperts.” Hence, this is the most
important limitation of statistics.

Notes
Notes Origin and Growth of Statistics

Statistics, as a subject, has a very long history. The origin of STATISTICS is indicated by the
word itself which seems to have been derived either from the Latin word ‘STATUS’ or
from the Italian word ‘STATISTA’ or may be from the German word ‘STATISTIK.’ The
meaning of all these words is ‘political state’. Every State administration in the past
collected and analysed data. The data regarding population gave an idea about the possible
military strength and the data regarding material wealth of a country gave an idea about
the possible source of finance to the State. Similarly, data were collected for other purposes
also. On examining the historical records of various ancient countries, one might find that
almost all the countries had a system of collection of data. In ancient Egypt, the data on
population and material wealth of the country were collected as early as 3050 B.C., for the
construction of pyramids. Census was conducted in Jidda in 2030 B.C. and the population
was estimated to be 38,00,000. The first census of Rome was done as early as 435 B.C. After
the 15th century the work of publishing the statistical data was also started but the first
analysis of data on scientific basis was done by Captain John Graunt in the 17th century.
His first work on social statistics, ‘Observation on London Bills of Mortality’ was published
in 1662. During the same period the gamblers of western countries had started using
statistics, because they wanted to know the more precise estimates of odds at the gambling
table. This led to the development of the ‘Theory of Probability’.
Ancient India also had the tradition of collection of statistical data. In ancient works, such
as Manusmriti, Shukraniti, etc., we find evidences of collection of data for the purpose of
running the affairs of the State where population, military force and other resources have
been expressed in the form of figures. The fact and figures of the Chandragupta Mauraya’s
regime are described in ‘Kautilya’s Arthashastra’. Statistics were also in use du ring the
Mughal period. The data were collected regarding population, military strength, revenue,
land revenue, measurements of land, etc. During the British period too, statistics were
used in various areas of activities.
Although the tradition of collection of data and its use for various purposes is very old, the
development of modern statistics as a subject is of recent origin. The development of the
subject took place mainly after sixteenth century. The notable mathematicians who
contributed to the development of statistics are Galileo, Pascal, De-Mere, Farment and
Cardeno of the 17th century. Then in later years the subject was developed by Abraham De
Moivre (1667 - 1754), Marquis De Laplace (1749 - 1827), Karl Friedrich Gauss (1777 - 1855),
Adolphe Quetelet (1796 - 1874), Francis Galton (1822 - 1911), etc. Karl Pearson (1857 - 1937),
who is regarded as the father of modern statistics, was greatly motivated by the researches
of Galton and was the first person to be appointed as Galton Professor in the University of
London. William S. Gosset (1876 - 1937), a student of Karl Pearson, propounded a number
of statistical formulae under the pen-name of ‘Student’.
Self Assessment
Fill in the blanks:
16. Statistics is used to present the .................... facts in a form that is easily understandable by
human mind and to make comparisons, derive valid conclusions, etc.
17. The first function of statistics is .................................
18. Statistics presents ............................ facts in a ....................... form.

Unit 1: Statistics
19. Statistics is like a .................... key that is used to solve problems of mankind in every field. Notes
20. Businessman might face a situation of ......................... investment opportunities in which

he can lose or gain.
Case Study Statistics as a Science different from Natural Sciences
S
cience is a body of systematized knowledge developed by generalisations of relations
based on the study of cause and effect. These generalised relations are also called the
laws of science. For example, there are laws in physics, chemistry, statistics,
mathematics, etc. It is obvious from this that statistics is also a science like any other
natural science. The basic difference between statistics and other natural sciences lies in
the difference in conditions under which its experiments are conducted. Where as the
experiments in natural sciences are done in laboratory, under more or less controlled
conditions, the experiments in statistics are conducted under uncontrolled conditions.
Consider, for example, the collection of data regarding expenditure of households in a
locality. There may be a large number of factors affecting expenditure and some of these
factors might be different for different households.
Due to these reasons, statistics is often termed as a non-experimental science while natural
sciences are termed as experimental sciences. We may note here that social sciences like
economics, business, sociology, geography, political science, etc., belong to the category
of non-experimental science and thus, the laws and methods of statistics can be used to
understand and analyse the problems of these sciences also.
Questions:
1. Analyze the case and interpret it.
2. Write down the case facts.
3. What do you conclude?
1.5 Summary
The word ‘Statistics’ can be used in both ‘the plural’ and ‘the singular’ sense.
In plural sense it implies a set of numerical figures, commonly known as statistical data.
In singular sense statistics implies a scientific method used for the collection, analysis and
interpretation of data.
Any set of numerical figures cannot be regarded as statistics or data. A set of numerical
figures collected for the investigation of a given problem can be regarded as data only if
these are comparable and affected by a multiplicity of factors.
As a scientific method, statistics is used in almost every subject of natural and social
sciences.
Statistics as a method can be divided into two broad categories viz. Theoretical Statistics
and Applied Statistics.
Theoretical statistics can further be divided into Descriptive, Inductive and Inferential
statistics.

Notes Statistics is used to collect, present and analyze numerical figures on a scientific basis.
The use of various statistical methods help in presenting complex mass of data in a simplified
form so as to facilitate the process of comparison of characteristics in two or more situations.
Statistics also provide important techniques for the study of relationship between two or
more characteristics (or variable), in forecasting, testing of hypothesis, quality control,
decision-making, etc.
Statistics as a scientific method has its importance in almost all subjects of natural and
social sciences.
Statistics is an indispensable tool for the modern government to ensure efficient running
of its administration in addition to fulfillment of welfare objectives.
It is rather impossible to think of planning in the absence of statistics.
The importance of statistics is also increasing in modern business world.
Every business, whether big or small, uses statistics for analysing various business
situations, including the feasibility of launching a new business.
The limitations of statistics must always be kept in mind.
Statistical methods are applicable only if data can be expressed in terms of numerical
figures.
The results of analysis are applicable to groups of individuals or units and are true only on
average, etc.
1.6 Keywords
Applied Statistics: It consists of the application of statistical methods to practical problems.
Design of sample surveys,
Descriptive Statistics: All those methods which are used for the collection, classification,
tabulation, diagrammatic presentation of data and the methods of calculating average, dispersion,
correlation and regression, index numbers, etc., are included in descriptive statistics.
Inductive Statistics: It includes all those methods which are used to make generalisations about
a population on the basis of a sample. The techniques of forecasting are also included in inductive
statistics.
Inferential Statistics: It includes all those methods which are used to test certain hypotheses
regarding characteristics of a population.
National income accounting: The system of keeping the accounts of income and expenditure of
a country is known as national income accounting.
Numerical facts: Quantitative facts are capable of being represented in the form of numerical
figures and therefore, are also known as numerical facts.
Qualitative facts: These facts represent only the qualitative characteristics like honesty,
intelligence, colour of eyes, beauty, etc.
Quantitative facts: The facts which are capable to be expressed in forms of quantity/amount are
called.
Statistics : By statistics we mean aggregate of facts affected to a marked extent by a multiplicity
of causes,numerically expressed, enumerated or estimated according to a reasonable standard
of accuracy, collected in a systematic manner for a predetermined purpose and placed in relation
to each other.

Unit 1: Statistics
1.7 Review Questions Notes
1. Define the term statistics.
2. Distinguish between statistical methods and statistics.
3. Discuss the scope and significance of the study of statistics.
4. “Statistics are numerical statements of facts, but all facts stated numerically are not
statistics”. Clarify this statement and point out briefly which numerical statements of facts
are statistics.
5. Discuss briefly the utility of statistics in economic analysis and business.
6. “Statistics are the straws out of which one like other economists have to make bricks”.
Discuss.
7. “Science without statistics bear no fruit, statistics without science have no roots”. Explain
the above statement.
8. “It is usually said that statistics is science and art both”. Do you agree with this statement?
Discuss the scope of statistics.
9. “Statistics is not a science, it is a scientific method”. Discuss it critically and explain the
scope of statistics.
10. Explain clearly the three meanings of the word ‘Statistics’ contained in the following
statement:
“You compute statistics from statistics by statistics”.
11. “Economics and statistics are twin sisters”. Discuss.
12. Discuss the nature and scope of statistics. What are the fields of investigation and research
where statistical methods and techniques can be usefully employed?
13. “A knowledge of statistics is like the knowledge of foreign language or of algebra. It may
prove of use at any time under any circumstances”. Discuss the above statement.
14. “The science of statistics is a most useful servant but only of great value to those who
understand its proper use.”
15. Examine the above statement and discuss the limitations of statistics.
16. Explain the importance of statistics in economic analysis and planning.
17. “He who accepts statistics indiscriminately will often be duped unnecessarily. But he who
distrusts statistics indiscriminately will often be ignorant unnecessarily. In fact, reliable
statistics are the lamps that light our path on the road of knowledge.” Comment.
18. “Statistical methods are most dangerous tools in the hands of the inexperts. Statistics is
one of those sciences whose adept must exercise the self-restraint of an artist.” Explain.
19. “Planning without statistics is a ship without rudder and compass.” In the light of this
statement, explain the importance of statistics as effective aid to National Planning in
India.
20. Explain by giving reasons whether the following are data or not:
(a) Arun is more intelligent than Avinash.
(b) Arun got 75% marks in B.Sc. and Avinash got 70% marks in B.Com.

Notes (c) Arun was born on August 25, 1974.

(d) The consumption function of a community is C = 1,000 + 0.8Y, therefore, the levels
of consumption for different levels of income are:
Y 0 1000 2000 4000 6000 8000

C 1000 1800 2600 4200 5800 7400
21. Would you regard the following information as statistics? Explain by giving reasons.
(a) The height of a person is 160 cms.

(b) The height of Ram is 165 cms and of Shyam is 155 cms.
(c) Ram is taller than Shyam.
(d) Ram is taller than Shyam by 10 cms.

(e) The height of Ram is 165 cms and weight of Shyam is 55 kgs.
Answers: Self Assessment
1. (a) 2. (c)
3. (c) 4. True
5. True 6. False
7. True 8. False
9. False 10. False
11. True 12. True
13. False 14. True
15. False 16. numerical
17. to present a given problem in terms of numerical figures.
18. complex, simplified 19. master
20. uncertain
Books Balwani Nitin Quantitative Techniques, First Edition: 2002. Excel Books, New Delhi.
Bhardwaj R.S., Business Statistics, Excel Books.
Garrett H.E. (1956), Elementary Statistics, Longmans, Green & Co., New York.
Guilford J.P. (1965), Fundamental Statistics in Psychology and Education, Mc Graw

Hill Book Company, New York.
Gupta S.P., Statistical Method, Sultan Chand and Sons, New Delhi, 2008.
Hannagan T.J. (1982), Mastering Statistics, The Macmillan Press Ltd., Surrey.
Hooda R. P., Statistics for Business and Economics, Macmillan India, Delhi, 2008.

Unit 1: Statistics
Jaeger R.M (1983), Statistics: A Spectator Sport, Sage Publications India Pvt. Ltd., Notes
New Delhi.
Lindgren B.W. (1975), Basic Ideas of Statistics, Macmillan Publishing Co. Inc., New
York.
Richard I. Levin, Statistics for Management, Pearson Education Asia, New Delhi,
2002.
Selvaraj R., Loganathan, C. Quantitative Methods in Management.
Sharma J.K., Business Statistics, Pearson Education Asia, New Delhi, 2009.
Stockton and Clark, Introduction to Business and Economic Statistics, D.B. Taraporevala
Sons and Co. Private Limited, Bombay.
Walker H.M. and J. Lev, (1965), Elementary Statistical Methods, Oxford & IBH
Publishing Co., Calcutta.
Wine R.L. (1976), Beginning Statistics, Winthrop Publishers Inc., Massachusetts.
Online links http://www.buseco.monash.edu.au/ebs/about/busstats.php

http://en.wikipedia.org/wiki/Mathematical_statistics
http://en.wikipedia.org/wiki/Business_statistics
http://cnx.org/content/m11061/latest/
www.imwright.org/WebEd/u02/we020304.htm
www.tl.nist.gov/div898/handbook/eda/section3/eda366j.htm

Notes Unit 2: Classification of Data
CONTENTS
Objectives
Introduction
2.1 Classification
2.2 Types of Classification
2.3 Formation of A Frequency Distribution
2.3.1 Construction of a Discrete Frequency Distribution

2.3.2 Construction of a Continuous Frequency Distribution
2.3.3 Relative or Percentage Frequency Distribution
2.3.4 Cumulative Frequency Distribution
2.3.5 Frequency Density
2.4 Bivariate and Multivariate Frequency Distributions
2.5 Summary
2.6 Keywords
Objectives
Define the term classification
Discuss its objectives and requisites
Explain the different types of classification
Analyze the formation of frequency distribution
Know about Frequency Density
Introduction
The collected data are a complex and unorganised mass of figures which is very difficult to
analyse and interpret. Therefore, it becomes necessary to organise this so that it becomes easier
to grasp its broad features. Further, in order to apply the tools of analysis and interpretation, it
is essential that the data are arranged in a definite form. This task is accomplished by the process
of classification and tabulation.
2.1 Classification
Classification is the process of arranging the available data into various homogeneous classes
and subclasses according to some common characteristics or objective of investigation. In the
words of L.R. Connor, “Classification is the process of arranging things (either actually or

Unit 2: Classification of Data
notionally) in the groups or classes according to the unity of attributes that may subsist amongst Notes
a diversity of individuals.” The chief characteristics of any classification are:
1. The collected data are arranged into homogeneous groups.
2. The basis of classification is the similarity of characteristics or features inherent in the

collected data.
3. Classification of data signifies unity in diversity.
4. Classification of data may be actual or notional.
5. Classification of data may be according to certain measurable or non-measurable

characteristics or according to some combination of both.
Objectives of Classification
The main objectives of any classification are:
1. To present a mass of data in a condensed form.
2. To highlight the points of similarity and dissimilarity.
3. To bring out the relationship between variables.
4. To highlight the effect of one variable by eliminating the effect of others.
5. To facilitate comparison.
6. To prepare data for tabulation and analysis.
Requisites of a Good Classification
A good classification must possess the following features:
1. Unambiguous: The classification should not lead to any ambiguity or confusion.
2. Exhaustive: A classification is said to be exhaustive if there is no item that cannot be

allotted a class.
3. Mutually Exclusive: When a classification is mutually exclusive, each item of the data can
be placed only in one of the classes.
4. Flexibility: A good classification should be capable of being adjusted according to the

changed situations and conditions.
5. Stability: The principle of classification, once decided, should remain same throughout
the analysis, otherwise it will not be possible to get meaningful results. In the absence of
stability, the results of the same type of investigation at different time periods may not be
comparable.
6. Suitability: The classification should be suitable to the objective(s) of investigation.
7. Homogeneity: A classification is said to be homogeneous if similar items are placed in a

class.
8. Revealing: A classification is said to be revealing if it brings out essential features of the

collected data. This can be done by selecting a suitable number of classes. Making few
classes means over summarization while large number classes fail to reveal any pattern of
behaviour of the variable.

Notes
Did u know? Different classes are said to be mutually exclusive if they are non-overlapping.
Self Assessment
Fill in the blanks:
1. The collected data are a complex and unorganised mass of figures which is very difficult to
..................... and ........................
2. In order to apply the tools of analysis and interpretation, it is essential that the data are
arranged in a ............................ form.
3. ........................ is the process of arranging the available data into various homogeneous
classes and sub-classes according to some common characteristics or objective of
investigation.
4. A classification is said to be .......................... if there is no item that cannot be allotted a class.
5. Different classes are said to be mutually exclusive if they are ...................................
2.2 Types of Classification
The nature of classification depends upon the purpose and objective of investigation. The
following are some very common types of classification:
1. Geographical (or spatial) classification: When the data are classified according to
geographical location or region, it is called a geographical classification.
2. Chronological classification: When the data are classified on the basis of its time of
occurrence, it is called a chronological classification. Various time series such as; National
Income figures (annual), annual output of wheat, monthly expenditure of a household,
daily consumption of milk, etc., are some examples of chronological classification.
3. Conditional classification: When the data are classified according to certain conditions,
other than geographical or chronological, it is called a conditional classification.
4. Qualitative classification or classification according to attributes: When the characteristics

of the data are non-measurable, it is called a qualitative data. The examples of non-
measurable characteristics are sex of a person, marital status, colour, honesty, intelligence,
etc. These characteristics are also known as attributes. When qualitative data are given,
various items can be classified into two or more groups according to a characteristic. If the
data are classified only into two categories according to the presence or absence of an
attribute, the classification is termed as dichotomous or twofold classification. On the
other hand, if the data are classified into more than two categories according to an attribute,
it is called a manifold classification. For example, classification of various students of a
college according to the colour of their eyes like black, brown, grey, blue, etc. The conditional
classification, given above, is also an example of a manifold classification.
If the classification is done according to a single attribute, it is known as a one-way

classification. On the other hand, the classification done according to two or more attributes
is known as a two-way or multiway classification respectively. The example of a three-
way classification, where population is dichotomised according to each attribute; sex,
honesty and smoking habit, is given below:

Figure 2.1: Three-way Classification Notes
We note that there will be eight subgroups of individuals like (male, honest, smokers),
(male, honest, nonsmokers), etc.
In the classification, (Figure 2.1), the population is dichotomised with respect to each of
the three attributes. There may be situations where classification with respect to one
attribute is dichotomous while it is manifold with respect to the other. A two way
classification of this type is shown as:
Figure 2.2: Two way classification
5. Quantitative classification or classification according to variables: In case of quantitative

data, the characteristic is measurable in terms of numbers and is termed as variable, e.g.,
weight, height, income, the number of children in a family, the number of crime cases in
a city, life of an electric bulb of a company, etc. A variable can take a different value
corresponding to a different item of the population or universe.
Variables can be of two types (a) Discrete and (b) Continuous.
(a) Discrete Variable: A discrete variable can assume only some specific values in a given
interval. For example, the number of children in a family, the number of rooms on
each floor of a multistoried building, etc.
(b) Continuous Variable: A continuous variable can assume any value in a given interval.
For example, monthly income of a worker can take any value, say, between 1,000
to 2,500. The income of a worker can be 1,500.25, etc.
It must be pointed out here that, in practice, data collected on a continuous variable also
look like the data of a discrete variable. This is due to the fact that measurements, done
even with the finest degree of accuracy, can only be expressed in a discrete form. For
example, height measured even with accuracy upto three places after decimal gives discrete
values like 167.645 cms, 167.646 cms, etc. In the classification according to variables, the
data are classified by the values of the variables for each item. As in the case of attributes,
the classification on the basis of a single variable is termed as a one-way classification.

Notes Similarly, there can be a two-way and multi-way classification of the data. For example, if
the students of a class are classified on the basis of their marks in statistics, we get a one-
way classification. However, if these students are simultaneously classified on the basis of
marks in statistics and marks in economics, it becomes a two-way classification.
It should be noted here that in a two-way classification, it is possible to have simultaneous

classification according to an attribute and a variable. For example, the classification of
students of a class on the basis of their marks in statistics and the sex of the person.
Did u know? The life of an electric bulb is a continuous variable that can take any value
from 0 to .
Task Write few examples of continuous variables whose actual measurements are
expressed in terms of discrete numbers.
Self Assessment
6. When the data are classified according to geographical location or region, it is called a
geographical classification.
7. When the data are classified on the basis of its time of occurrence, it is called a chronological
classification.
8. When the data are classified according to certain conditions, other than geographical or
chronological, it is called a unconditional classification.
9. When the characteristics of the data are non-measurable, it is called a qualitative data.
10. In a one-way classification, it is possible to have simultaneous classification according to

an attribute and a variable.
2.3 Formation of a Frequency Distribution
2.3.1 Construction of a Discrete Frequency Distribution
A discrete frequency distribution may be ungrouped or grouped. In an ungrouped frequency

distribution, various values of the variable are shown along with their corresponding frequencies.
If this distribution fails to reveal any pattern, grouping of various observations become
necessary. The resulting distribution is known as grouped frequency distribution of a discrete
variable. Furthermore, a grouped frequency distribution is also constructed when the possible
values that a variable can take are large.
1. Ungrouped Frequency Distribution of a Discrete variable: Suppose that a survey of 150

houses was conducted and number of rooms in each house was recorded as shown below:
5 4 4 6 3 2 2 6 6 2 6 3 3 4 5
6 3 2 2 5 3 1 4 5 1 5 1 4 3 2
5 1 5 3 2 2 4 2 2 4 4 6 3 2 4
2 3 2 4 6 3 3 2 6 4 1 4 4 5 2

4 1 4 2 1 5 1 3 3 2 5 6 1 3 1 Notes
5 3 4 3 1 1 4 1 1 2 2 1 5 2 3
6 3 5 2 2 3 3 3 3 4 5 1 6 2 1
2 1 1 6 5 2 1 1 5 6 4 2 2 3 3
3 4 3 2 1 5 2 3 1 1 4 6 4 6 2
2 4 5 6 3 6 4 1 2 4 2 2 3 4 5
Counting of frequency using Tally Marks
The method of tally marks is used to count the number of observations or the frequency of
each value of the variable. Each possible value of the variable is written in a column. For
every observation, a tally mark denoted by | is noted against its corresponding value.
Five observations are denoted as i.e., the fifth tally mark crosses the earlier four marks
and so on. The method of tally marks is used below to determine the frequencies of
various values of the variable for the data given above.
In the above frequency distribution, the number of rooms ‘X’ is a discrete variable which
can take integral values from 1 to 6. This distribution is also known as ungrouped frequency
distribution. It should be noted here that, in case of ungrouped frequency distribution, the
identity of various observations is not lost, i.e., it is possible to get back the original
observations from the given frequency distribution.
2. Grouped Frequency Distribution of a Discrete Variable: Consider the data on marks

obtained by 50 students in statistics. The variable ‘X’ denoting marks obtained is a discrete
variable, let the ungrouped frequency distribution of this data be as given in the following
table.
33 1 57 1 76 1
35 2 59 1 77 2
39 1 60 2 78 1
41 2 61 1 80 1
42 1 64 1 81 1
45 1 65 3 84 1
48 2 66 2 85 2
50 1 67 1 88 1
52 1 69 2 89 1
53 1 71 1 91 1
54 1 73 2 94 2
55 2 74 2 98 1

Notes This frequency distribution does not reveal any pattern of behaviour of the variable. In
order to bring the behaviour of the variable into focus, it becomes necessary to convert
this into a grouped frequency distribution.
Instead of above, if the individual marks are grouped like marks between and including
30 and 39, 40 and 49, etc. and the respective frequencies are written against them, we get a
grouped frequency distribution as shown below:
30 - 39 4
40 - 49 6
50 - 59 8
60 - 69 12
70 - 79 9
80 - 89 7
90 - 99 4
50
The above frequency distribution is more revealing than the earlier one. It is easy to understand
the behaviour of marks on the basis of this distribution. It should, however, be pointed out here
that the identity of observations is lost after grouping. For example, on the basis of the above
distribution we can only say that 4 students have obtained marks between and including 30 - 39,
etc. Thus, it is not possible to get back the original observations from a grouped frequency
distribution.
2.3.2 Construction of a Continuous Frequency Distribution
As opposed to a discrete variable, a continuous variable can take any value in an interval.
Measurements like height, age, income, time, etc., are some examples of a continuous variable.
As mentioned earlier, when data are collected regarding these variables, it will show discreteness,
which depends upon the degree of precision of the measuring instrument. Therefore, in such a
situation, even if the recorded data appear to be discrete, it should be treated as continuous.
Since a continuous variable can take any value in a given interval, therefore, the frequency
distribution of a continuous variable is always a grouped frequency distribution.
To construct a grouped frequency distribution, the whole interval of the continuous variable,
given by the difference of its largest and the smallest possible values, is divided into various
mutually exclusive and exhaustive sub-intervals. These sub-intervals are termed as class intervals.
Then, the frequency of each class interval is determined by counting the number of observations
falling under it. The construction of such a distribution is explained below:
The figures, given below, are the 90 measurements of diameter (in mm.) of a wire.
1.86, 1.58, 1.13, 1.46, 1.53, 1.65, 1.49, 1.03, 1.10, 1.36, 1.37, 1.46, 1.44, 1.46, 1.95, 1.67, 1.59, 1.35, 1.44,
1.40, 1.50, 1.41, 1.19, 1.16, 1.27, 1.21, 1.82, 1.55, 1.52, 1.42, 1.17, 1.62, 1.42, 1.22, 1.56, 1.78, 1.98, 1.31,
1.29, 1.69, 1.32, 1.68, 1.36, 1.55, 1.54, 1.67, 1.81, 1.47, 1.30, 1.33, 1.38, 1.34, 1.40, 1.37, 1.27, 1.04, 1.87,
1.45, 1.47, 1.35, 1.24, 1.48, 1.41, 1.39, 1.38, 1.47, 1.73, 1.20, 1.77, 1.25, 1.62, 1.43, 1.51, 1.60, 1.15, 1.26,
1.76, 1.66, 1.12, 1.70, 1.57, 1.75, 1.28, 1.56, 1.42, 1.09, 1.07, 1.57, 1.92, 1.48.
The following decisions are required to be taken in the construction of any frequency distribution
of a continuous variable.

1. Number of Class Intervals: Though there is no hard and fast rule regarding the number of Notes
classes to be formed, yet their number should be neither very large nor very small. If there
are too many classes, the frequency distribution appears to be too fragmented to reveal
the pattern of behaviour of characteristics. Fewer classes imply that the width of the class
intervals will be broad and accordingly it would include a large number of observations.
As will be obvious later that in any statistical analysis, the value of a class is represented
by its mid-value and hence, a class interval with broader width will be representative of
a large number of observations. Thus, the magnitude of loss of information due to grouping
will be large when there are small number of classes. On the other hand, if the number of
observations is small or the distribution of observations is irregular, i.e., not uniform,
having more number of classes might result in zero or very small frequencies of some
classes, thus, revealing no pattern of behaviour. Therefore, the number of classes depends
upon the nature and the number of observations. If the number of observations is large or
the distribution of observations is regular, one may have more number of classes. In
practice, the minimum number of classes should not be less than 5 or 6 and in any case
there should not be more than 20 classes.
The approximate number of classes can also be determined by Struge’s formula: n = 1 +

3.322 × log10N, where n (rounded to the next whole number) denotes the number of
classes and N denotes the total number of observations.
Based on this formula, we have
n = 1 + 3.322 × 2.000 = 7.644 or 8, when N = 100
n = 1 + 3.322 × 2.699 = 9.966 or 10, when N = 500
n = 1 + 3.322 × 4.000 = 14.288 or 15, when N = 10,000
n = 1 + 3.322 × 4.699 = 16.610 or 17, when N = 50,000
From the above calculations we may note that even the formation of 20 class intervals is
very rarely needed.
For the given data on the measurement of diameter, there are 90 observations. The number
of classes by the Sturge’s formula are
n = 1 + 3.322 × log1090 = 7.492 or 8
2. Width of a Class Interval: After determining the number of class intervals, one has to
determine their width. The problem of determining the width of a class interval is closely
related to the number of class intervals.
As far as possible, all the class intervals should be of equal width. However, there can be
situations where it may not be possible to have equal width of all the classes. Suppose that
there is a frequency distribution, having all classes of equal width, in which the pattern of
behaviour of the observations is not regular, i.e., there are nil or very few observations in
some classes while there is concentration of observations in other classes. In such a situation,
one may be compelled to have unequal class intervals in order that the frequency
distribution becomes regular.
The approximate size of a class interval can be decided by the use of the following formula:
Largest observation – Smallest observation
Class Interval =
Number of class intervals
L–S
or using notations, Class Interval =
n

Notes In the example, given above, L = 1.98 and S = 1.03 and n = 8.
Approximate size of a class interval
1.98 1.03
0.1188 or 0.12 (approx.)
8
Before taking a final decision on the width of various class intervals, it is worthwhile to
consider the following points:
(a) Normally a class interval should be a multiple of 5, because it is easy to grasp

numbers like 5, 10, 15, ...., etc.
(b) It should be convenient to find the mid-value of a class interval.
(c) Most of the observations in a class should be uniformly distributed or concentrated

around its mid-value.
(d) As far as possible, all the classes should be of equal width. A frequency distribution
of equal class width is convenient to be represented diagrammatically and easy to
analyse.
On the basis of above considerations, it will be more appropriate to have classes, each,
with interval of 0.10 rather than 0.12. Further, the number of classes should also be revised
in the light of this decision.
L- S
n= = 1.98 - 1.03 = 0.95 = 9.5 or 10
Class Interval 0.10 0.10
(rounded to the next whole number)
3. Designation of Class Limits: The class limits are the smallest and the largest observation
in a class. These are respectively known as the lower limit and the upper limit of a class.
For a frequency distribution, it is necessary to designate these class limits very
unambiguously, because the mid-value of a class is obtained by using these limits. As will
be obvious later, this mid-value will be used in all the computations about a frequency
distribution and the accuracy of these computations will depend upon the proper
specification of class limits. The class limits should be designated keeping the following
points in mind:
(a) It is not necessary to have lower limit of the first class exactly equal to the smallest
observation of the data. In fact it can be less than or equal to the smallest observation.
Similarly, the upper limit of the last class can be equal to or greater than the largest
observation of the data.
(b) It is convenient to have lower limit of a class either equal to zero or some multiple
of 5.
(c) The chosen class limits should be such that the observations in a class tend to
concentrate around its mid-value. This will be true if the observations are uniformly
distributed in a class.
The designation of class limits for various class intervals can be done in two ways: (1) Exclusive
Method and (2) Inclusive Method.
1. Exclusive Method: In this method the upper limit of a class is taken to be equal to the lower
limit of the following class. To keep various class intervals as mutually exclusive, the
observations with magnitude greater than or equal to lower limit but less than the upper
limit of a class are included in it. For example, if the lower limit of a class is 10 and its

upper limit is 20, then this class, written as 10-20, includes all the observations which are Notes
greater than or equal to 10 but less than 20. The observations with magnitude 20 will be
included in the next class.
2. Inclusive Method: Here all observations with magnitude greater than or equal to the
lower limit and less than or equal to the upper limit of a class are included in it.
The two types of class intervals, discussed above, are constructed for the data on the measurements
of diameter of a wire as shown below:
20 - 29 30 - 39 40 - 49 50 - 59 Total
8 15 10 7 40
Mid-Value of a Class
In exclusive types of class intervals, the mid-value of a class is defined as the arithmetic mean of
its lower and upper limits. However, in the case of inclusive types of class intervals, there is a
gap between the upper limit of a class and the lower limit of the following class which is
eliminated by determining the class boundaries. Here, the mid-value of a class is defined as the
arithmetic mean of its lower and upper boundaries. To find class boundaries, we note that the
given data on the measurements of diameter of a wire is expressed in terms of millimeters,
approximated upto two places after decimal. This implies that a value greater than or equal to
1.095 but less than 1.10 is approximated as 1.10 and, thus, included in the class interval 1.10 - 1.19.
Similarly, an observation less than 1.095 but greater than 1.09 is approximated as 1.09 and is
included in the interval 1.00-1.09. Keeping the precision of measurements in mind, various class
boundaries, for the inclusive class intervals, given above, can be obtained by subtracting 0.005
from the lower limit and adding 0.005 to the upper limit of each class. These boundaries are
given in the third column of the above table.
Construction of a Grouped Frequency Distribution for the Data on the Measurements

of Diameter of a Wire
Taking class intervals as 1.00 - 1.10, 1.10 - 1.20, etc. and counting their respective frequencies, by
the method of tally marks, we get the required frequency distribution as given below:

Notes
Example: Given below are the weights (in pounds) of 70 students.
1. Construct a frequency distribution when class intervals are inclusive, taking the lowest
class as 60-69. Also construct class boundaries.
2. Construct a frequency distribution when class intervals are exclusive, taking the lowest
class as 60-70.
61, 80, 91, 113, 100, 106, 109, 73, 88, 92, 101, 106, 107, 97, 93, 96, 102, 114, 87, 62, 74, 107, 109,
91, 72, 89, 94, 98, 112, 103, 101, 77, 92, 73, 67, 76, 84, 90, 118, 107, 108, 82, 78, 84, 77, 95, 111, 115,
104, 69, 106, 105, 63, 76, 85, 88, 96, 90, 95, 99, 83, 98, 88, 72, 75, 86, 82, 86, 93, 92.
Solution:
1. Construction of frequency distribution using inclusive class intervals.
To determine the class boundaries, we note that measured weights are approximated to
the nearest pound. Therefore, a measurement less than 69.5 is approximated as 69 and
included in the class interval 60 - 69. Similarly, a measurement greater than or equal to
69.5 is approximated as 70 and is included in the class interval 70 - 79. Thus, the class
boundaries are obtained by subtracting 0.5 from the lower limit and adding 0.5 to the
upper limit of various classes. These boundaries are shown in the last column of the above
table.
2. The frequency distribution of exclusive type of class intervals can be directly written from
the above table as shown below:
60 - 70 5
70 - 80 11
80 - 90 14
90 - 100 18
100 - 110 16
110 - 120 6
70
Example: Determine the class boundaries for the following distribution of ages of
40 workers of a factory, where quoted age is the age completed on last birthday.
20 - 29 30 - 39 40 - 49 50 - 59 Total
8 15 10 7 40

Solution: The determination of class boundaries depends upon the nature of approximation. Notes
Since the quoted age is the age completed on last birthday, therefore, a number greater than 29
but less than 30 is approximated as 29. Therefore, the boundaries of this class will be 20 - 30.
Similarly, the boundaries of other classes will be 30 - 40, 40 - 50 and 50 - 60, respectively.
2.3.3 Relative or Percentage Frequency Distribution
If instead of frequencies of various classes their relative or percentage frequencies are written,
we get a relative or percentage frequency distribution.
Frequency of the class

Relative frequency of a class =
Total Frequency
Percentage frequency of a class = Relative frequency × 100
These frequencies are shown in the following table.
2.3.4 Cumulative Frequency Distribution
The total frequency of all classes less than the upper class boundary of a given class is called the
cumulative frequency of that class. “A table showing the cumulative frequencies is called a
cumulative frequency distribution”.
In order to answer the questions like; the measurements on diameter that are less than 1.70 or
the number of measurements that are greater than 1.30, etc., a cumulative frequency distribution
is constructed.
Table I Table II
4 90
11 86
21 79
35 69
55 55
68 35
77 22
83 13
87 7
90 3

Notes There are two types of cumulative frequency distributions.
Less than cumulative frequency distribution: It is obtained by adding successively the frequencies
of all the previous classes including the class against which it is written. The cumulate is started
from the lowest to the highest size.
More than cumulative frequency distribution: It is obtained by finding the cumulate total of
frequencies starting from the highest to the lowest class
These frequency distributions, for the data on the measurements of diameter of a wire, are
shown in Table I and Table II respectively.
Converting a cumulative frequency distribution table into a frequency distribution
The above cumulative frequency distribution table can be presented in a frequency distribution
as follows:
Class
Intervals Frequency
1.00 - 1.10 4
1.10 - 1.20 7
1.20 - 1.30 10
1.30 - 1.40 14
1.40 - 1.50 20
1.50 - 1.60 13
1.60 - 1.70 9
1.70 - 1.80 6
1.80 - 1.90 4
1.90 - 2.00 3
Total 90
2.3.5 Frequency Density
Frequency density in a class is defined as the number of observations per unit of its width.
Frequency density gives the rate of concentration of observations in a class:
Frequency of the class

Frequency Density =
Width of the class
Table showing Frequency Density of Various Classes:
Class Frequency
Intervals Frequency Density
1.00 - 1.10 4 40
1.10 - 1.20 7 70
1.20 - 1.30 10 100
1.30 - 1.40 14 140
1.40 - 1.50 20 200
1.50 - 1.60 13 130
1.60 - 1.70 9 90
1.70 - 1.80 6 60
1.80 - 1.90 4 40
1.90 - 2.00 3 30
Total 90

Notes
Task Administer a test in your class. Classify the data so obtained, in the form of a
frequency distribution.
Self Assessment
Multiple Choice Questions:
11. A ..................... frequency distribution may be ungrouped or grouped.
(a) Continuous Frequency Distribution
(b) Discrete Frequency Distribution

(c) Relative Frequency Distribution
(d) Percentage Frequency Distribution
12. In an ............................ frequency distribution, various values of the variable are shown
along with their corresponding frequencies.
(a) Grouped (b) Ungrouped
(c) Continuous (d) Relative
13. The method of ...................................is used to count the number of observations or the
frequency of each value of the variable.
(a) Grouping (b) Arranging
(c) Tally marks (d) Graphing
14. The ................................ are the smallest and the largest observation in a class.
(a) Class size (b) Class Interval
(c) Class limits (d) True class limits
15. The .......................... of a class is defined as the arithmetic mean of its lower and upper
limits.
(a) Mid value (b) Middle values
(c) Extreme values (d) Medium Values
2.4 Bivariate and Multivariate Frequency Distributions
Bivariate Frequency Distributions
In the frequency distributions, discussed so far, the data are classified according to only one
characteristic. These distributions are known as univariate frequency distributions. There may
be a situation where it is necessary to classify data, simultaneously, according to two
characteristics. A frequency distribution obtained by the simultaneous classification of data
according to two characteristics, is known as a bivariate frequency distribution. An example of
such a classification is given below, where 100 couples are classified according to the two
characteristics, Age of Husband and Age of Wife. The tabular representation of the bivariate
frequency distribution is known as a contingency table.

Notes Classification according to Age of Husband and Age of Wife
Age of Age of
Husband wife 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 Total
10 - 20 6 3 0 0 0 9
20 - 30 3 16 10 0 0 29
30 - 40 0 10 15 7 0 32
40 - 50 0 0 7 10 4 21
50 - 60 0 0 0 4 5 9
Total 9 29 32 21 9 100
It should be noted that in a bivariate classification either or both the variable can be discrete or
continuous. Further, there may be a situation in which one characteristic is a variable and the
other is an attribute.
Multivariate Frequency Distribution
If the classification is done, simultaneously, according to more than two characteristics, the
resulting frequency distribution is known as a multivariate frequency distribution.
Example: Find the lower and upper limits of the classes when their mid-values are
given as 15, 25, 35, 45, 55, 65, 75, 85 and 95.
Solution: Note that the difference between two successive mid-values is same, i.e., 10. Half of this
difference is subtracted and added to the mid value of a class in order to get lower limit and the
upper limit respectively. Hence, the required class intervals are 10 - 20, 20 - 30, 30 - 40, 40 - 50,
50 - 60, 60 - 70, 70 - 80, 80 - 90, 90 - 100.
Example: Find the lower and upper limits of the classes if their mid-values are 10, 20,
35, 55, 85.
Solution: Here the difference of two successive mid-values are different. In order to find the
limits of the first class, half of the difference between the second and first mid-value is subtracted
and added. Therefore, the first class limits are 5 - 15. The lower limit of second class is taken as
equal to upper limit of the first class.
The upper limit of a class = lower limit + width,
where width = 2(Mid-value - lower limit).
The upper limit of the second class = 15 + 2(20 - 15) = 25.
Thus, second class interval will be 15 - 25. Similarly, we can find the limits of third, fourth and
fifth classes as 25 - 45, 45 - 65 and 65 - 105, respectively.

Notes
Notes Distrust of Statistics

After the study of functions and importance of statistics, one may find that statistics is
indeed a very useful science. However, there are chances of its being misused by the
biased or the ignorant people. The use of statistics by such people is likely to give a
misleading interpretation of a given problem. This has created a feeling of distrust about
statistics amongst the common people. This feeling of distrust has been expressed by
different scholars as:
1. “There are three kinds of lies : lies, damned lies and statistics.”
2. “Statistics can prove anything.”

3. “Statistics is a rainbow of lies.”
4. “Statistics are like clay of which you can make God or Devil, as you please.”
All these statements reflect a feeling of distrust of statistics.
!
Caution Statistics is only a tool which could be used in right or wrong ways, as is obvious
from the statement that, “figures won’t lie but liars figure”.
Task Suggest suitable measures to restore trust in statistics.
Self Assessment

16. When data are classified according to only one characteristic, distributions are known as
univariate frequency distributions.
17. A frequency distribution obtained by the simultaneous classification of data according to
two characteristics, is known as a bivariate frequency distribution.
18. In a bivariate classification either or both the variable can be discrete or continuous.
Case Study Statistical Series

The classified data when arranged in some logical order, e.g., according to the size,
according to the time of occurrence or according to some other measurable or non-
measurable characteristics, is known as Statistical Series.
H. Secrist defined a statistical series as, “A series, as used statistically, may be defined as
things or attributes of things arranged according to some logical order.” Another definition
given by L. R. Connor as, “If the two variable quantities can be arranged side by side so
that the measurable differences in the one correspond to the measurable differences in the
other, the result is said to form a statistical series.”
Contd...

Notes A statistical series can be one of the following four types: (i) Spatial Series, (ii) Conditional
Series, (iii) Time Series and (iv) Qualitative or Quantitative Series
The series formed by the geographical or spatial classification is termed as spatial series.
Similarly, a series formed by the conditional classification is known as the conditional
series. The examples of such series are already given under their respective classification
category.
Time Series
A time series is the result of chronological classification of data. In this case, various
figures are arranged with reference to the time of their occurrence. For example, the data
on exports of India in various years is a time series.
Year : 1980 1981 1982 1983 1984 1985 1986 1987 1988
Exports (in cr.) : 6591 7242 8309 8810 9981 10427 11490 15741 20295
Qualitative or Quantitative Series
This type of series is obtained when the classification of data is done on the basis of
qualitative or quantitative characteristics. Accordingly, we can have two types of series,
namely, qualitative and quantitative series.
Qualitative Series:
In case of qualitative series, the number of items in each group are shown against that
group. These groups are either expressed in ascending order or in descending order of the
number of items in each group. The example of such a series is given below.
Distribution of Students of a College according to Sex
Sex Males Females Total

No . of Students 1700 500 2200
Quantitative Series
In case of quantitative series, the number of items possessing a particular value are shown
against that value.
A quantitative series can be of two types (1) Individual Series, and (2) Frequency distribution.
1. Individual series: In an individual series, the names of the individuals are written
against their corresponding values. For example, the list of employees of a firm and
their respective salary in a particular month.
2. Frequency Distribution: A table in which the frequencies and the associated values
of a variable are written side by side, is known as a frequency distribution. According
to Croxton and Cowden, “Frequency distribution is a statistical table which shows
the set of all distinct values of the variable arranged in order of magnitude, either
individually or in a group with their corresponding frequencies side by side .” A
frequency distribution can be discrete or continuous depending upon whether the
variable is discrete or continuous.
Questions :
1. What is meant by statistical series?
2. Differentiate between quantitative and qualitative series with an example of each.
3. Explore your knowledge for different types of statistical series.

2.5 Summary Notes
Classification of data on the basis of one, two or more factors is termed as a one-way, two-
way or multi-way classification, respectively.
Classified data, when arranged in some logical order such as, according to size or according
to time of occurrence or according to some other criterion, is known as statistical series.
A statistical series, in which data are arranged according to magnitude of one or more
characteristics, is known as a frequency distribution.
Data classified according to the magnitude of only one characteristic is known as uni-
variate frequency distribution.
Data classified, simultaneously, according to the magnitude of two or more characteristics

are known as bivariate or multivariate frequency distributions respectively.
When a characteristics is an attribute, the data can be classified into two or more classes
according to this attribute, known as dichotomous or manifold classification respectively.
When the data are simultaneously classified according to two or more attributes, the
classifications are two-way or multi-way respectively.
It is also possible to have a two-way or multi-way classification in which one or more

characteristics are variables while others are attributes.
The process of classification is facilitated by writing the classified data in tabular form.
Using tables, it is possible to write huge mass of data in a concise form. Further, it helps to
highlight essential features of the data and make it fit for further analysis.
2.6 Keywords
Bivariate frequency distributions: Data classified, simultaneously, according to the magnitude

of two characteristics are known as bivariate frequency distributions
Classification: Classification is the process of arranging things (either actually or notionally) in

the groups or classes according to the unity of attributes that may subsist amongst a diversity of
individuals.
Dichotomous classification: When a characteristic is an attribute, the data can be classified into
two classes according to this attribute, known as dichotomous classification.
Frequency distribution: A statistical series, in which data are arranged according to magnitude
of one or more characteristics, is known as a frequency distribution.
Manifold classification: When a characteristics is an attribute, the data can be classified into two
or more classes according to this attribute, known as dichotomous or manifold classification
respectively.
Multivariate frequency distributions: Data classified, simultaneously, according to the magnitude

of more than two characteristics are known as multivariate frequency distributions.
Statistical series: Classified data, when arranged in some logical order such as, according to size
or according to time of occurrence or according to some other criterion, is known as statistical
series.
Uni-variate frequency distribution: Data classified according to the magnitude of only one
characteristic is known as uni-variate frequency distribution.

Notes 2.7 Review Questions
1. What do you mean by Classification and Tabulation? Explain their importance in statistical
studies.
2. What are the different factors that should be kept in mind while classifying data?
3. Distinguish between classification and tabulation. Discuss the purpose and methods of
classification.
4. What are objects of classification of data? Discuss different methods of classification.
5. Discuss the purpose, methods and importance of tabulation in any statistical investigation.
Mention the types of tables generally used.
6. Distinguish between an ungrouped and a grouped frequency distribution. What are the
points that should be taken into consideration while determining the following:
(a) Number of Groups
(b) Magnitude of Class-Intervals
(c) Class Limits.
7. Twenty students of a class appeared in an examination. Their marks out of 50 are as under:
5, 6, 17, 17, 20, 21, 22, 22, 22, 25, 25, 26, 26, 30, 31, 31, 34, 35, 42, 48.
Prepare a classified table by taking class intervals of 10 each, according to exclusive and
inclusive methods.
8. Construct a frequency table for the following data by taking width of each class as 10. Use
inclusive method of classification.
30, 38, 43, 59, 82, 40, 45, 39, 83, 85, 72, 66, 45, 33, 53, 67, 70, 72, 52, 50, 43, 44, 60, 89, 67, 66, 78,
32, 56, 47, 65, 56, 38, 84, 64, 52, 43, 33, 31, 35, 38, 39, 40, 37, 52, 53, 60.
If these figures represent the age of persons approximated to the nearest whole number,
construct the class boundaries.
9. The number of children in 50 families of a locality are given below. Construct an appropriate
discrete frequency distribution.
2, 2, 2, 3, 2, 4, 5, 4, 6, 8, 3, 3, 1, 4, 3, 1, 3, 3, 2, 1, 3, 3, 2, 4, 3, 5, 4, 3, 3, 2, 2, 5, 2, 5, 3, 3, 3, 4, 3, 5,
4, 4, 2, 6, 3, 6, 3, 3, 7, 3.
10. Construct a frequency distribution of the marks obtained by 50 students in economics as

given below:
42, 53, 65, 63, 61, 47, 58, 60, 64, 45, 55, 57, 82, 42, 39, 51, 65, 55, 33, 70, 50, 52, 53, 45, 45, 25, 36,
59, 63, 39, 65, 30, 45, 35, 49, 15, 54, 48, 64, 26, 75, 20, 42, 40, 41, 55, 52, 46, 35, 18.
(Take the first class interval as 10 - 20)
11. The following figures give the ages, in years, of newly married husbands and their wives.
Represent the data by an appropriate frequency distribution.
Age of Husband : 24 26 27 25 28 24 27 28 25 26
Age of Wife : 17 18 19 17 10 18 18 19 18 19
Age of Husband : 25 26 27 25 27 26 25 26 26 26
Age of Wife : 17 18 19 19 20 19 17 20 17 18

12. "He who accepts statistics indiscriminately will often be duped unnecessarily. But he who Notes
distrusts statistics indiscriminately will often be ignorant unnecessarily. In fact, reliable
statistics are the lamps that light our path on the road of knowledge." Comment.
1. Analyze, interpret 2. definite
3. Classification 4. exhaustive
5. Non-overlapping 6. True
7. True 8. False
9. True 10. False

11. (b) 12. (b)
13. (c) 14. (c)
15. (a) 16. True
17. True 18. True
Books Bhardwaj R. S., Business Statistics, Excel Books.

Balwani Nitin, Quantitative Techniques, First Edition: 2002. Excel Books, New Delhi.

Hooda R.P., Statistics for Business and Economics, Macmillan India Delhi, 2008
Jaeger R.M (1983), Statistics: A Spectator Sport, Sage Publications India Pvt. Ltd.,
New Delhi.
Lindgren B.W (1975), Basic Ideas of Statistics, Macmillan Publishing Co. Inc.,
New York.
2002.
Selvaraj R., Loganathan C., Quantitative Methods in Management.

Notes
Online links http://cnx.org/content/m11061/latest

http://en.wikipedia.org/wiki/Business_statistics
http://en.wikipedia.org/wiki/Mathematical_statistics
http://www.mathsisfun.com/data

Unit 3: Tabulation
Unit 3: Tabulation Notes
CONTENTS
Objectives
Introduction
3.1 Objectives of Tabulation
3.1.1 Difference between Classification and Tabulation
3.1.2 Main Parts of a Table
3.2 Type of Tables
3.3 Methods of Tabulation
3.4 Summary
3.5 Keywords
Objectives
Define the term tabulation
Discuss the objectives of tabulation
Make a difference between classification and tabulation
List the main parts of a table
Describe various types of table
Focus on various methods of tabulation
Introduction
Tabulation is a systematic presentation of numerical data in rows and columns. Tabulation of

classified data make it more intelligible and fit for statistical analysis. According to Tuttle, “ A
statistical table is the logical listing of related quantitative data in vertical columns and horizontal
rows of numbers, with sufficient explanatory and qualifying words, phrases and statements in
the form of titles, headings and footnotes to make clear the full meaning of the data and their
origin.” The classified data presented in tabular form helps to bring out their essential features.
3.1 Objectives of Tabulation
The main objectives of tabulation are:
1. To simplify complex data.
2. To highlight chief characteristics of the data.
3. To clarify objective of investigation.

Notes 4. To present data in a minimum space.
5. To detect errors and omissions in the data.
6. To facilitate comparison of data.
7. To facilitate reference.
8. To identify trend and tendencies of the given data.
9. To facilitate statistical analysis.
3.1.1 Difference between Classification and Tabulation
The basic points of difference between classification and tabulation, inspite of the fact that these
are closely related, are as given below:
1. Classification of data is basis for tabulation because first the data are classified and then
tabulated.
2. By classification the data are divided into various groups and subgroups on the basis of
their similarities and dissimilarities while tabulation is a process of arranging the classified
data in rows and columns with suitable heads and subheads.
3.1.2 Main Parts of a Table
The main parts of a table are as given below:
1. Table Number: This number is helpful in the identification of a table. This is often indicated
at the top of the table.
2. Title: Each table should have a title to indicate the scope, nature of contents of the table in
an unambiguous and concise form.
3. Captions and stubs: A table is made up of rows and columns. Headings or subheadings
used to designate columns are called captions while those used to designate rows are
called stubs. A caption or a stub should be self explanatory. A provision of totals of each
row or column should always be made in every table by providing an additional column
or row respectively.
4. Main Body of the Table: This is the most important part of the table as it contains numerical
information. The size and shape of the main body should be planned in view of the nature
of figures and the objective of investigation. The arrangement of numerical data in main
body is done from top to bottom in columns and from left to right in rows.
5. Ruling and Spacing: Proper ruling and spacing is very important in the construction of a
table. Vertical lines are drawn to separate various columns with the exception of sides of
a table. Horizontal lines are normally not drawn in the body of a table, however, the totals
are always separated from the main body by horizontal lines. Further, the horizontal
lines are drawn at the top and the bottom of a table.
Spacing of various horizontal and vertical lines should be done depending on the available
space. Major and minor items should be given space according to their relative importance.
6. Head-note: A head-note is often given below the title of a table to indicate the units of
measurement of the data. This is often enclosed in brackets.
7. Foot note: Abbreviations, if any, used in the table or some other explanatory notes are
given just below the last horizontal line in the form of footnotes.

Unit 3: Tabulation
8. Source-Note: This note is often required when secondary data are being tabulated. This Notes
note indicates the source from where the information has been obtained. Source note is
also given as a footnote.
The main parts of a table can also be understood by looking at its broad structure given below:
Structure of a table
Table No : .............
Title : .....................
Foot Note:
Source:
Rules for Tabulation
The rules for tabulation of data can be divided into two broad categories: (i) Rules regarding
structure of a table, explained above, and (ii) General rules.
General Rules
1. The table should be simple and compact which is not overloaded with details.
2. Tabulation should be in accordance with the objective of investigation.
3. The unit of measurements must always be indicated in the table.
4. The captions and stubs must be arranged in a systematic manner so that it is easy to grasp
the table.
5. A table should be complete and self explanatory.
6. As far as possible the interpretative figures like totals, ratios and percentages must also be
provided in a table.
7. The entries in a table should be accurate.
8. Table should be attractive to draw the attention of readers.
Did u know? Classification is a process of statistical analysis while tabulation is a process

of presentation.

Notes
Task Give suitable example to differentiate amongst head note, footnote and
source note.
Self Assessment
Fill in the Blanks:
1. ............................ is a systematic presentation of numerical data in rows and columns.
2. According to.........................., “A statistical table is the logical listing of related quantitative

data in vertical columns and horizontal rows of numbers, with sufficient explanatory and
qualifying words, phrases and statements in the form of titles, headings and footnotes to
make clear the full meaning of the data and their origin.”
3. Classification is a process of statistical ........................ while tabulation is a process of

.............................
4. Headings or subheadings used to designate columns are called ......................... while those
used to designate rows are called .........................
5. A ..................................is often given below the title of a table to indicate the units of
measurement of the data.
6. Horizontal lines are normally .......................... in the body of a table.
7. The totals are always separated from the main body by ....................... lines.
8. Tabulation should be in accordance with the objective of .............................
9. A table should be complete and .............................
10. ...............................indicates the source from where the information has been obtained
3.2 Type of Tables
Statistical tables can be classified into various categories depending upon the basis of their
classification. Broadly speaking, the basis of classification can be any of the following:
1. Purpose of investigation
2. Nature of presented figures
3. Construction
Different types of tables, thus, obtained are shown in the following chart.
1. Classification on the basis of purpose of investigation: These tables are of two types viz.
(a) General purpose table and (b) Special purpose table.
(a) General purpose table: A general purpose table is also called as a reference table. This
table facilitates easy reference to the collected data. In the words of Croxton and
Cowden, “The primary and usually the sole purpose of a reference table is to present
the data in such a manner that the individual items may be readily found by a
reader.” A general purpose table is formed without any specific objective, but can be
used for a number of specific purposes. Such a table usually contains a large mass of
data and are generally given in the appendix of a report.

Unit 3: Tabulation
Classification of Different Types of Tables Notes
(b) Special purpose table: A special purpose table is also called a text table or a summary
table or an analytical table. Such a table presents data relating to a specific problem.
According to H. Secrist, “These tables are those in which are recorded, not the
detailed data which have been analysed, but rather the results of analysis .” Such
tables are usually of smaller size than the size of reference tables and are generally
found to highlight relationship between various characteristics or to facilitate their
comparisons.
2. Classification on the basis of the nature of presented figures: Tables, when classified on the
basis of the nature of presented figures can be (a) Primary table and (b) Derivative table.
(a) Primary Table: Primary table is also known as original table and it contains data in
the form in which it were originally collected.
(b) Derivative Table: A table which presents figures like totals, averages, percentages,
ratios, coefficients, etc., derived from original data.
A table of time series data is an original table but a table of trend values computed from
the time series data is known as a derivative table.
3. Classification on the basis of construction: Tables when classified on the basis of

construction can be (a) Simple table, (b) Complex table or (c) Cross-classified table.
(a) Simple Table: In this table the data are presented according to one characteristic only.
This is the simplest form of a table and is also known as table of first order. The
following blank table, for showing the number of workers in each shift of a company,
is an example of a simple table.
Simple Table
Table No. ........
I
II
III

Notes (b) Complex Table: A complex table is used to present data according to two or more
characteristics. Such a table can be two-way, three-way or multi-way, etc.
(i) Two-way table: Such a table presents data that is classified according to two
characteristics. In such a table the columns of a table are further divided into
sub-columns. The example of such a table is given below.
Complex Table
Table No. ........

Distribution of workers of a factory according to shifts and sex
No. of Workers
Shifts Total
Males Females
I
II
III
Total
(ii) Three-way table: When three characteristics of data are shown simultaneously,
we get a three-way table as shown below.
Three way table
Table No. ........

Distribution of workers of a factory according to shifts, sex and training
No. of Workers
Total No.
Shifts Males Females
Total Total of Workers
Skilled Unskilled Skilled Unskilled
II
III
(iii) Multi-way table: If each shift is further classified into three departments, say,
manufacturing, packing and transportation, we shall get a four-way table, etc.
(c) The Cross-Classified Table: Tables that classify entries in both directions, i.e., row-wise
and column-wise, are called cross-classified tables. The two ways of classification
are such that each category of one classification can occur with any category of the
other. The cross-classified tables can also be constructed for more than two
characteristics also.
A cross-classification can also be used for analytical purpose, e.g., it is possible to
make certain comparisons while keeping the effect of other factors as constant.
Example: Draw a blank table to show the population of a city according to age, sex and
unemployment in various years.

Unit 3: Tabulation
Solution: Notes
Table No. .......
Population of a city according to age, sex and unemployment in various years
2010
2011
Note: The table can be extended for the years 2012, 2013….., etc.
Example: In a sample study about coffee habit in two towns; the following information
were received:
Town A: Females were 40%; total coffee drinkers were 45%; and male non-coffee drinkers
were 20%.
Town B: Males were 55%; male non-coffee drinkers were 30%; and female coffee drinkers
were 15%.
Represent the above data in a tabular form.
Solution:
Table No. ......
Distribution of population, according to sex and coffee habit, in two towns
Note: The figures are in percentage.
Example: Prepare a blank table for showing the percentage of votes polled by various
political parties in India according to states, during 2010 general elections.

Notes Solution:
Table No. ......
Percentage distribution of votes polled by political parties according to States in India during
the 2010 general elections
Self Assessment
11. A general purpose table is also called as a preference table
12. A general purpose table is formed without any specific objective, but can be used for a
number of specific purposes.
13. A special purpose table is also called a text table or a summary table or an analytical table.
14. According to H. Secrist, “These tables are those in which are recorded, not the detailed
data which have been analysed, but rather the results of analysis.”
15. Primary table is also known as original table.
16. A table which presents figures like totals, averages, percentages, ratios, coefficients, etc.,
derived from original data are called derivative table.
17. Simple form of a table is also known as table of first order.
18. A complex table is used to present data according to two or more characteristics. Such a
table can be two-way, three-way or multi-way, etc.
3.3 Methods of Tabulation
Tabulation of the collected data can be done in two ways: (i) By Manual Method, and (ii) By
Mechanical Method.
1. Manual Method: When field of investigation is not too large and the number of
characteristics are few, the work of tabulation can be done by hand.
2. Mechanical Method: This method is used when the data are very large. The use of machines
save considerable amount of labour and time. With the development of high speed
computers, the work of tabulation and analysis of data can be done very quickly and with
greater accuracy.

Unit 3: Tabulation
Notes
Tasks
1. Prepare a blank table to represent the students of a college according to:
(a) Percentage of marks obtained in an annual examination by taking class

intervals 0 - 10, 10 - 20, ....., etc.
(b) Sex-wise: males and females.
(c) Faculty-wise: science, arts and commerce
2. Construct a blank table to represent two different dates and in five industries, the
average wages of the four groups, males, females, eighteen years and over and
under eighteen years. Suggest a suitable title.
!
Caution Analyze the field of investigation very carefully; only after decide for selecting
manual or mechanical method of tabulation.
Notes Statistical Investigation

The search for knowledge, done by analysing numerical facts, is known as a statistical
investigation.
A statistical investigation is a process of collection and analysis of data. The relevance and
accuracy of data obtained in an investigation depends directly upon the care with which it
is planned. A properly planned investigation can give the best results with least cost and
time. The investigation of the levels of living of the inhabitants of a particular area, the
investigation of relationship between rainfall and the yield of a crop, etc., are some examples
of statistical investigation.
A statistical investigation can be done by collecting numeral facts or data through the
conduct of statistical surveys. The collected data are then analysed to get the results. Any
process of statistical investigation can be divided into the following two broad categories:
1. Planning of a Statistical Investigation
2. Execution of a Statistical Investigation
Self Assessment
Multiple Choice Questions
19. When field of investigation is not too large and the number of characteristics are few then
we use ..................... method of investigation.
(a) Manual (b) Semi manual
(c) Mechanical (d) Automatic
20. ............................ method is used when the data are very large.
(a) Manual (b) Semi manual
(c) Mechanical (d) Automatic

Notes
Case Study Tabulation?
A
survey of 370 students from the Commerce Faculty and 130 students from the
Science Faculty revealed that 180 students were studying for only C.A.
examinations, 140 for only Costing examinations and 80 for both C.A. and Costing
examinations. The rest had offered part-time Management courses. Of those studying
Costing only, 13 were girls and 90 boys belonged to the Commerce Faculty. Out of
80 students studying for both C.A. and Costing, 72 were from the Commerce Faculty
amongst which 70 were boys. Amongst those who offered part-time Management courses,
50 boys were from the Science Faculty and 30 boys and 10 girls from the Commerce
faculty. In all there were 110 boys in the Science Faculty.
Question
Present the above information in a tabular form. Find the number of students from the
Science Faculty studying for part-time Management courses.
3.4 Summary
Classification and tabulation of data are necessary to understand its broad features and to
make it fit for statistical analysis.
A table is made up of rows and columns.
Various headings and subheadings used to designate columns and rows of a table are
known as captions and stubs respectively
A table can be of general or special purpose.
If it represents original data, it is called a primary table otherwise it is called a derivative

table.
A table can be simple, complex, cross-classified; one, two or multi-way, etc
3.5 Keywords
Classification: Classification is a process of statistical analysis while tabulation is a process of
presentation.
Complex Table: A complex table is used to present data according to two or more characteristics.
Such a table can be two-way, three-way or multi-way, etc.
Cross-Classified Table: Tables that classify entries in both directions, i.e., row-wise and column-
wise, are called cross-classified tables
Derivative Table: A table which presents figures like totals, averages, percentages, ratios,
coefficients, etc., derived from original data.
Foot note: Abbreviations, if any, used in the table or some other explanatory notes are given just
below the last horizontal line in the form of footnotes.
General purpose table: A general purpose table is also called as a reference table. This table
facilitates easy reference to the collected data.
Manual Method: When field of investigation is not too large and the number of characteristics
are few, the work of tabulation can be done by hand.

Unit 3: Tabulation
Mechanical Method: This method is used when the data are very large. The use of machines save Notes
considerable amount of labour and time
Primary Table: Primary table is also known as original table and it contains data in the form in
which it were originally collected.
Simple Table: In this table the data are presented according to one characteristic only. This is the
simplest form of a table and is also known as table of first order.
Source-Note: This note is often required when secondary data are being tabulated. This note
indicates the source from where the information has been obtained. Source note is also given as
a footnote.
Special purpose table: A special purpose table is also called a text table or a summary table or an
analytical table. Such a table presents data relating to a specific problem.
Statistical table: A statistical table is the logical listing of related quantitative data in vertical
columns and horizontal rows of numbers, with sufficient explanatory and qualifying words,
phrases and statements in the form of titles, headings and footnotes to make clear the full
meaning of the data and their origin.
Tabulation: Tabulation is a systematic presentation of numerical data in rows and columns

1. Define the term tabulation.
2. What is the difference between tabulation and classification?
3. What is the need for tabulation?
4. What are the various parts of table?
5. What is the difference between primary table and derivative table?
6. What is the difference between footnote and source note?
7. What is the difference between simple and complex table?
8. What is the difference between manual and mechanical method of tabulation?
9. Tabulate the following information:
In a trip organized by a college, there were 80 persons each of whom paid 15.50 on an
average. There were 60 students, each of whom paid 16. Members of the teaching staff
were charged at a higher rate. The number of servants was 6, all males and they were not
charged anything. The number of ladies was 20% of the total of which one was a lady staff
member.
10. There were 850 union and 300 non union workers in a factory in 2009. Of these, 250 were
females out of which 100 were non union workers. The number of union workers increased
by 50 in 2010 out of which 40 were males. Of the 350 non union workers, 125 were females.
In 2011, there were 1,000 workers in all and out of 400 non union workers there were only
100 females. There were only 400 male workers in the union.
Present the above information in a tabular form.
11. A super market divided into five main sections; grocery, vegetables, medicines, textiles
and novelties, recorded the following sales in 2009, 2010 and 2011:
In 2009 the sales in groceries, vegetables, medicines and novelties were 6,25,000,
2,20,000, 1,88,000 and 94,000 respectively. Textiles accounted for 30% of the total sales
during the year.

Notes In 2010 the total sales showed 10% increase over the previous year while grocery and
vegetables registered 8% and 10% increase over the corresponding previous year, medicines
dropped by 13,000 and textiles increased by 53,000 over their corresponding figure of
1985.
In 2011, though total sales remained the same as in 1986, grocery fell by 22,000, vegetables
by 32,000, medicines by 10,000 and novelties by 12,000. Tabulate the above data.
1. Tabulation 2. Tuttle
3. analysis, presentation 4. captions, stubs
5. head-note 6. not drawn

7. horizontal 8. investigation.
9. self explanatory 10. Source note
11. False 12. True
13. True 14. True
15. True 16. True
17. True 18. True
19. manual 20. Mechanical


New Delhi.
New York.
2002.

Unit 3: Tabulation
Walker H.M. and J. Lev, (1965), Elementary Statistical Methods, Oxford & IBH Notes
Online links http://www.publishyourarticles.org/knowledge-hub/statistics/

tabulation.html
http://www.emathzone.com/tutorials/basic-statistics/tabulation-of-
data.html
http://www.jstor.org/pss/2276664
http://wiki.answers.com/Q/
What_do_you_understand_by_tabulation_in_statistics_for_management_subject
http://www.mathsisfun.com/data/frequency-distribution.html
http://www.mathsisfun.com/data/relative-frequency.html

Notes Unit 4: Presentation of Data
CONTENTS
Objectives
Introduction
4.1 Diagrammatic Presentation
4.1.1 Advantages
4.1.2 Limitations
4.1.3 General Rules for Making Diagrams
4.1.4 Choice of a Suitable Diagram
4.2 Bar Diagrams
4.3 Circular or Pie Diagrams
4.4 Pictogram and Cartogram (Map Diagram)
4.5 Summary
4.6 Keywords
Objectives
Discuss utility and advantages of diagrammatic presentation
Write the limitations of diagrammatic presentation
State the relevance of General Rules for making diagrams

Explain the concept of bar diagrams and focus on its types
Tell about pie diagrams, pictograms and cartograms
Introduction
An important function of statistics is the presentation of complex mass of data in a simple way
so that it becomes easier to understand. Classification and tabulation are the techniques that
help in presenting the data in an intelligible form. But with increase in volume of data, it
becomes more and more inconvenient to understand even after its classification and tabulation.
4.1 Diagrammatic Presentation
To understand various trends of the data at a glance and to facilitate the comparison of various
situations, the data are presented in the form of diagrams and graphs.

Unit 4: Presentation of Data
4.1.1 Advantages Notes
Data presented in the form of diagrams are useful as well as advantageous in many ways, as is
obvious from the following:
1. Diagrams are attractive and impressive: Data presented in the form of diagrams are able
to attract the attention of even a common man. It may be difficult for a common man to
understand and remember the data presented in the form of figures but diagrams create a
lasting impression upon his mind. Due to their attractive and impressive character, the
diagrams are very frequently used by various newspapers and magazines for the
explanation of certain phenomena. Diagrams are also useful in modern advertising
campaign.
2. Diagrams simplify data: Diagrams are used to represent a huge mass of complex data in
simplified and intelligible form which is easy to understand.
3. Diagrams give more information: In addition to the depiction of the characteristics of data,
the diagrams may bring out other hidden facts and relations which are not possible to
know from the classified and tabulated data.
4. Diagrams save time and labour: A lot of time is required to study the trend and significance
of voluminous data. The same data, when presented in the form of diagrams, can be
understood in practically no time.
5. Diagrams are useful in making comparisons: Many a times the objective of the investigation
is to compare two or more situations either with respect to time or places. The task of
comparison can be very conventionally done by the use of diagrams.
6. Diagrams have universal applicability: Diagrams are used in almost in every field of
study like economics, business, administration, social institutions and other fields.
4.1.2 Limitations
Inspite of the above advantages of diagrams, their usefulness is somewhat limited. One has to be
very careful while drawing conclusions from diagrams. Their main limitations are:
1. Diagrams give only a vague idea of the problem which may be useful for a common man
but not for an expert who wishes to have an exact idea of the problem.
2. Diagrams can at best be a supplement to the tabular presentation but not an alternative
to it.
3. The information given by the diagrams vis-a-vis classification and tabulation is limited.
4. The level of precision of values indicated by diagrams is very low.
5. Diagrams are helpful only when comparisons are desired. They don’t lead to any further
analysis of data.
6. Diagrams can portray only limited number of characteristics. Larger the number of
characteristics the more difficult it is to understand them using diagrams..
7. Diagrams are liable to be misused for presenting an illusory picture of the problem.
8. Diagrams don’t give a meaningful look when different measurements have wide variations.
9. Diagrams drawn on a false base lines should be analysed very carefully.

Notes 4.1.3 General Rules for Making Diagrams
A diagrammatic presentation is a simple and effective method of presenting the information

contained in statistical data. The construction of a diagram is an art, which can be acquired only
through practice. However, the following rules should be observed, in their construction, to
make them more effective and useful.
1. Appropriate title and footnote: Every diagram must have a suitable title written at its top.
The title should be able to convey the subject matter in brief and unambiguous manner.
The details about the title, if necessary, should be provided below the diagram in the form
of a footnote.
2. Attractive presentation: A diagram should be constructed in such a way that it has an

immediate impact on the viewer. It should be neatly drawn and an appropriate proportion
should be maintained between its length and breadth. The size of the diagram should
neither be too big nor too small. Different aspects of the problem may be emphasised by
using various shades or colours.
3. Accuracy: Diagrams should be drawn accurately by using proper scales of measurements.

Accuracy should not be compromised to attractiveness.
4. Selection of an appropriate diagram: There are various types of geometrical figures and
pictures which can be used to present statistical data.
5. Index: When a diagram depicts various characteristics distinguished by various shades

and colours, an index explaining these should be given for clear identification and
understanding.
6. Source-Note: As in case of tabular presentation, the source of data must also be indicated
if the data have been acquired from some secondary source.
7. Simplicity: As far as possible, the constructed diagram should be simple so that even a
layman can understand it without any difficulty
4.1.4 Choice of a Suitable Diagram
Diagrammatic presentation of data can be done in various ways. The choice of a suitable diagram
is a practical problem and should be done in the light of the following considerations:
1. The nature of data
2. Purpose of the diagram
3. The calibre of the persons to whom the information is to be communicated.
The choice of a suitable diagram depends upon the nature of the given data. It may be recalled
that two or three-dimensional diagrams are more appropriate if there are large variations in the
magnitudes of observations. Many a times, the purpose of drawing a diagram may also give a
clue to its choice. For example, if it is desired to indicate the comparison of values relating to
different situations, bar diagrams will be most suitable. Further, if one wishes to indicate various
components of a characteristics, sub-divided bar diagrams can be used. The relative importance
of various components can be shown by using percentage sub-divided bar diagram. When the
number of components become very large, i.e., more than three or four, circular diagrams are
preferred because bar diagrams look more crowded. If the statistical data consists of a series of
observations with different components for each observation, percentage sub-divided bar
diagrams are more suitable than the circular diagrams.

Before the choice of a suitable diagram, it is very necessary to know the level of education of the Notes
person for whom the diagram is to be suitable. Further, if the data are related to different
geographical areas, the cartograms may be the most appropriate drawn. For persons with little
knowledge of statistics, the pictograms or cartograms may be more choice.
!
Caution The selection of an appropriate diagram should be carefully done keeping in view
the nature of data and objective of investigation.
Self Assessment
Fill in the blanks:

1. Classification and tabulation are the techniques that help in presenting the data in an
............................... form.
2. Diagrams are attractive and ..............................
3. Diagrams ........................ data
4. Diagrams are useful in making ........................
5. Diagrams are liable to be misused for presenting ......................... picture of the problem.
6. A ........................................ is a simple and effective method of presenting the information
contained in statistical data.
7. The construction of a diagram is an ............................. , which can be acquired only through
practice.
8. The choice of a suitable diagram depends upon the ....................... of the given data.
4.2 Bar Diagrams

One-dimensional diagrams are also known as bar diagrams. In case of one-dimensional diagrams,
the magnitude of the characteristics is shown by the length or height of the bar. The width of a
bar is chosen arbitrarily so that the constructed diagram looks more elegant and attractive. It
also depends upon the number of bars to be accommodated in the diagrams. If large number of
items are to be included in the diagram, lines may also be used instead of bars. Different types
of bar diagrams are:
1. Line Diagram
2. Simple Bar Diagram
3. Multiple Bar Diagram
4. Sub-divided or Component Bar Diagram
5. Percentage Sub-divided Bar Diagram
6. Deviation Bar Diagram
7. Duo-directional Bar Diagram
8. Sliding Bar Diagram
9. Pyramid Diagram
10. Broken-Scale Bar Diagram
11. Histogram

Notes 12. Frequency Polygon

13. Frequency Curve
14. 'Ogive' or Cumulative Frequency Curve
1. Line Diagram: In case of a line diagram, different values are represented by the length of
the lines, drawn vertically or horizontally. The gap between the successive lines is kept
uniform. The comparison of values of various items is done by the length of these lines.
Although the comparison is easy, the diagram is not very attractive. This diagram is used
when the number of items is relatively large.
Example: The income of 12 workers on a particular day was recorded as given below.
Represent the data by a line diagram.
S. No. of workers : 1 2 3 4 5 6 7 8 9 10 11 12
Income ( in ) : 25 35 30 45 50 55 40 50 60 55 40 35
Solution.
Line Diagram of income of 12 workers
2. Simple Bar Diagram: In case of a simple bar diagram, the vertical or horizontal bars, with
height proportional to the value of the item, are constructed. The width of a bar is chosen
arbitrarily and is kept constant for every bar. Different bars are drawn so that the gap
between the successive bars is same. Bar diagrams are particularly suitable for presenting
individual series, such as time and spatial series.
Example: Represent the following data by a suitable diagram.

Years : 2006 2007 2008 2009 2010
C. F. A Enrolments : 7300 9400 12100 14600 16700
Solution:
Simple Bar Diagram
2006 2007 2008 2009 2010

3. Multiple Bar Diagram: This type of diagram, also known as compound bar diagram, is Notes
used when comparisons are to be shown between two or more sets of data. A set of bars for
a period or a related phenomena are drawn side by side without gaps while various sets
of bars are separated by some arbitrarily chosen constant gap. Different bars are
distinguished by different shades or colours. In order that various bars are comparable, it
is necessary to draw them on the same scale.
Example: The following table gives the figures of Indo-US trade during 2007 to 2010. The
figures of Indian exports and imports are in $ billion.
Year : 2007 2008 2009 2010

Export : 2.529 2.952 3.314 3.191
Import : 1.460 2. 484 2.463 2. 486
Present the above data by a suitable diagram.
Solution:
Multiple Bar Diagram of INDO-US Trade (2007-2010)
2007 2008 2009 2010
Source: U.S. Department of Commerce
4. Sub-divided or Component Bar Diagram: In case of a sub-divided bar diagram, the bar
corresponding to each phenomenon is divided into various components. The portion of
the bar occupied by each component denotes its share in the total. For example, the bar
corresponding to the number of students in a course can be sub-divided into boys and
girls. The subdivisions of different bars should always be done in the same order and they
should be distinguished from each other by using different colours or shades.
Sub-divided bar diagram is useful when it is desired to represent the comparative values
of different components of a phenomenon. The main limitation of this diagram is that
since various components are not drawn on a common base, they are difficult to compare.
This diagram is used only if there are few components of a phenomenon.

Notes Multiple Bar Diagram of the Faculty-wise distribution of students
5. Percentage Sub-Divided Bar Diagram: A sub-divided diagram is used to show absolute

magnitudes of various components. These magnitudes can be changed into relative by
converting them as a percentage of the total. The length of each bar is taken as 100 and
length of each component is denoted by its percentage value. As before the different
components are distinguished from each other by different type of shades or colours.
Example: The following table gives the debt position of Central Government as the
amount ( Crores) outstanding at the end of March 31 of each year. Represent the data by a
percentage sub-divided bar diagram.
Years : 2007 - 08 2008 - 09 2009 - 10 2010 - 11
InternalDebt : 58537 71039 86313 98646
External Debt : 16637 18153 20299 23223
Other Liabilities : 38267 48422 59934 73692
Total : 113441 137614 166546 195561
Solution: The amounts are given in absolute terms, therefore, these are to be converted into
percentages in order to show them on a percentage sub-divided bar diagram.
Years : 2007 - 08 2008 - 09 2009 - 10 2010 - 11
Internal Debt : 51 52 52 50
External Debt : 15 13 12 12
OtherLiabilities : 34 35 36 38
Total : 100 100 100 100
Percentage Sub-divided Bar Diagram
2007-08 2008-09 2009-10 2010-11 (Years)

6. Deviation Bar Diagram: This diagram represents net quantities like profit and loss, positive Notes
and negative balance of trade, surplus and deficit, etc. Positive quantities are shown above
X-axis and negative quantities are shown below it.
Example: Represent the following data by a suitable diagram.
Net Profit/Loss of Indian Airlines
Year Profit/Loss(in Crores) Year Profit/Loss(in Crores)

2003 - 04 163 . 1 2007 - 08 (–) 15 . 2
2004 - 05 204 . 3 2008 - 09 (–) 64 . 6
2005 - 06 206 . 0 2009 - 10 (–) 211 . 0
2006 - 07 252 . 2
Deviation Bar Diagram
07-08 08-09 09-10

03-04 04-05 05-06 06-07
7. Duo-Directional Bar Diagram: This diagram is used to show an aggregate of two

components. One of the components is shown above X-axis and the other below it. Both
the components added together give total value.
Example: Represent the following data by a Duo-directional bar diagram.
Total Income of a Manufacturing Net Income

Years Manufacturer (in '000) Expenses (in '000) (in '000)
2005 25 10 15
2006 28 15 13
2007 30 15 15
2008 27 16 11
2009 29 17 12
2010 28 18 10

Notes Duo-Directional Bar Diagram
2008 2010
2006 2009
2005 2007
8. Sliding Bar Diagram: Sliding bar diagrams are similar to duo-directional bar diagrams.
Whereas absolute values are shown by duo-directional bar diagrams, the percentage is
shown using sliding bar diagrams. The length of each sliding bar is same, which represents
100%. The bars can be drawn horizontally or vertically.
Example: Represent the following data by a sliding bar diagram.

Result of a college in various courses
Pass Fail
(Percentage) (Percentage)
1. B. A. (Pass) 70 30
2. B. A. (Hons. ) 80 20
3. B. Com. 90 10
4. B. Sc. (Gen. ) 85 15
5. B. Sc. (Hons. ) 95 5
Sliding Bar Diagram

9. Pyramid Diagram: This diagram is used to represent the distribution of population Notes
according to sex, age, occupation, education, etc. The bars are drawn adjacently one above
the other so as to look like a pyramid, as shown in the diagram.
Example: Given below are the figures of enrolment in a college during 2005-2010.
Represent the data with the help of a suitable diagram.
Years : 2005 2006 2007 2008 2009 2010

Male Students : 800 850 1120 1300 1360 1600
Female Students : 400 450 480 500 540 600
Total : 1200 1300 1600 1800 1900 2200
Sex-wise Distribution of Students of a College
2005
2006
2007
2008
2009
2010
10. Broken-Scale Bar Diagram: When there are one or more figures of unusually high
magnitude while the majority of the figures are of low magnitude, the diagrammatic
representation is done by using a broken scale as shown in the following example.
Example: Represent the following data by a suitable diagram :
:
: 10 12 15 80 90
( ' 000)
Bar Diagram Representing Profits of five Firms

Notes
Task “Diagrams do not add anything to the meaning of statistics but when drawn and
studied intelligently they bring to view the salient characteristics of groups and series”.
Justify it.
Did u know? A sub-divided or percentage sub-divided bar diagram is also known as a

stacked bar diagram.
11. Histogram: A histogram is a graph of a frequency distribution in which the class intervals
are plotted on X- axis and their respective frequencies on Y- axis. On each class, a rectangle
is erected with its height proportional to the frequency density of the class.
(a) Construction of a Histogram when Class Intervals are equal: In this case the height of each
rectangle is taken to be equal to the frequency of the corresponding class. The
construction of such a histogram is illustrated by the following example.
Example: The frequency distribution of marks obtained by 60 students of a class in a

college is given below :
Marks : 30 - 34 35 - 39 40 - 44 45 - 49 50 - 54 55 - 59 60 - 64
No. of Students : 3 5 12 18 14 6 2
Draw a histogram for the distribution.
Solution: Since the upper limit of a class is not equal to the lower limit of its following class, the
class boundaries will have to be determined. The distribution after adjustment will be as given
below.
Table
Marks No. of Students

29. 5 - 34. 5 3
34.5 - 39. 5 5
39.5 - 44. 5 12
44.5 - 49.5 18
49. 5 - 54. 5 14
54.5 - 59. 5 6
59. 5 - 64.5 2
Histogram
20
No. of Students
15
10
0
29.5 39.5 49.5 59.5 Marks

(b) Construction of a Histogram when Class Intervals are not equal: When different classes of Notes
a frequency distribution are not equal, the frequency density (frequency width) of
each class is computed. The product of frequency density and the width of the class
having shortest interval is taken as the height of the corresponding rectangle.
Example: Represent the following frequency distribution by a histogram.

Class Intervals : 0-10 10-15 15-30 30-40 40-60 60-80 80-90 90-100
Frequency : 8 10 36 44 52 20 16 10
Solution: The height of the rectangle = Frequency Density × Shortest Class Width
Class Intervals Frequency Frequency Density (f.d.) Height of the rectangle = f.d.×5
0-10 8 0.8 4.0
10-15 10 2.0 10.0
15-30 36 2.4 12.0
30-40 44 4.4 22.0
40-60 52 2.6 13.0
60-80 20 1.0 5.0
80-90 16 1.6 8.0
90-100 10 1.0 5.0
Histogram
Note: If the mid points of various classes are given in place of class intervals then these must first be
converted into classes.
12. Frequency Polygon: A frequency polygon is another method of representing a frequency

distribution on a graph. Frequency polygons are more suitable than histograms whenever
two or more frequency distributions are to be compared.
A frequency polygon is drawn by joining the mid-points of the upper widths of adjacent
rectangles, of the histogram of the data, with straight lines. Two hypothetical class intervals,
one in the beginning and the other in the end, are created. The ends of the polygon are
extended upto base line by joining them with the mid-points of hypothetical classes. This
step is necessary for making area under the polygon to be approximately equal to the area
under the histogram. Frequency polygon can also be constructed without making rectangles.
The points of frequency polygon are obtained by plotting mid-points of classes against
the heights of various rectangles, which will be equal to the frequencies if all the classes
are of equal width.

Notes
Example: The daily profits (in rupees) of 100 shops are distributed as follows :
Profit/Shop: 0-100 100-200 200-300 300-400 400-500 500-600
No. of Shops: 12 18 27 20 17 6
Construct a frequency polygon of the above distribution.
Solution:
Frequency Polygon
Example: Represent the following data by a frequency polygon.

Classes: 5-15 15-25 25-35 35-45 45-55 55-65 65-75
Frequency: 10 16 18 15 12 5 2
Solution: Here the frequency polygon is drawn by plotting mid-points of class intervals against
their respective frequencies.
Frequency Polygon
13. Frequency curve: When the vertices of a frequency polygon are joined by a smooth curve,
the resulting figure is known as a frequency curve. As the number of observations increases,
there is need of having more and more classes to accommodate them and hence the width
of each class will become smaller and smaller. In such a situation the variable under
consideration tend to become continuous and the frequency polygon of the data tends to
acquire the shape of a frequency curve. Thus, a frequency curve may be regarded as a
limiting form of frequency polygon as the number of observations become large.

The construction of a frequency curve should be done very carefully by avoiding, as far as Notes
possible, the sharp and sudden turns. Smoothing should be done so that the area under the
curve is approximately equal to the area under the histogram.
A frequency curve can be used for estimating the rate of increase or decrease of the
frequency at a given point. It can also be used to determine the frequency of a value (or of
values in an interval) of the variable. This method of determining frequencies is popularly
known as interpolation method.
14. Cumulative Frequency Curve or Ogive: The curve obtained by representing a cumulative
frequency distribution on a graph is known as cumulative frequency curve or ogive. Since
a cumulative frequency distribution can of ‘less than’ or ‘greater than’ type and, accordingly,
there are two type of ogive, ‘less than ogive’ and ‘more than ogive’.
An ogive is used to determine certain positional averages like median, quartiles, deciles,
percentiles, etc. We can also determine the percentage of cases lying between certain
limits. Various frequency distributions can be compared on the basis of their ogives.
Example: Draw ‘less than’ and ‘more than’ ogives for the following distribution of
monthly salary of 250 families of a certain locality.
Income Intervals : 0-500 500-1000 1000-1500 1500-2000

No. of Families : 50 80 40 25
Income Intervals : 2000-2500 2500-3000 3000-3500 3500-4000

No.of Families : 25 15 10 5
Solution: First we construct ‘less than’ and ‘more than’ type cumulative frequency distributions.
Income Cumulative Income Cumulative

less than Frequency more than Frequency
500 50 0 250
1000 130 500 200
1500 170 1000 120
2000 195 1500 80
2500 220 2000 55
3000 235 2500 30
3500 245 3000 15
4000 250 3500 5
Ogive
We note that the two ogives intersect at the median.


9. One-dimensional diagrams are also known as bar diagrams.
10. In case of one-dimensional diagrams, the magnitude of the characteristics is shown by the
length or height of the bar.
11. Sub-divided bar diagram is useful when it is desired to represent the comparative values
of different components of a phenomenon.
12. Duo-Directional Bar Diagram is used to show an aggregate of two components.
13. Pyramid Diagram is used to represent the distribution of population according to sex, age,
occupation, education, etc.
4.3 Circular or Pie Diagrams
In the above example, one can also draw circles in place of squares. The radius of the circle is
given by A , where A denotes area of the circle whose value is given by the value of an
r=
item.
Year : 1994 1998 2002 2006 2010

India©sExports (X)
: 1823 4970 6591 9981 20295
(in crores)
Radius ( X+ ) : 24.1 39.8 45.8 56.4 80.4
Pie Diagram
1994 1998 2002 2006 2010
In order to show proportions of various components, a circle can also be partitioned into sections
in a similar manner as in component bar diagrams. Since there are 360º at the centre of a circle,
these are divided in proportions to the magnitude of values of different items. The diagram,
thus obtained is known as Angular Sector Diagram or more popularly as Pie Diagram. The
construction of a pie diagram is explained by the following example:
Example: Show the following data of expenditure of an average working class family by
a suitable diagram.
Item of Expenditure Percent of Total Expenditure

( i ) Food 65
( ii ) Clothing 10
( iii ) Housing 12
( iv ) Fuel and Lighting 5
( v ) Miscellaneous 8

Notes
65 
(i) x 360 = 234
100
10 
(ii) x 360 = 36
100
12 
(iii) x 360 = 43.2
100
5 
(iv) x 360 = 18
100
8 
(v) x 360 = 28.8
100
The angles of different sectors are calculated as shown below:
Pie Chart
Self Assessment
14. In order to show ............................. of various components, a circle can also be partitioned
into sections in a similar manner as in component bar diagrams.
(a) Ratios (b) Proportions
(c) Properties (d) Amount
15. Since there are ................................. at the centre of a circle, these are divided in proportions
to the magnitude of values of different items. The diagram, thus obtained is known as Pie
Diagram.
(a) 90º (b) 180º
(c) 270º (d) 360º
16. Angular Sector Diagram is more popularly known as ..............................
(a) Pie diagram (b) Bar diagram
(c) Histogram (d) Pyramid Diagram

Notes 4.4 Pictogram and Cartogram (Map Diagram)
When numerical figures are represented by pictures, we get pictogram. Although such diagrams
are very attractive and easier to understand, they are difficult to be drawn by everybody. The
following pictogram represents the number of students in a college during the four academic
sessions.
Academic Sessions : 2007-08 2008-09 2009-10 2010-11

No. of Students : 1625 2000 2250 3000
Pictogram
No. of Students in a College
2007-08 Scale: = 500 students
2008-09
2009-10
2010-11
Cartogram
Banking in India
A Statewise Survey for a particular year

Cartograms are used to represent data relating to a particular country or to a geographical area. Notes
Such a diagram can be used to represent various types of characteristics like density of population,
yield of a crop, amount of rainfall, etc. The following diagram shows the per capita bank
deposits, credits and the number of persons per bank in different states and union territories of
India in a particular year.
Notes Graphic Presentation

Graphic presentation is another way of pictorial presentation of the data. Graphs are
commonly used for presentation of time series and frequency distributions. In situations
where the diagrams as well as the graphs can be used, the later is preferred because of its
advantages over the former. Graphic presentation of data, like diagrammatic presentation,
also provides a quick and easier way of understanding various trends of data and to
facilitate the process of comparison of two more situations. In addition to this, it can also
be used as a tool of analysis. Graphic methods are sometimes used in place of mathematical
computations to save time and labour, e.g., free hand curves may be fitted in place of
mathematical curve to determine trend values.
Self Assessment
17. When numerical figures are represented by pictures, we get pictogram.
18. Cartograms are used to represent data relating to a particular country or to a geographical
area.
Case Study ASSOCHAM
A
ssociated Chamber of Commerce and Industry (ASSOCHAM) is very much
concerned about the employment of youths and their pay rolls in small
engineering industries, with special reference to automobile parts manufacturing,
transport for hire, taxis, dealers of new and old vehicles, petrol stations and automobile
repair garages. The chamber has employed you to collect the data regarding employment
and pay role as on 31st March, 2000 and present it suitably through diagram so that it can
be include in the final memorandum to be submitted to Minister for Industries. The data
that you have collected is as follows:
Industry Employment Avg. Earnings per

on 31-3-2000 employee per year
( )
1. Automobile parts manufacturers 4,34,856 56,540
2. Transport for hire 15,26,897 26,348
3. Taxis 11,32,560 42,685
4. Dealers of new and used vehicles 1,09,805 13,684
5. Retail filling stations 22,25,960 15,008
6. Automobile repair garages 12,35,200 12,048
Present the data using a suitable diagram(s) so as to bring out the finer points.

Notes 4.5 Summary
The diagrammatic presentation of data provides a quick and an easier way to understand
the broad nature and trends of the given data.
Diagrams are capable of being understood easily even by a common man. In addition to
this, they facilitate the process of comparison of data in two or more situations.
While using diagrams, their limitations must always be kept in mind.
Diagrams give only a vague idea of the problem and therefore, cannot be used as a
substitute for classification and tabulation.
The diagrams can portray only a limited number of characteristics and are no longer
useful when the number of characteristics become large.
The main limitation of the diagrams being that these cannot be used as a tool of analysis.
Various types of diagrams can be divided into five broad categories, viz. one-dimensional,
two-dimensional, three-dimensional, pictograms and cartograms.
Some important one-dimensional diagrams are line diagram, bar diagram, multiple bar
diagram, component bar diagram, etc.
Rectangular, square and circular diagrams are examples of two-dimensional diagrams.
Cubes sphere and cylinder, etc., are three-dimensional diagrams.
The diagrams can also be constructed by using relevant pictures or maps.
4.6 Keywords
Bar diagrams: One-dimensional diagrams are also known as bar diagrams.

Broken-Scale Bar Diagram: When there are one or more figures of unusually high magnitude
while the majority of the figures are of low magnitude, the diagrammatic representation is done
by using a broken scale.
Cartograms: Cartograms are used to represent data relating to a particular country or to a
geographical area. Such a diagram can be used to represent various types of characteristics like
density of population, yield of a crop, amount of rainfall, etc.
Deviation Bar Diagram: This diagram represents net quantities like profit and loss, positive and
negative balance of trade, surplus and deficit, etc. Positive quantities are shown above X-axis
and negative quantities are shown below it.
Duo-Directional Bar Diagram: This diagram is used to show an aggregate of two components.
One of the components is shown above X-axis and the other below it. Both the components
added together give total value.
Line Diagram: In case of a line diagram, different values are represented by the length of the
lines, drawn vertically or horizontally.
Multiple Bar Diagram: This type of diagram, also known as compound bar diagram, is used
when comparisons are to be shown between two or more sets of data. A set of bars for a period
or a related phenomena are drawn side by side without gaps.
One-dimensional diagrams: In case of one-dimensional diagrams, the magnitude of the
characteristics is shown by the length or height of the bar. The width of a bar is chosen arbitrarily
so that the constructed diagram looks more elegant and attractive.

Percentage Sub-Divided Bar Diagram: A sub-divided diagram is used to show absolute Notes
magnitudes of various components. These magnitudes can be changed into relative by converting
them as a percentage of the total.
Pictogram: When numerical figures are represented by pictures, we get pictogram.
Pie Diagram: In order to show proportions of various components, a circle can also be partitioned
into sections in a similar manner as in component bar diagrams. Since there are 360º at the centre
of a circle, these are divided in proportions to the magnitude of values of different items. The
diagram, thus obtained is known as Angular Sector Diagram or more popularly as Pie Diagram.
Pyramid Diagram: This diagram is used to represent the distribution of population according to
sex, age, occupation, education, etc. The bars are drawn adjacently one above the other so as to
look like a pyramid.
Simple Bar Diagram: In case of a simple bar diagram, the vertical or horizontal bars, with height
proportional to the value of the item, are constructed. The width of a bar is chosen arbitrarily
and is kept constant for every bar.
Sliding Bar Diagram: Sliding bar diagrams are similar to duo-directional bar diagrams. Whereas
absolute values are shown by duo-directional bar diagrams, the percentage is shown using
sliding bar diagrams. The length of each sliding bar is same, which represents 100%. The bars
can be drawn horizontally or vertically.
Sub-divided or Component Bar Diagram: In case of a sub-divided bar diagram, the bar
corresponding to each phenomenon is divided into various components. The portion of the bar
occupied by each component denotes its share in the total.
1. Describe the merits and limitations of the diagrammatic presentation of data.
2. What are different types of diagram which are used in statistics to show salient characteristics
of groups and series? Illustrate your answer with examples.
3. What are the advantages of presentation of data through diagram? Give brief description
of various types of diagram.
4. Explain clearly the necessity and importance of diagrams in statistics. What precautions
should be taken in drawing a good diagram?
5. Describe, with suitable examples, the following type of diagrams:
(a) Bar Diagram
(b) Multiple Bar Diagram
(c) Pie Diagram
(d) Pictogram
6. Describe, in brief, different types of two-dimensional diagrams.
7. Discuss the usefulness of diagrammatic representation of facts and explain how would
you construct circular diagrams?

Notes 8. Represent the following data by a line diagram:

S . No. : 1 2 3 4 5 6 7 8 9 10
Weekly Income ( ) : 240 270 315 318 330 345 354 360 375 390
9. Represent the following data by multiple bar diagram:
2009-10 2010-11
10. The following table gives the support price of Rabi-crops during 2009-2010 and 2010-2011.
Represent the given data by a suitable diagram.
2009-10 2010-11
11. The following table shows the yield of wheat in five countries during 2010. Represent the
data by a suitable diagram.
Country : China EEC USA India Canada

Yield of Wheat : 3194 5118 2656 2125 2272
( in Kg. / hect.)
12. Represent the increase or decrease of production of the year 2010 through bar diagram:
(a) Increase in production of cotton textile industry = 60%
(b) Increase in the production of iron and steel industry = 50%
(c) Decrease in sugar production = 40%
(d) Decrease in cement production = 30%

13. Show the following data by means of a pie diagram:
Area-wise exports from India during 2010-11.

West Europe : 31.38%
Asia : 31.04%
America : 16.49%
East Europe : 18.24%

Africa and others : 2.85%

Answers: Self Assessment Notes
1. intelligible 2. impressive
3. simplify 4. comparisons
5. an illusory 6. diagrammatic presentation
7. art 8. nature
9. True 10. True
11. True 12. True
13. True 14. (b)
15. (d) 16. (a)
17. True 18. True


New Delhi.
New York.
2002.

Notes
Online links http://www.staff.vu.edu.au/mcaonline/units/statistics/presentation.html

http://www.slideshare.net/edithosb/graphic-presentation-of-data
http://nos.org/318courseE/L-
6%20PRESENTATION%20OF%20STATISTICAL%20DATA.pdf
http://www.stars.rdg.ac.uk/data.html
http://www.mathsisfun.com/data/bar-graphs.html
http://www.mathsisfun.com/data/pie-charts.html
http://www.mathsisfun.com/data/pictographs.html
http://www.mathsisfun.com/data/histograms.html

Unit 5: Collection of Data
Unit 5: Collection of Data Notes
CONTENTS
Objectives
Introduction
5.1 Collection of Data
5.2 Method of Collecting Data
5.2.1 Drafting a Questionnaire or a Schedule
5.3 Sources of Secondary Data
5.3.1 Secondary Data
5.4 Summary
5.5 Keywords
Objectives
Tell about the collection of data
Describe the methods of collecting primary data
State the merits and demerits of different methods of collecting primary data
Explain the concept of drafting a Questionnaire or a Schedule
Know about collection of secondary data
Introduction
The collection and analysis of data constitute the main stages of execution of any statistical
investigation. However, between these two stages there is always an intermediate stage, known
as the editing of data. The process of editing refines the collected data by checking inconsistencies,
inaccuracies, illegible writings and other types of deficiencies or errors present in the collected
information.
5.1 Collection of Data
The procedure for collection of data depends upon various considerations such as objective,
scope, nature of investigation, etc. Availability of resources like money, time, manpower, etc.,
also affect the choice of a procedure. Data may be collected either from a primary or from a
secondary source. Data from a primary source are collected, for the first time, keeping in view
the objective of investigation. Secondary data, on the other hand, are available from certain
publications or reports. Such data are already collected by some other agency in the past for
some other purpose. Thus, the primary data collected with a specified objective of investigation,
are likely to be more reliable as compared to secondary data. The use of secondary data, whenever

Notes necessary, must be done very carefully. The cost of collection of primary data, however, are
much higher.
Did u know? The system of data collection was described in Tuzuk-i-Bab4ri and
Ain-i- Akabari. During Akbar’s period, his revenue minister, Raja Todarmal, made a well
organised survey of land for the collection of land revenue.
Self Assessment
Fill in the blanks:
1. The collection and analysis of data constitute the main stages of ......................... of any
statistical investigation.
2. Between collection and analysis of data, there is always an intermediate stage, known as
the ....................................
3. The process of .................................. refines the collected data by checking inconsistencies,

inaccuracies, illegible writings and other types of deficiencies or errors present in the
collected information.
4. The procedure for collection of data depends upon various ............................... such as
objective, scope, nature of investigation, etc.
5. Data may be collected either from a ......................... or from a ......................... source.
6. Primary data collected with a specified objective of investigation, are likely to be

............................. reliable as compared to secondary data.
7. The cost of collection of primary data, however, are ....................................
5.2 Method of Collecting Data
For collection of primary data, the investigator may chose any one or a combination of the
following methods:
1. Direct Personal observation

2. Indirect Oral Interview
3. Information through Local Agencies or Correspondents
4. Information through Questionnaires filled by Respondents
5. Information through Schedules filled by Investigators
1. Direct Personal Observation: Under this method, the investigator collects data by having
direct contact with the units of investigation. The accuracy of collected data depends, to a
large extent, upon the training and attitude of the investigator and the supporting attitude
of the respondents.
This method is suitable for an intensive type of investigation where (i) the scope of
investigation is narrow, (ii) the process of investigation is so complex that it requires
personal attention of the investigator, (iii) the investigation is confidential and (iv) more
emphasis is to be given to the accuracy of the data.

Merits Notes
(a) Original data are collected.
(b) Collected data are more accurate and reliable.
(c) The investigator can modify or put indirect questions in order to extract satisfactory
information.
(d) The collected data are often homogeneous and comparable.
(e) Some additional information may also get collected, along with the regular
information, which may prove to be helpful in future investigations.
(f) Misinterpretations or misgivings, if any, on the part of the respondents can be

avoided by the investigators.
Demerits
(a) This method is expensive and time consuming, particularly when the field of
investigation is large.
(b) It is not possible to properly train a large team of investigators.
(c) The bias or prejudice of investigators can affect the accuracy of data to a large extent.
(d) Data are collected as per the convenience and willingness of the respondents.
2. Indirect Oral Interview: This method is used when the area of investigation is very large
or the respondents are reluctant to part with the information due to various reasons.
Under this method, the investigator collects data from a third party or witness or head of
an institution, etc., who is supposed to be in touch with the respondents. When the field of
investigation is very large, the information about a large number of respondents can
indirectly be obtained from one person who may be head (or pradhan) of that community.
Merits
(a) This method is suitable when the area of investigation is large or when the
respondents are reluctant to part with the information.
(b) It is economical in terms of time, money and manpower.
(c) Since the information is collected from the persons who are well aware of the
situation, it is likely to be unbiased and reliable.
(d) This method is particularly suitable for the collection of confidential information.
For example, a person may not like to reveal his habit of drinking, smoking,
gambling, etc., which may be revealed by others.
Demerits
(a) In the absence of direct contact between investigator and the respondent, it may
happen that many important points remain unnoticed.
(b) As compared with direct personal observation, the degree of accuracy of the data is
likely to be lower.
(c) The persons, providing the information, may be prejudiced or biased.
(d) Since the interest of the person, providing the information, is not at stake, the
collected information is often vague and unreliable.
(e) The information collected from different persons may not be homogeneous and
comparable.

Notes 3. Information Through Local Agencies or Correspondents: Under this method, local agents
or correspondents are appointed in different parts of the area under investigation. These
agents send the desired information at regular intervals of time. This method is often
adopted by newspapers.
Merits
(a) This method is useful in situations where the area of investigation is very large and
periodic information is to be collected from the distant places.
(b) It is economical in terms of time, money and labour.

Demerits
(a) The collected information lacks originality.

(b) The information is likely to be affected by the bias of the corespondents.
(c) It is not possible to obtain results with high degree of accuracy.

(d) The information supplied by different correspondents often lacks homogeneity and
hence, not comparable.
4. Information Through Questionnaires Filled by Respondents: The information, in this

method, is collected through the filling of questionnaires by the respondents.
A questionnaire consists of a list of questions pertaining to the investigation. Blank spaces
are left for writing answers. The questionnaire is sent to the respondents along with a
covering letter for soliciting their cooperation by giving the correct information and
returning the filled questionnaires well in time. With a view to get accurate information,
the respondents may also be acquainted with the objective(s) of the investigation along
with the assurance that the supplied information will be kept confidential and shall not, in
any way, be misused against them. To get better response, self addressed and stamped
envelope should also be sent to the respondents, in case the information is to be obtained
by post. The basic assumption underlying this method is that the respondents are educated
and have no difficulty in filling and sending the questionnaires. This method is adopted
by research workers and other official and non-official agencies.
Merits
(a) This method is useful for the collection of information from an extensive area of
investigation.
(b) This method is economical as it requires less time, money and labour.
(c) The collected information is original and more reliable.
(d) It is free from the bias of the investigator.
Demerits
(a) Very often, there is problem of ‘non-response’ as the respondents are not willing to
provide answers to certain questions.
(b) The respondents may provide wrong information if the questions are not properly
understood.
(c) It is not possible to collect information if the respondents are not educated.
(d) Since it is not possible to ask supplementary questions, the method is not flexible.
(e) The results of an investigation are likely to be misleading if the attitude of the
respondents is biased.

(f) The process is time consuming, particularly when the information is to be obtained Notes
by post.
5. Information Through Schedules Filled by Investigators: The information obtained through

mailing the questionnaires to the respondents is generally incomplete and
unrepresentative. To avoid this problem, the work of filling of a questionnaire, termed as
schedule here, can be done by the investigator through personal contact with the
respondent. In order to get reliable information, the investigator should be tactful, well
trained, unbiased and hard working.
Merits
(a) This method is suitable for an extensive area of investigation.
(b) Since the investigator has a direct contact with the respondents, it is possible to get
accurate and reliable information.
(c) By asking cross questions it is possible to test the truth of the supplied information.
(d) The problem of non-response is minimised.
(e) It is possible to get the information even if the respondents are not educated.
Demerits
(a) This method is very expensive and time consuming.
(b) The collected information is affected, to a large extent, by the bias of the investigator.
(c) If the investigators are negligent or not properly trained, the results of investigations
are likely to be misleading.
5.2.1 Drafting a Questionnaire or a Schedule
A questionnaire or a schedule is a list of questions relating to the problem under investigation.

There is no basic difference between a questionnaire and a schedule. A questionnaire is filled by
the respondent, while a schedule is filled by the investigator.
The quality of information collected through the filling of a questionnaire depends, to a large
extent, upon the drafting of its questions. Hence, it is extremely important that the questions be
designed or drafted very carefully and in a tactful manner. Although, there are no hard and fast
rules to be followed, but the following general points must always be kept in mind to draft a
good questionnaire or schedule.
1. The questions should be simple, unambiguous and precise.
2. The number of questions should be as small as possible. Only those questions which have
a direct relevance to the problem be included.
3. The question should be framed in such a manner that their answers are specific and
precise.
The following four type of questions are generally framed in any questionnaire :
(a) Simple alternative questions: Such questions are answered by yes/no or right/wrong,
etc.
(b) Multiple choice questions: In such questions, the possible answers are printed in the
questionnaire and the respondent is supposed to tick any one of them.

Notes
Example: What is your occupation?
1. Agriculture
2. Industry
3. Trade
4. Service
5. Any other
(c) Specific information questions: Such questions are used to extract specific information
like; how many members are there in your family, what is your monthly income,
etc.
(d) Open questions: These types of questions are to be answered by the respondent in his
own words. The questions should be such that it is possible to answer them in few
words. Care should be taken to avoid answers that use the words like probably,
fairly good, etc.
4. The questions should be capable of being easily answered by the respondents. The
questions that rely too much on the memory of the respondent should be avoided.
5. The questions affecting the pride and sentiments of the respondents should be avoided.
Similarly the questions pertaining to private affairs of the respondents should never be
asked.
6. The questions relating to mathematical computations should be avoided.
7. The questions should follow a logical sequence so that a natural and spontaneous reply to
each question is induced.
8. The questions should be directly related to the objective(s) of investigation.
9. Certain corroborative questions must also be asked to verify the accuracy of the supplied
information.
10. Necessary instructions for filling the questionnaire should also be given in simple and
precise form.
11. Enough space should be provided for answers. The questionnaire should look as attractive
as possible.
12. Before actually using a questionnaire, a test check must always be done by obtaining
answers from some respondents. The questionnaire should be modified, if necessary, in
the light of these answers.
Format of a Questionnaire for assessing preferences of the users of two-wheelers.
QUESTIONNAIRE
Note: Please put tick mark ( ) in the relevant box of each question.
Section A
1. Name : _______________________________
2. Address : _______________________________
3. Age : _______________________________
4. Sex : Male Female
Contd...

5. Marital Status : Married Unmarried Others Notes
6. Number of children, if married:
None One Two More than two
7. Highest educational qualification:
Under Matric Matric Senior Secondary
Graduate Post Graduate Higher
8. Occupation:
Service Manufacture Trade
Agriculture Others
9. Annual Income (in ):
Less than 20,000 20,000 - 30,000 30,000 - 40,000
40,000 - 50,000 50,000 - 60,000 60,000 and above
Section B
1. What is the brand name of your scooter?
Bajaj L.M.L. Vespa Kinetic Honda
Vijay Super Any other
2. How did you know this brand?
Through advertisement in a newspaper Through advertisement in radio
Through advertisement in television Through some friend
Through some other agency
3. You purchased this scooter because:
It gives more mileage It requires less maintenance
It is more powerful It is more stable
It has a better after-sales service
(You can put tick mark in more than one box.)
4. You purchased this scooter from:
Company showroom Authorised dealer
Local dealer Others
5. What was the mode of payment?
On cash down payment On Instalment basis
On Hire-Purchase basis Others
6. How old is your scooter?
Less than 1 year 1 - 3 years 3 - 5 years 5 - 10 years 10 or more years
7. Are you satisfied with your scooter? yes no

Notes 8. The maintenance expenditure, per month, of your scooter:
Less than 100 100–200 200 or more
9. For major repairs, you go to:
The authorised service station The local service station
Any other workshop
10. If given a chance to purchase a new scooter, would you like to purchase the same scooter?
yes no
Signatures
Task You are the sales promotion officer of Delta Cosmetics Co. Ltd. Your company is
about to market a new product. Design a suitable questionnaire to conduct a consumer
survey before the product is launched. State various types of persons that may be approached
for replying to the questionnaire.
Did u know? Indirect oral interview is generally adopted by the police department for the
collection of information regarding bad elements of a locality.
Self Assessment
8. The accuracy of collected data depends, to a large extent, upon the training and attitude of
the investigator and the supporting attitude of the respondents.
9. The collected data are often non homogeneous and comparable.
10. A questionnaire consists of a list of questions pertaining to the investigation.
11. The information obtained through mailing the questionnaires to the respondents is
generally incomplete and unrepresentative.
12. There is no basic difference between a questionnaire and a schedule.
13. The quantity of information collected through the filling of a questionnaire depends, to a
large extent, upon the drafting of its questions.
14. Simple alternative questions are answered by yes/no or right/wrong, etc.
15. Closed questions are to be answered by the respondent in his own words.
5.3 Sources of Secondary Data
The data, collected and used by some other person or agency for an investigation in the past,
when used for the investigation of a current problem, is known as secondary data.
5.3.1 Secondary Data
Secondary data may be available in published or unpublished form. In published form, the data
are available in magazines, research papers, newspapers, government publications, international
publications, etc.

Notes
!
Caution Before using any secondary data, the user must satisfy himself regarding the
following points:
1. Are data suitable for the current investigation?
2. Are data adequate for the current investigation?
3. Are data reliable?
Task Amongst various methods of rounding, which one is best and why?
Notes Editing of Data

The next logical step, after the collection of data, is the process of refining it for proper
utilisation. This process is known as editing. Editing of data includes the identification
and dropping of the unwanted information. In addition to this, steps are taken to complete
the left out information. Another aim of editing is to find out and rectify possible errors or
irregularities during the collection of data. Thus, the process of editing implies the scrutiny
of data in various ways. The process of editing of primary data can be divided into the
following six stages:
1. Deciphering
2. Scrutiny for completeness
3. Scrutiny for uniformity
4. Scrutiny for consistency
5. Scrutiny for accuracy
6. Coding of data
Self Assessement
16. The data, collected and used by some other person or agency for an investigation in the
past, when used for the investigation of a current problem, is known as .....................................
data.
(a) Primary (b) Secondary
(c) Simple (d) Complex
17. ..................................... data may be available in published or unpublished form
(a) Secondary (b) Primary
(c) Simple (d) Complex

Notes 18. In ................................. form, the data are available in magazines, research papers,
newspapers, government publications, international publications, etc.
(a) Published (b) Unpublished

(c) Reduced (d) Enlarged
Case Study Chand Contractors
C
hand Contractors supplies contract labor to various industrial units for carrying
out their various production activities in and around Bhilai. Mr.R.B. Tripathi is the
chief consultant and is responsible to manage the continuous supply of contract
labor on weekly basis. The daily wages of contract labor varies from 25 to 95 per day
depending on the skill, experience and the nature of work in the industry utilising the
services of contract laborers. The daily wages and number of workers data have been
compiled by Shri Tripathi for estimating the number of workers demanded and their
average wages.
Daily Wages ( ) No. of Workers Daily Wages ( ) No. off workers

20-25 21 60-65 36
25-30 29 65-70 45
30-35 19 70-75 27
35-40 39 75-80 48
40-45 43 80-85 21
45-50 94 85-90 12
50-55 73 90-95 5
55-60 68
1. Draw a suitable diagram of the data to enable the chief executive of Chand Contractors
to understand the relations between wages and number of workers.
2. Find out the number of workers getting wages lower than 57 and more than
77 using Ogive graphs.
5.4 Summary
The stage of collection of data follows the stage of planning of a statistical investigation.
The process for the collection of data depends upon the objective, scope, nature of
investigation, etc.
The data may be collected either from a primary or from a secondary source.
Data from a primary source are original and correspond to the objective of investigation.
The secondary data are often available in published form, collected originally by some
other agency with a similar or different objective.
The primary data are more reliable than the secondary data which, however, are more
economical.
There are several methods of collection of primary data.
The choice of a particular method depends, apart from objective, scope and nature of
investigation, on the availability of resources, literacy level of the respondents, etc.

Secondary data should be used very carefully, only after examining that these are suitable, Notes
adequate and reliable for the purpose of investigation under consideration.
5.5 Keywords
Direct Personal Observation: Under this method, the investigator collects data by having direct
contact with the units of investigation.
Editing of data: The collection and analysis of data constitute the main stages of execution of any
statistical investigation. However, between these two stages there is always an intermediate
stage, known as the editing of data.
Indirect Oral Interview: This method is used when the area of investigation is very large or the
respondents are reluctant to part with the information due to various reasons. Under this method,
the investigator collects data from a third party or witness or head of an institution, etc., who is
supposed to be in touch with the respondents.
Multiple choice questions: In such questions, the possible answers are printed in the questionnaire
and the respondent is supposed to tick any one of them.
Open questions: These types of questions are to be answered by the respondent in his own
words.
Questionnaire/Schedule: questionnaire/schedule is a list of questions relating to the problem
under investigation.
Secondary data: The data, collected and used by some other person or agency for an investigation
in the past, when used for the investigation of a current problem, is known as secondary data.
Specific information questions: Such questions are used to extract specific information like; how
many members are there in your family, what is your monthly income, etc.
1. What are various methods of collecting statistical data? Which of these is more reliable
and why?
2. Discuss the comparative merits of various methods of collecting primary data. Which
method would you recommend for the following investigations:
(a) A family budget enquiry of teachers of a university.
(b) Survey of economic conditions of workers in cottage and small scale industries of a
town.
3. “In collection of statistical data, common sense is the chief requisite and experience is the
chief teacher”. Discuss this statement.
4. What do you understand by secondary data? State their chief sources and point out dangers
involved in their use. What precaution must be taken while using such data for further
investigation?
5. “Statistics especially other people’s statistics are full of pitfalls for the user unless used
with caution”. Explain the meaning of this statement and mention various merits and
demerits of using secondary data.
6. What are the requisites of a good questionnaire? Explain the procedure for collection of
data through mailing of questionnaire.

Notes 7. Distinguish between a questionnaire and a schedule. What precautions should be taken in
drafting a questionnaire?
8. Select the correct answer from the following:
In order to collect primary data:
(a) It is necessary for the investigator to have personal contact with the respondents.
(b) It is not necessary for the investigator to have personal contact with the respondents.
(c) The investigator has to mail questionnaires.
(d) The respondents must be educated.
9. Fill in the blanks:
(a) Secondary data are also .......................... data for some other investigation.
(b) Published data are termed as .......................... data.
(c) Primary data are .......................... reliable than secondary data.
(d) The distinction between primary and secondary data is of ......... only .
10. Explain the need for editing of data. What is the difference between editing of primary and
secondary data?
11. Round the following figures to 2 digits:
(a) 25,136 (b) 1.28 (c) 0.057 (d) 0.0085
12. Compute and interpret a useful ratio or percentage from the following:
(i) A company has issued 5,00,000 shares and its earning is 15,00,000.
(ii) Out of 500 workers of a firm only 150 are matriculates.
(iii) The cost of petrol of a company, having 15 cars was 80,000 last year.
(iv) The number of fatal road accidents during last month in a city was 15.
13. Collect data on any company's financial performance from different sources like internet,
newspapers, magazines, etc. Are there any differences between the same? What inferences
do you draw on the objectives of that particular type of media when they are presenting
data.
14. Try and collect as much data as possible from different sources about the health levels of
the people residing in your area. What problems come in while collecting this data?
15. Mount Shivalik Distilleries is a progressive manufacturer of 'Wasp' brand export quality
rum. It follows the modern practices of presentation of data in various board meetings.
The data collected by its finance director over a period of 3 years pertaining to its operations
is shown below. The Finance Director desires that the data should be presented
diagrammatically. Would you please help him in presenting the data.
Industry Employment Avg. Earnings per

on 31-3-2011 employee per year (Rs)
1. Automobile parts manufacturers 4,34,856 56,540
2. Transport for hire 15,26,897 26,348
3. Taxies 11,32,560 42,685
4. Dealers of new and used vehicles 1,09,805 13,684
5. Retail filling stations 22,25,960 15,008
6. Automobile repair garages 12,35,200 12,048
Present the above data using a suitable diagram(s) so as to bring out the finer points.

16. Ansal Builders is engaged in the construction of a multistory building. It has recently Notes
conducted a cost audit. The manager (cost accounting) has collected the figures of total cost
and its major constituents. The information collected as percentage of expenditure is
shown below. Represent the data with the help of a suitable diagram.
Item Expenditure %
Wages 25
Bricks 15
Cement 20
Steel 15
Wood 10
Supervison and Misc 15
1. execution 2. editing of data
3. editing 4. considerations
5. primary, secondary 6. more
7. much higher 8. True
9. False 10. True
11. True 12. True
13. False 14. True
15. False 16. (b)
17. (a) 18. (a)
Books Balwani Nitin, Quantitative Techniques, First Edition: 2002. Excel Books, New Delhi.
Bhardwaj R S., Business Statistics, Excel Books.
Garrett H.E (1956), Elementary Statistics, Longmans, Green & Co., New York.
Guilford J.P. (1965), Fundamental Statistics in Psychology and Education, McGraw

Selvaraj R, Loganathan, C Quantitative Methods in Management.
Online links http://en.wikipedia.org/wiki/Data_collection

http://www.balancedscorecard.org/Portals/0/PDF/datacoll.pdf
http://www.mathsisfun.com/data/univariate-bivariate.html
http://msdn.microsoft.com/en-us/library/bb677179.aspx

Notes Unit 6: Measures of Central Tendency
CONTENTS
Objectives
Introduction
6.1 Average
6.1.1 Functions of an Average
6.1.2 Characteristics of a Good Average
6.1.3 Various Measures of Average
6.2 Arithmetic Mean
6.2.1 Calculation of Simple Arithmetic Mean
6.2.2 Weighted Arithmetic Mean
6.2.3 Properties of Arithmetic Mean
6.2.4 Merits and Demerits of Arithmetic Mean
6.3 Median
6.3.1 Determination of Median
6.3.2 Properties of Median
6.3.3 Merits, Demerits and Uses of Median
6.4 Other Partition or Positional Measures
6.4.1 Quartiles
6.4.2 Deciles
6.4.3 Percentiles
6.5 Mode
6.5.1 Determination of Mode
6.5.2 Merits and Demerits of Mode
6.5.3 Relation between Mean, Median and Mode
6.6 Geometric Mean
6.6.1 Calculation of Geometric Mean
6.6.2 Weighted Geometric Mean
6.6.3 Geometric Mean of the Combined Group
6.6.4 Average Rate of Growth of Population
6.6.5 Suitability of Geometric Mean for Averaging Ratios
6.6.6 Properties of Geometric Mean
6.6.7 Merits, Demerits and Uses of Geometric Mean
Contd...

Unit 6: Measures of Central Tendency
Notes
6.7 Harmonic Mean
6.7.1 Calculation of Harmonic Mean
6.7.2 Weighted Harmonic Mean
6.7.3 Merits and Demerits of Harmonic Mean
6.8 Summary
6.9 Keywords
Objectives
Define the term average and state its functions and characteristics.
Write the uses, merits and demerits of mean,median and mode
Tell about Mathematical Averages-AM,GM and HM
Establish the relationship amongst mean, median and mode
Establish the relationship amongst AM, GM and HM
Introduction
Summarization of the data is a necessary function of any statistical analysis. As a first step in this
direction, the huge mass of unwieldy data is summarized in the form of tables and frequency
distributions. In order to bring the characteristics of the data into sharp focus, these tables and
frequency distributions need to be summarized further. A measure of central tendency or an
average is very essential and an important summary measure in any statistical analysis.
6.1 Average
The average of a distribution has been defined in various ways. Some of the important definitions
are:
“An average is an attempt to find one single figure to describe the whole of figures”.
— Clark and Sekkade
“Average is a value which is typical or representative of a set of data”.
— Murray R. Spiegal
“An average is a single value within the range of the data that is used to represent all the values
in the series. Since an average is somewhere within the range of data it is sometimes called a
measure of central value”.
— Croxton and Cowden
“A measure of central tendency is a typical value around which other figures congregate”.
— Sipson and Kafka

Notes 6.1.1 Functions of an Average
1. To present huge mass of data in a summarised form: It is very difficult for human mind to
grasp a large body of numerical figures. A measure of average is used to summarise such
data into a single figure which makes it easier to understand and remember.
2. To facilitate comparison: Different sets of data can be compared by comparing their

averages. For example, the level of wages of workers in two factories can be compared by
mean (or average) wages of workers in each of them.
3. To help in decision making: Most of the decisions to be taken in research, planning, etc., are
based on the average value of certain variables. For example, if the average monthly sales
of a company are falling, the sales manager may have to take certain decisions to
improve it.
6.1.2 Characteristics of a Good Average
A good measure of average must posses the following characteristics:

1. It should be rigidly defined, preferably by an algebraic formula, so that different persons
obtain the same value for a given set of data.
2. It should be easy to compute.
3. It should be easy to understand.
4. It should be based on all the observations.
5. It should be capable of further algebraic treatment.
6. It should not be unduly affected by extreme observations.
7. It should not be much affected by the fluctuations of sampling.
6.1.3 Various Measures of Average
Various measures of average can be classified into the following three categories:
1. Mathematical Averages
(a) Arithmetic Mean or Mean
(b) Geometric Mean
(c) Harmonic Mean
(d) Quadratic Mean
2. Positional Averages
(a) Median
(b) Mode
3. Commercial Average
(a) Moving Average
(b) Progressive Average
(c) Composite Average
Out of above mentioned, we will discuss here only mathematical averages and positional
averages.

Notes
Did u know? An average is a single value which can be taken as representative of the whole
distribution.
Self Assessment
Fill in the blanks:
1. ............................ of the data is a necessary function of any statistical analysis.
2. The huge mass of unwieldy data is summarized in the form of ..................and ....................
3. A ................................. or an average is very essential and an important summary measure

in any statistical analysis.
4. An ......................... is a single value which can be taken as representative of the whole

distribution.
5. A measure of central tendency is a typical value around which other figures.......................
6. Different sets of data can be compared by comparing their ............................
7. AM and GM comes under ..............................averages.
6.2 Arithmetic Mean
Before the discussion of arithmetic mean, we shall introduce certain notations. It will be assumed
that there are n observations whose values are denoted by X 1,X2, ..... Xn respectively. The sum of
these observations X1 + X2 + ..... + Xn will be denoted in abbreviated form as, where (called
sigma) denotes summation sign. The subscript of X, i.e., ‘i’ is a positive integer, which indicates
the serial number of the observation. Since there are n observations, variation in i will be from
1 to n. This is indicated by writing it below and above , as written earlier. When there is
no ambiguity in range of summation, this indication can be skipped and we may simply write
X1 + X2 + ..... + Xn = Xi.
Arithmetic Mean is defined as the sum of observations divided by the number of observations.
It can be computed in two ways: (i) Simple arithmetic mean and (ii) weighted arithmetic mean.
In case of simple arithmetic mean, equal importance is given to all the observations while in
weighted arithmetic mean, the importance given to various observations is not same.
6.2.1 Calculation of Simple Arithmetic Mean
When Individual Observations are given
Let there be n observations X1, X2 ..... Xn. Their arithmetic mean can be calculated either by direct
method or by short cut method. The arithmetic mean of these observations will be denoted by.
Direct Method
Under this method, X is obtained by dividing sum of observations by number of observations,

i.e.,
n
Xi
i 1
X
n

Notes Short-cut Method
This method is used when the magnitude of individual observations is large. The use of short-
cut method is helpful in the simplification of calculation work.
Let A be any assumed mean. We subtract A from every observation. The difference between an
observation and A, i.e., Xi – A is called the deviation of ith observation from A and is denoted by
di. Thus, we can write ; d1 = X1 – A, d2 = X2 – A, ..... dn = Xn – A. On adding these deviations and
dividing by n we get
di Xi A Xi nA Xi
A
n n n n
di
or d X A (Where d )
n
di
On rearranging, we get X A d A
n
This result can be used for the calculation of X
Remarks: Theoretically we can select any value as assumed mean. However, for the purpose of
simplification of calculation work, the selected value should be as nearer to the value of X as
possible.
Example: The following figures relate to monthly output of cloth of a factory in a given
year:
:
:
000
Calculate the average monthly output.
Solution:
1. Using Direct Method
80 + 88 + 92 + 84 + 96 + 92 + 96 + 100 + 92 + 94 + 98 + 86
X=
12
= 91.5 (‘000 mtrs)
2. Using Short-cut Method
Let A = 90.
Xi 80 88 92 84 96 92 96 100 92 94 98 86 Total
di Xi A 10 2 2 6 6 2 6 10 2 4 8 4 di 18
18
X = 90 + = 90 + 1.5 = 91.5 thousand mtrs
12

When Data are in the form of an Ungrouped Frequency Distribution Notes
Let there be n values X1, X2, ..... Xn out of which X1 has occurred f1 times, X2 has occurred f2 times,
n
fi
..... Xn has occurred fn times. Let N be the total frequency, i.e., N = f1. Alternatively, this can
i 1
be written as follows:
Values X1 X2 - - - Xn Total Frequency

Frequency f1 f2 - - - fn N
Direct Method
The arithmetic mean of these observations using direct method is given by
X1 X1 ... X1 X 2 ... ... X 2 ... ... Xn ... Xn

   
f1 times f 2 times f n times
X
f1 f 2 ... fn
Since X1 + X1 + ..... + X1 added f1 times can also be written f1X1. Similarly, by writing other
observation in same manner, we have
n n
fi Xi fi Xi
f1 X1 f 2 X 2  f n X n i 1 i 1
X
f 1 f 2  f n n N
f
i
i 1
Short-cut Method
As before, we take the deviations of observations from an arbitrary value A. The deviation of
ith observation from A is di = Xi – A.
Multiplying both sides by fi we have fi di = fi (Xi – A)
Taking sum over all the observations
= ( – )= – = – .
Dividing both sides by N we have
= X - A or .
Example: The following is the frequency distribution of age of 670 students of a school.
Compute the arithmetic mean of the data.
X
5 6 7 8 9 10 11 12 13 14
(in years)
Frequency 25 45 90 165 112 96 81 26 18 12

Notes Solution:
Direct Method
The computations are shown in the following table:
5 6 7 8 9 10 11 12 13 14 Total
25 45 90 165 112 96 81 26 18 12 f 670
125 270 630 1320 1008 960 891 312 234 168 fX 5918
5918
8.83 years.
670
Short-cut Method
The method of computations are shown in the following table:
5 6 7 8 9 10 11 12 13 14
25 45 90 165 112 96 81 26 18 12 670
3 2 1 0 1 2 3 4 5 6
75 90 90 0 112 192 243 104 90 72 558
= 8 + 558 = 8 + 0.83 = 8.83 years.

670
When Data are in the Form of a Grouped Frequency Distribution
In a grouped frequency distribution, there are classes along with their respective frequencies.
Let li be the lower limit and ui be the upper limit of ith class. Further, let the number of classes be
n, so that i = 1, 2,.....n. Also let fi be the frequency of i th class. This distribution can written in
tabular form, as shown.
Notes Here u1 may or may not be equal to l2, i.e., the upper limit of a class may or may not
be equal to the lower limit of its following class.
It may be recalled here that, in a grouped frequency distribution, we only know the
number of observations in a particular class interval and not their individual magnitudes.
Therefore, to calculate mean, we have to make a fundamental assumption that the
observations in a class are uniformly distributed. Under this assumption, the mid-value of
a class will be equal to the mean of observations in that class and hence can be taken as
their representative. Therefore, if Xi is the mid-value of i th class with frequency fi , the
above assumption implies that there are fi observations each with magnitude Xi (i = 1 to n).
Remarks: The accuracy of arithmetic mean calculated for a grouped frequency distribution
depends upon the validity of the fundamental assumption. This assumption is rarely met in
practice. Therefore, we can only get an approximate value of the arithmetic mean of a grouped
frequency distribution.

Notes
Example: Calculate arithmetic mean of the following distribution:
Class
Intervals : 0 - 10 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70 70 - 80
Frequency : 3 8 12 15 18 16 11 5
Solution: Here only short-cut method will be used to calculate arithmetic mean but it can also be
calculated by the use of direct-method.
Class Mid Frequency

d X 35 fd
Intervals Values (X ) (f )
0-10 5 3 30 90
10-20 15 8 20 160
20-30 25 12 10 120
30-40 35 15 0 0
40-50 45 18 10 180
50-60 55 16 20 320
60-70 65 11 30 330
70-80 75 5 40 200
Total 88 660
fd 660
X A 35 42.5
N 88
6.2.2 Weighted Arithmetic Mean
In the computation of simple arithmetic mean, equal importance is given to all the items. But
this may not be so in all situations. If all the items are not of equal importance, then simple
arithmetic mean will not be a good representative of the given data. Hence, weighing of different
items becomes necessary. The weights are assigned to different items depending upon their
importance, i.e., more important items are assigned more weight. For example, to calculate
mean wage of the workers of a factory, it would be wrong to compute simple arithmetic mean
if there are a few workers (say managers) with very high wages while majority of the workers
are at low level of wages. The simple arithmetic mean, in such a situation, will give a higher
value that cannot be regarded as representative wage for the group. In order that the mean wage
gives a realistic picture of the distribution, the wages of managers should be given less importance
in its computation. The mean calculated in this manner is called weighted arithmetic mean. The
computation of weighted arithmetic is useful in many situations where different items are of
unequal importance, e.g., the construction index numbers, computation of standardised death
and birth rates, etc.
Formulae for Weighted Arithmetic Mean
Let X1, X2 ....., Xn be n values with their respective weights w1, w2 ....., wn. Their weighted
arithmetic mean denoted as Xw is given by,
wi X i
1. Xw (Using direct method),
wi

Notes
2.
wi di (where di = Xi - A) (Using short-cut method),
Xw A
wi
wi ui Xi A
3. Xw A h (where ui ) (Using step-deviation method)
wi h
Remarks: If X denotes simple mean and Xw denotes the weighted mean of the same data, then
1. X = Xw , when equal weights are assigned to all the items.

2. X > Xw , when items of small magnitude are assigned greater weights and items of large
magnitude are assigned lesser weights.
3. X < Xw , when items of small magnitude are assigned lesser weights and items of large
magnitude are assigned greater weights.
6.2.3 Properties of Arithmetic Mean
Arithmetic mean of a given data possess the following properties:
1. The sum of deviations of the observations from their arithmetic mean is always zero.
According to this property, the arithmetic mean serves as a point of balance or a centre of
gravity of the distribution; since sum of positive deviations (i.e., deviations of observations
which are greater than X ) is equal to the sum of negative deviations (i.e., deviations of
observations which are less than X ).
2. The sum of squares of deviations of observations is minimum when taken from their
arithmetic mean. Because of this, the mean is sometimes termed as 'least square' measure
of central tendency.
3. Arithmetic mean is capable of being treated algebrically.
This property of arithmetic mean highlights the relationship between X , fi X i and N.
According to this property, if any two of the three values are known, the third can be
easily computed.
4. If X1 and N1 are the mean and number of observations of a series and X2 and N2 are the
corresponding magnitudes of another series, then the mean X of the combined series of
N1 + N2 observations is given by X N1 X1 N 2 X 2
N1 N 2
5. If a constant B is added (subtracted) from every observation, the mean of these observations
also gets added (subtracted) by it.
6. If every observation is multiplied (divided) by a constant b, the mean of these observations

also gets multiplied (divided) by it.
7. If some observations of a series are replaced by some other observations, then the mean of
original observations will change by the average change in magnitude of the changed
observations.

Notes
Example: Find out the missing item (x) of the following frequency distribution whose
arithmetic mean is 11.37.
X : 5 7 x 11 13 16 20
f : 2 4 29 54 11 8 4
fX 5 2 7 4 29 x 11 54 13 11 16 8 20 4
X
f 112
10 28 29 x 594 143 128 80

11.37 or 11.37 × 112 = 983 + 29x
112
290.44
x = 10.015 = 10 (approximately)
29
Example: The arithmetic mean of 50 items of a series was calculated by a student as 20.
However, it was later discovered that an item 25 was misread as 35. Find the correct value of
mean.
Solution.
N = 50 and X = 20 SXi = 50 × 20 = 1000
Thus SXi (corrected) = 1000 + 25 – 35 = 990 and = 990 = 19.8

(corrected)
50
Alternatively, using property 7:
10
average change in magnitude 20 =20 - 0.2 = 19.8
new old 50
6.2.4 Merits and Demerits of Arithmetic Mean
Merits
Out of all averages arithmetic mean is the most popular average in statistics because of its merits
given below:
1. Arithmetic mean is rigidly defined by an algebraic formula.
2. Calculation of arithmetic mean requires simple knowledge of addition, multiplication
and division of numbers and hence, is easy to calculate. It is also simple to understand the
meaning of arithmetic mean, e.g., the value per item or per unit, etc.
3. Calculation of arithmetic mean is based on all the observations and hence, it can be
regarded as representative of the given data.
4. It is capable of being treated mathematically and hence, is widely used in statistical analysis.
5. Arithmetic mean can be computed even if the detailed distribution is not known but sum
of observations and number of observations are known.
6. It is least affected by the fluctuations of sampling.
7. It represents the centre of gravity of the distribution because it balances the magnitudes of
observations which are greater and less than it.
8. It provides a good basis for the comparison of two or more distributions.

Notes Demerits
Although, arithmetic mean satisfies most of the properties of an ideal average, it has certain
drawbacks and should be used with care. Some demerits of arithmetic mean are:
1. It can neither be determined by inspection nor by graphical location.
2. Arithmetic mean cannot be computed for a qualitative data; like data on intelligence,
honesty, smoking habit, etc.
3. It is too much affected by extreme observations and hence, it does not adequately represent
data consisting of some extreme observations.
4. The value of mean obtained for a data may not be an observation of the data and as such
it is called a fictitious average.
5. Arithmetic mean cannot be computed when class intervals have open ends. To compute
mean, some assumption regarding the width of class intervals is to be made.
6. In the absence of a complete distribution of observations the arithmetic mean may lead to
fallacious conclusions. For example, there may be two entirely different distributions
with same value of arithmetic mean.
7. Simple arithmetic mean gives greater importance to larger values and lesser importance
to smaller values.
Self Assessment
8. Arithmetic Mean is defined as the sum of squares of observations divided by the number
of observations.
9. In case of simple arithmetic mean, equal importance is not given to all the observations.
10. In weighted arithmetic mean, the importance given to various observations is same.
11. In an individual frequency distribution, we only know the number of observations in a

particular class interval and not their individual magnitudes.
12. The accuracy of arithmetic mean calculated for a grouped frequency distribution does not
depends upon the validity of the fundamental assumption.
6.3 Median
Median of distribution is that value of the variate which divides it into two equal parts. In terms
of frequency curve, the ordinate drawn at median divides the area under the curve into two
equal parts. Median is a positional average because its value depends upon the position of an
item and not on its magnitude.
6.3.1 Determination of Median
When Individual Observations are given
The following steps are involved in the determination of median:
1. The given observations are arranged in either ascending or descending order of magnitude.

2. Given that there are n observations, the median is given by: Notes
n 1
(a) The size of th observations, when n is odd.
2
n n 1
(b) The mean of the sizes of th and th observations, when n is even.
2 2
Example: Find median of the following observations:

20, 15, 25, 28, 18, 16, 30.
Solution:
Writing the observations in ascending order, we get 15, 16, 18, 20, 25, 28, 30.
7 1
Since n = 7, i.e., odd, the median is the size of th i.e., 4th observation.
2
Hence, median, denoted by Md = 20.
Note: The same value of Md will be obtained by arranging the observations in descending order
of magnitude.
Example: Find median of the data : 245, 230, 265, 236, 220, 250.
Solution:
Arranging these observations in ascending order of magnitude, we get
220, 230, 236, 245, 250, 265. Here n = 6, i.e., even.
6 6
Median will be arithmetic mean of the size of th, i.e., 3rd and 1 th , i.e., 4th observations.
2 2
236 245
Hence Md 240.5
2
When ungrouped frequency distribution is given
In this case, the data are already arranged in the order of magnitude. Here, cumulative frequency
is computed and the median is determined in a manner similar to that of individual observations.
Example: Locate median of the following frequency distribution:

Variable ( X ) : 10 11 12 13 14 15 16
Frequency ( f ) : 8 15 25 20 12 10 5
Solution:
X : 10 11 12 13 14 15 16
f : 8 15 25 20 12 10 5
c . f . : 8 23 48 68 80 90 95
th
95 1
Here N = 95, which is odd. Thus, median is size of i.e., 48th observation. From the table
2
48th observation is 12, Md = 12.

Notes Alternative Method
N 95
47.5. Looking at the frequency distribution we note that there are 48 observations
2 2
which are less than or equal to 12 and there are 72 ( i.e., 95 – 23) observations which are greater
than or equal to 12. Hence, median is 12.
Locate median of the following frequency distribution:
X : 0 1 2 3 4 5 6 7
f : 7 14 18 36 51 54 52 20
Solution:
X 0 1 2 3 4 5 6 7
f 7 14 18 36 51 54 52 20
c. f . 7 21 39 75 126 180 232 252
Here N = 252, i.e., even.
N 252
Now = = 126 and N + 1 = 127.
2 2 2
Median is the mean of the size of 126th and 127th observation. From the table we note that
126th observation is 4 and 127th observation is 5.
Md = 4 + 5 = 4.5
2
Alternative Method
Looking at the frequency distribution we note that there are 126 observations which are less
than or equal to 4 and there are 252 – 75 = 177 observations which are greater than or equal to 4.
4 5
Similarly, observation 5 also satisfies this criterion. Therefore, median 4.5.
2
When grouped frequency distribution is given (Interpolation formula)
The determination of median, in this case, will be explained with the help of the following
example.
Example: The following table shows the daily sales of 230 footpath sellers of Chandni
Chowk:
Sales (in ) : 0-500 500-1000 1000-1500 1500-2000

No. of Sellers : 12 18 35 42
Sales (in ) : 2000-2500 2500-3000 3000-3500 3500-4000

No. of Sellers : 50 45 20 8
Locate the median of the above data using
(i) only the less than type ogive, and
(ii) both, the less than and the greater than type ogives.

Solution: Notes
To draw ogives, we need to have a cumulative frequency distribution.
Class Intervals Frequency Less than c . f . More than c . f .

0 - 500 12 12 230
500 - 1000 18 30 218
1000 - 1500 35 65 200
1500 - 2000 42 107 165
2000 - 2500 50 157 123
2500 - 3000 45 202 73
3000 - 3500 20 222 28
3500 - 4000 8 230 8
1. Using the less than type ogive
Less than Type Ogive
N
The value = 115 is marked on the vertical axis and a horizontal line is drawn from this
2
point to meet the ogive at point S. Drop a perpendicular from S. The point at which this
meets X- axis is the median.
2. Using both types of ogives
Both Types of Ogives

Notes A perpendicular is dropped from the point of intersection of the two ogives. The point at which
it intersects the X-axis gives median. It is obvious from above figures that median = 2080.
6.3.2 Properties of Median
1. It is a positional average.
2. It can be shown that the sum of absolute deviations is minimum when taken from median.
This property implies that median is centrally located.
6.3.3 Merits, Demerits and Uses of Median
Merits
1. It is easy to understand and easy to calculate, especially in series of individual observations

and ungrouped frequency distributions. In such cases it can even be located by inspection.
2. Median can be determined even when class intervals have open ends or not of equal
width.
3. It is not much affected by extreme observations. It is also independent of range or dispersion

of the data.
4. Median can also be located graphically.
5. It is centrally located measure of average since the sum of absolute deviation is minimum
when taken from median.
6. It is the only suitable average when data are qualitative and it is possible to rank various
items according to qualitative characteristics.
7. Median conveys the idea of a typical observation.
Demerits
1. In case of individual observations, the process of location of median requires their

arrangement in the order of magnitude which may be a cumbersome task, particularly
when the number of observations is very large.
2. It, being a positional average, is not capable of being treated algebraically.
3. In case of individual observations, when the number of observations is even, the median
is estimated by taking mean of the two middle-most observations, which is not an actual
observation of the given data.
4. It is not based on the magnitudes of all the observations. There may be a situation where
different sets of observations give same value of median. For example, the following two
different sets of observations, have median equal to 30.
Set I : 10, 20, 30, 40, 50 and Set II : 15, 25, 30, 60, 90.
5. In comparison to arithmetic mean, it is much affected by the fluctuations of sampling.
6. The formula for the computation of median, in case of grouped frequency distribution, is
based on the assumption that the observations in the median class are uniformly
distributed. This assumption is rarely met in practice.
7. Since it is not possible to define weighted median like weighted arithmetic mean, this
average is not suitable when different items are of unequal importance.

Uses Notes
1. It is an appropriate measure of central tendency when the characteristics are not measurable
but different items are capable of being ranked.
2. Median is used to convey the idea of a typical observation of the given data.
3. Median is the most suitable measure of central tendency when the frequency distribution
is skewed. For example, income distribution of the people is generally positively skewed
and median is the most suitable measure of average in this case.
4. Median is often computed when quick estimates of average are desired.
5. When the given data has class intervals with open ends, median is preferred as a measure
of central tendency since it is not possible to calculate mean in this case.
Self Assessment
13. ................................. of distribution is that value of the variate which divides it into two
equal parts.
(a) Mean (b) Median
(c) Mode (d) Standard deviation
14. Median is a ................................. average because its value depends upon the position of an
item and not on its magnitude.
(a) Positional (b) Arithmetic
(c) Mathematical (d) Commercial
15. Median is often computed when .................................... of average are desired
(a) Estimate (b) Slow estimate
(c) Quick estimate (d) Negligible estimate
6.4 Other Partition or Positional Measures
Median of a distribution divides it into two equal parts. It is also possible to divide it into more
than two equal parts. The values that divide a distribution into more than two equal parts are
commonly known as partition values or fractiles. Some important partition values are discussed
in the following sections.
6.4.1 Quartiles
The values of a variable that divide a distribution into four equal parts are called quartiles. Since
three values are needed to divide a distribution into four parts, there are three quartiles, viz. Q1,
Q2 and Q3, known as the first, second and the third quartile respectively.
For a discrete distribution, the first quartile (Q1) is defined as that value of the variate such that
at least 25% of the observations are less than or equal to it and at least 75% of the observations
are greater than or equal to it.
For a continuous or grouped frequency distribution, Q1 is that value of the variate such that the
area under the histogram to the left of the ordinate at Q1 is 25% and the area to its right is 75%.

Notes The formula for the computation of Q1 can be written by making suitable changes in the formula
of median.
After locating the first quartile class, the formula for Q1 can be written as follows:
n
–C
4 h
Q1 = LQ1
fQ 1
Here, LQ1 is lower limit of the first quartile class, h is its width, fQ1 is its frequency and C is
cumulative frequency of classes preceding the first quartile class.
By definition, the second quartile is median of the distribution. The third quartile ( Q3) of a
distribution can also be defined in a similar manner.
For a discrete distribution, Q3 is that value of the variate such that at least 75% of the observations
are less than or equal to it and at least 25% of the observations are greater than or equal to it.
For a grouped frequency distribution, Q3 is that value of the variate such that area under the
histogram to the left of the ordinate at Q3 is 75% and the area to its right is 25%. The formula for
3N
C
4
computation of Q3 can be written as Q3 LQ3 h, where the symbols have their usual
fQ3
meaning.
6.4.2 Deciles
Deciles divide a distribution into 10 equal parts and there are, in all, 9 deciles denoted as D1, D2,
...... D9 respectively.
For a discrete distribution, the i th decile Di is that value of the variate such that at least (10i)% of
the observation are less than or equal to it and at least (100 - 10i)% of the observations are greater
than or equal to it (i = 1, 2, ...... 9).
For a continuous or grouped frequency distribution, Di is that value of the variate such that the
area under the histogram to the left of the ordinate at Di is (10i)% and the area to its right is
(100 - 10i)%. The formula for the i th decile can be written as
iN
C
10
Di LDi h (i = 1, 2, ...... 9)
f Di
6.4.3 Percentiles
Percentiles divide a distribution into 100 equal parts and there are, in all, 99 percentiles denoted
as P1, P2, ...... P25, ...... P40, ...... P60, ...... P99 respectively.
For a discrete distribution, the kth percentile Pk is that value of the variate such that at least k%
of the observations are less than or equal to it and at least (100 – k)% of the observations are
greater than or equal to it.

For a grouped frequency distribution, Pk is that value of the variate such that the area under the Notes
histogram to the left of the ordinate at Pk is k% and the area to its right is (100 – k)% . The formula
for the kth percentile can be written as
kN
C
100
Pk LPk h, (k = 1, 2, ...... 99)
f Pk
Example: Locate Median, Q1, Q3, D4, D7, P15, P60 and P90 from the following data:
( ) 75 76 77 78 79 80 81 82 83 84 85
15 20 32 35 33 22 20 10 8 3 2
Solution:
First we calculate the cumulative frequencies, as in the following table:
75 76 77 78 79 80 81 82 83 84 85
15 20 32 35 33 22 20 10 8 3 2
. . 15 35 67 102 135 157 177 187 195 198 200
N
1. Determination of Median: Here = 100. From the cumulative frequency column, we
2
note that there are 102 (greater than 50% of the total) observations that are less than or
equal to 78 and there are 133 observations that are greater than or equal to 78. Therefore,
Md = 78.
N
2. Determination of Q1 and Q3: First we determine which is equal to 50. From the
4
cumulative frequency column, we note that there are 67 (which is greater than 25% of the
total) observations that are less than or equal to 77 and there are 165 (which is greater than
75% of the total) observations that are greater than or equal to 77. Therefore, Q 1 = 77.
Similarly, Q3 = 80.
3. Determination of D4 and D7: From the cumulative frequency column, we note that there
are 102 (greater than 40% of the total) observations that are less than or equal to 78 and
there are 133 (greater than 60% of the total) observations that are greater than or equal to
78. Therefore, D 4 = 78. Similarly, D 7 = 80.
4. Determination of P15, P60 and P90: From the cumulative frequency column, we note that
there are 35 (greater than 15% of the total) observations that are less than or equal to 76 and
there are 185 (greater than 85% of the total) observations that are greater than or equal to
76. Therefore, P 15 = 76. Similarly, P 60 = 79 and P90 = 82.
Example: The following incomplete table gives the number of students in different age
groups of a town. If the median of the distribution is 11 years, find out the missing frequencies.
Age Group : 0 - 5 5 - 10 10 - 15 15 - 20 20 - 25 25 - 30 Total

- No . of Students : 15 125 ? 66 ? 4 300
Solution:
Let x be the frequency of age group 10 - 15. Then the frequency of the age group 20 - 25 will be
300 – (15 + 125 + x + 66 + 4) = 90 – x.

Notes Making a cumulative frequency table we have
. .
0 5 15 15
5 10 125 140
10 15 140
15 20 66 206
20 25 90 296
25 30 4 300
N 300
Here = = 150 . Since median is given as 11, the median class is 10 - 15.
2 2
150 140
Hence, 11 10 5 or x = 50.
x
Also, frequency of the age group 20-25 is 90 – 50 = 40.
Self Assessment
16. The values of a variable that divide a distribution into four equal parts are called quartiles.
17. Q1, Q2 and Q3, known as the first, second and the third quartile respectively.
18. Deciles divide a distribution into 10 equal parts.
19. There are, in all, 9 deciles denoted as D 1, D2, ...... D9 respectively.
20. Percentiles divide a distribution into 100 equal parts.
21. There are, in all, 99 percentiles denoted as P 1, P2, ...... P25, ...... P40, ...... P60, ...... P99 respectively.
6.5 Mode
Mode is that value of the variate which occurs maximum number of times in a distribution and
around which other items are densely distributed. In the words of Croxton and Cowden, “ The
mode of a distribution is the value at the point around which the items tend to be most heavily
concentrated. It may be regarded the most typical of a series of values.” Further, according to
A.M. Tuttle, “Mode is the value which has the greatest frequency density in its immediate
neighbourhood.”
If the frequency distribution is regular, then mode is determined by the value corresponding to
maximum frequency. There may be a situation where concentration of observations around a
value having maximum frequency is less than the concentration of observations around some
other value. In such a situation, mode cannot be determined by the use of maximum frequency
criterion. Further, there may be concentration of observations around more than one value of
the variable and, accordingly, the distribution is said to be bi-model or multi-model depending
upon whether it is around two or more than two values.
The concept of mode, as a measure of central tendency, is preferable to mean and median when
it is desired to know the most typical value, e.g., the most common size of shoes, the most
common size of a ready-made garment, the most common size of income, the most common
size of pocket expenditure of a college student, the most common size of a family in a locality,
the most common duration of cure of viral-fever, the most popular candidate in an election, etc.

6.5.1 Determination of Mode Notes
When data are either in the form of individual observations or in the form of
ungrouped frequency distribution
Given individual observations, these are first transformed into an ungrouped frequency
distribution. The mode of an ungrouped frequency distribution can be determined in two ways,
as given below:
1. By inspection or
2. By method of Grouping
1. By inspection: When a frequency distribution is fairly regular, then mode is often

determined by inspection. It is that value of the variate for which frequency is maximum.
By a fairly regular frequency distribution we mean that as the values of the variable
increase the corresponding frequencies of these values first increase in a gradual manner
and reach a peak at certain value and, finally, start declining gradually in, approximately,
the same manner as in case of increase.
Example: Compute mode of the following data:

3, 4, 5, 10, 15, 3, 6, 7, 9, 12, 10, 16, 18,
20, 10, 9, 8, 19, 11, 14, 10, 13, 17, 9, 11
Solution.
Writing this in the form of a frequency distribution, we get
Values : 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Frequency : 2 1 1 1 1 1 3 4 2 1 1 1 1 1 1 1 1 1
Mode = 10
Remarks:
1. If the frequency of each possible value of the variable is same, there is no mode.
2. If there are two values having maximum frequency, the distribution is said to be bi-
modal.
Example: Determine the mode of the following distribution

X : 10 11 12 13 14 15 16 17 18 19
f : 8 15 20 100 98 95 90 75 50 30
Solution:
This distribution is not regular because there is sudden increase in frequency from 20 to 100.
Therefore, mode cannot be located by inspection and hence the method of grouping is used.
Various steps involved in this method are as follows:
1. Prepare a table consisting of 6 columns in addition to a column for various values of X.
2. In the first column, write the frequencies against various values of X as given in the
question.
3. In second column, the sum of frequencies, starting from the top and grouped in twos, are
written.

Notes 4. In third column, the sum of frequencies, starting from the second and grouped in twos, are
written.
5. In fourth column, the sum of frequencies, starting from the top and grouped in threes are
written.
6. In fifth column, the sum of frequencies, starting from the second and grouped in threes are
written.
7. In the sixth column, the sum of frequencies, starting from the third and grouped in threes
are written.
The highest frequency total in each of the six columns is identified and analysed to determine
mode. We apply this method for determining mode of the above example.
Analysis Table
V A R I A B L E
Columns
10 11 12 13 14 15 16 17 18 19
1 1
2 1 1
3 1 1
4 1 1 1
5 1 1 1
6 1 1 1
Total 0 0 0 3 4 4 2 1 0 0
Since the value 14 and 15 are both repeated maximum number of times in the analysis table,
therefore, mode is ill defined. Mode in this case can be approximately located by the use of the
following formula, which will be discussed later, in this unit.
Mode = 3 Median – 2 mean
Calculation of Median and Mean
X 10 11 12 13 14 15 16 17 18 19 Total
f 8 15 20 100 98 95 90 75 50 30 581
c. f . 8 23 43 143 241 336 426 501 551 581
fX 80 165 240 1300 1372 1425 1440 1275 900 570 8767
581 1 8767
Median = Size of th , i.e., 291st observation = 15. Mean = = 15.09
2 581
Mode = 3 × 15 – 2 × 15.09 = 45 – 30.18 = 14.82

Remarks: If the most repeated values, in the above analysis table, were not adjacent, the Notes
distribution would have been bi-modal, i.e., having two modes.
Example: The monthly profits (in ) of 100 shops are distributed as follows:
Profit per Shop : 0 - 100 100 - 200 200 - 300 300 - 400 400 - 500 500 - 600
No . of Shops : 12 18 27 20 17 6
Determine the 'modal value' of the distribution graphically and verify the result by calculation.
Solution:
Since the distribution is regular, the modal class would be a class having the highest frequency.
The modal class, of the given distribution, is 200 - 300.
Graphical Location of Mode
To locate mode we draw a histogram of the given frequency distribution. The mode is located as
shown in Figure.
Figure 6.1: Graphical Location of Mode
From the figure, mode = 256.

Determination of Mode by interpolation formula
Since the modal class is 200 – 300, Lm = 200, 1 = 27 – 18 = 9, 2 = 27 – 20 = 7 and h = 100.
9
Mo = 200 + 100 = 256.25
9 7
6.5.2 Merits and Demerits of Mode
Merits
1. It is easy to understand and easy to calculate. In many cases it can be located just by
inspection.
2. It can be located in situations where the variable is not measurable but categorisation or
ranking of observations is possible.
3. Like mean or median, it is not affected by extreme observations. It can be calculated even
if these extreme observations are not known.
4. It can be determined even if the distribution has open end classes.
5. It can be located even when the class intervals are of unequal width provided that the
width of modal and that of its preceding and following classes are equal.
6. It is a value around which there is more concentration of observations and hence the best
representative of the data.

Notes Demerits
1. It is not based on all the observations.
2. It is not capable of further mathematical treatment.
3. In certain cases mode is not rigidly defined and hence, the important requisite of a good
measure of central tendency is not satisfied.
4. It is much affected by the fluctuations of sampling.
5. It is not easy to calculate unless the number of observations is sufficiently large and reveal
a marked tendency of concentration around a particular value.
6. It is not suitable when different items of the data are of unequal importance.
7. It is an unstable average because, mode of a distribution, depends upon the choice of

width of class intervals.
6.5.3 Relation between Mean, Median and Mode
The relationship between the above measures of central tendency will be interpreted in terms of
a continuous frequency curve.
If the number of observations of a frequency distribution are increased gradually, then

accordingly, we need to have more number of classes, for approximately the same range of
values of the variable, and simultaneously, the width of the corresponding classes would
decrease. Consequently, the histogram of the frequency distribution will get transformed into
a smooth frequency curve, as shown in Figure 6.2.
Figure 6.2: Frequency Curve
For a given distribution, the mean is the value of the variable which is the point of balance or
centre of gravity of the distribution. The median is the value such that half of the observations
are below it and remaining half are above it. In terms of the frequency curve, the total area under
the curve is divided into two equal parts by the ordinate at median. Mode of a distribution is a
value around which there is maximum concentration of observations and is given by the point
at which peak of the curve occurs.
For a symmetrical distribution, all the three measures of central tendency are equal i.e. = Md =
Mo, as shown in Figure 6.3.
Figure 6.3: Symmetrical Distribution

Imagine a situation in which the above symmetrical distribution is made asymmetrical or Notes
positively (or negatively) skewed (by adding some observations of very high (or very low)
magnitudes, so that the right hand (or the left hand) tail of the frequency curve gets elongated.
Consequently, the three measures will depart from each other. Since mean takes into account
the magnitudes of observations, it would be highly affected. Further, since the total number of
observations will also increase, the median would also be affected but to a lesser extent than
mean. Finally, there would be no change in the position of mode. More specifically, we shall
have Mo < Md < X , when skewness is positive and X < Md < Mo, when skewness is negative, as
shown in Figure 6.4.
Figure 6.4: Positively and Negatively Skewed Distribution
Empirical Relation between Mean, Median and Mode
Empirically, it has been observed that for a moderately skewed distribution, the difference
between mean and mode is approximately three times the difference between mean and median,
i.e., X Mo 3 X Md
This relation can be used to estimate the value of one of the measures when the values of the
other two are known.
Example:
(a) The mean and median of a moderately skewed distribution are 42.2 and 41.9 respectively.
Find mode of the distribution.
(b) For a moderately skewed distribution, the median price of men’s shoes is 380 and modal
price is 350. Calculate mean price of shoes.
Solution:
(a) Here, mode will be determined by the use of empirical formula.
X Mo 3 X Md or M o 3M d 2X
It is given that X = 42.2 and Md = 41.9
Mo = 3 × 41.9 - 2 × 42.2 = 125.7 – 84.4 = 41.3
3M d Mo
(b) Using the empirical relation, we can write X
2
It is given that Md = 380 and Mo = 350
3 380 350
X = 395
2

Notes
Did u know?
3median = mode + 2 mean
mode = 3median – 2 mean
2mean = 3median – mode.
Self Assessment
Fill in the blanks:
22. .......................is that value of the variate which occurs maximum number of times in a
distribution and around which other items are densely distributed.
23. The concept of mode, as a measure of central tendency, is preferable to mean and median
when it is desired to know the .............................
24. For a moderately skewed distribution, the difference between mean and mode is
approximately ......................... the difference between mean and median
6.6 Geometric Mean
The geometric mean of a series of n positive observations is defined as the nth root of their
product.
6.6.1 Calculation of Geometric Mean
Individual Series
If there are n observations, X1, X2, ...... Xn, such that Xi > 0 for each i, their geometric mean (GM)
1
1 n n
is defined as X1, X 2 ..................... X n Xi , where the symbol P is used to denote the
n i 1
product of observations.
To evaluate GM, we have to use logarithms. Taking log of both sides we have
1
log (GM) = log( X1 .X 2 .......X n )
n
1 log X i
log 1 log 2  log
n
Taking antilog of both sides, we have
log X i
GM = antilog n .
This result shows that the GM of a set of observations is the antilog of the arithmetic mean of
their logarithms.

Notes
Example: Calculate geometric mean of the following data:
1, 7, 29, 92, 115 and 375
Solution:
Calculation of Geometric Mean
X 1 7 29 92 115 375 log X

log X 0.0000 0.8451 1.4624 1.9638 2.0607 2.5740 8.9060
log X
8.9060
= antilog n = antilog = 30.50
6
GM = antilog = antilog = 30.50
Ungrouped Frequency Distribution
If the data consists of observations X1, X2, ...... Xn with respective frequencies f1, f2, ...... fn, where
n
fi N
, the geometric mean is given by:
i 1
1
f1 f2 fn N
X1 .X 2  X n
Taking log of both sides, we have

1
log (GM) log 1
1
log 2
2
 log
n
fi log X i
1
1 log 1 2 log 2  log = i 1
N
n
1
or GM = antilog fi log X i , which is again equal to the antilog of the arithmetic mean of
N
i 1
the logarithm of observations.
Example: Calculate geometric mean of the following distribution:
X : 5 10 15 20 25 30
f : 13 18 50 40 10 6

Notes Solution.
Calculation of GM
X f logX f logX
5 13 0. 6990 9. 0870
10 18 1. 0000 18. 0000
15 50 1.1761 58. 8050
20 40 1. 3010 52. 0400
25 10 1. 3979 13. 9790
30 6 1. 4771 8. 8626
Total 137 160. 7736
160.7736
GM = antilog = antilog 1.1735 = 14.91
137
Continuous Frequency Distribution
In case of a continuous frequency distribution, the class intervals are given. Let X1, X2, ......Xn
denote the mid-values of the first, second ...... nth class interval respectively with corresponding
frequencies f1, f2, ...... fn, such that Sfi = N. The formula for calculation of GM is same as the
formula used for an ungrouped frequency distribution
fi log X i
i.e., GM = antilog N
Example: Calculate geometric mean of the following distribution:

Class Intervals : 5 - 15 15 - 25 25 - 35 35 - 45 45 - 55
Frequencies : 10 22 25 20 8
Solution:
Calculation of GM
Class f Mid-Value (X) logX f logX

5-15 10 10 1.0000 10.0000
15-25 22 20 1.3010 28.6227
25-35 25 30 1.4771 36.9280
35-45 20 40 1.6020 32.0412
45-55 8 50 1.6990 13.5918
Total 85 121.1837
121.1837
GM = antilog = antilog 1.4257 = 26.65
85
6.6.2 Weighted Geometric Mean
If various observations, X1, X2, ......Xn, are not of equal importance in the data, weighted geometric
mean is calculated. Weighted GM of the observations X1, X2, ......Xn with respective weights as w1,
w2 ......wn is given by :
wi log X i
GM = antilog wi , i.e., weighted geometric mean of observations is equal to the
antilog of weighted arithmetic mean of their logarithms.

Notes
Example: Calculate weighted geometric mean of the following data:
Variable X : 5 8 44 160 500

Weights w : 10 9 3 2 1
How does it differ from simple geometric mean?
Solution:
Calculation of weighted and simple GM
X Weights ( w) log X wlog X

5 10 0.6990 6.9900
8 9 0.9031 8.1278
44 3 1.6435 4.9304
160 2 2.2041 4.4082
500 1 2.6990 2.6990
Total 25 8.1487 27.1554
27.1554
Weighted GM = antilog = antilog 1.0862 = 12.20
25
8.1487
Simple GM = antilog (n = 5) = antilog 1.6297 = 42.63
5
Note that the simple GM is greater than the weighted GM because the given system of weights
assigns more importance to values having smaller magnitude.
Did u know? Simple GM is greater than the weighted GM because the given system of
weights assigns more importance to values having smaller magnitude.
6.6.3 Geometric Mean of the Combined Group
If G1, G2, ...... Gk are the geometric means of k groups having n1, n2, ...... nk observations respectively,
the geometric mean G of the combined group consisting of n1 + n2 + ...... + nk observations is
given by
ni log Gi
n1 log G1 n2 log G2  nk log Gk
G = antilog n1 n2  nk antilog ni
Example: If the geometric means of two groups consisting of 10 and 25 observations are
90.4 and 125.5 respectively, find the geometric mean of all the 35 observations combined into a
single group.
Solution.
n1 log G1 n2 log G2
Combined GM = antilog n1 n2
Here n1 = 10, G1 = 90.4 and n2 = 25, G2 = 125.5

Notes 10log 90.4 25log125.5

GM = antilog
35
10 1.9562 25 2.0986
= antilog = antilog 2.0579 = 114.27
35
To determine the average rate of change of price for the entire period when the rate
of change of prices for different periods are given
Let P0 be the price of a commodity in the beginning of the first year. If it increases by k1 % in the
first year, the price at the end of 1st year (or beginning of second year) is given by
k1 k1 k1
P1 = P0 + P0 = P0 1 = P0(1 + r1), where r1 = denotes the rate of increase per rupee
100 100 100
in first year. Similarly, if the price changes by k2% in second year, the price at the end of second
year is given by
k2 k2
P2 = P1 + P1 = P1 1 = P1(1 + r2)
100 100
Replacing the value of P1 as P0(1 + r1) we can write
P2 = P0(1 + r1)(1 + r2)
Proceeding in this way, if 100ri% is the rate of change of price in the i th year, the price at the end
of nth period, Pn, is given by
Pn = P0(1 + r1)(1 + r2) ...... (1 + rn) .... (1)
Further, let 100r % per year be the average rate of increase of price that gives the price Pn at the
end of n years. Therefore, we can write
Pn = P0(1 + r)(1 + r) ...... (1 + r) = P0(1 + r)n .... (2)
Equating (1) and (2), we can write
(1 + r)n = (1 + r1)(1 + r2) ...... (1 + rn)
1
or (1 + r) = 1 r1 1 r2  1 rn n .... (3)
This shows that (1 + r) is geometric mean of (1 + r1), (1 + r2), ...... and (1 + rn).
From (3), we get

1
r= 1 r1 1 r2  1 rn n –1 .... (4)
Note: Here r denotes the per unit rate of change. This rate is termed as the rate of increase or the
rate of growth if positive and the rate of decrease or the rate of decay if negative.
6.6.4 Average Rate of Growth of Population
The average rate of growth of price, denoted by r in the above section, can also be interpreted as
the average rate of growth of population. If P0 denotes the population in the beginning of the

period and Pn the population after n years, using Equation (2), we can write the expression for Notes
1
Pn n
the average rate of change of population per annum as r = – 1.
P0
Similarly, Equation (4), given above, can be used to find the average rate of growth of population
when its rates of growth in various years are given.
Remarks: The formulae of price and population changes, considered above, can also be extended
to various other situations like growth of money, capital, output, etc.
Example: The population of a country increased from 2,00,000 to 2,40,000 within a period
of 10 years. Find the average rate of growth of population per year.
Solution:
Let r be the average rate of growth of population per year for the period of 10 years. Let P0 be
initial and P10 be the final population for this period.
We are given P0 = 2,00,000 and P10 = 2,40,000.
1 1
P10 10 2, 40,000 10
r= 1 = 1
P0 2,00,000
1
24 10 1
Now antilog log 24 log 20
20 10
1
anti log 1.3802 1.3010 anti log 0.0079 =1.018
10
Thus, r = 1.018 - 1 = 0.018.
Hence, the percentage rate of growth = 0.018 × 100 = 1.8% p. a.
6.6.5 Suitability of Geometric Mean for Averaging Ratios
It will be shown here that the geometric mean is more appropriate than arithmetic mean while
averaging ratios.
Let there be two values of each of the variables x and y, as given below:
x y
Ratio Ratio
x y y x
40 60 2/3 3/ 2
20 80 1/ 4 4
2 1 3
Now AM of (x/y) ratios = 3 4 11 and the AM of (y/x) ratios = 2 4 11 . We note that their
2 24 2 4
product is not equal to unity.
1
However, the product of their respective geometric means, i.e., and 6 , is equal to unity.
6
Since it is desirable that a method of average should be independent of the way in which a ratio
is expressed, it seems reasonable to regard geometric mean as more appropriate than arithmetic
mean while averaging ratios.

Notes 6.6.6 Properties of Geometric Mean
1. As in case of arithmetic mean, the sum of deviations of logarithms of values from the log
GM is equal to zero.
This property implies that the product of the ratios of GM to each observation, that is less
than it, is equal to the product the ratios of each observation to GM that is greater than it.
For example, if the observations are 5, 25, 125 and 625, their GM = 55.9. The above property
implies that
55.9 55.9 125 625

5 25 55.9 55.9
2. Similar to the arithmetic mean, where the sum of observations remains unaltered if each
observation is replaced by their AM, the product of observations remains unaltered if
each observation is replaced by their GM.
6.6.7 Merits, Demerits and Uses of Geometric Mean
Merits
1. It is a rigidly defined average.
2. It is based on all the observations.
3. It is capable of mathematical treatment. If any two out of the three values, i.e., (i) product
of observations, (ii) GM of observations and (iii) number of observations, are known, the
third can be calculated.
4. In contrast to AM, it is less affected by extreme observations.
5. It gives more weights to smaller observations and vice-versa.
Demerits
1. It is not very easy to calculate and hence not very popular.
2. Like AM, it may be a value which does not exist in the set of given observations.
Uses
1. It is most suitable for averaging ratios and exponential rates of changes.
2. It is used in the construction of index numbers.
3. It is often used to study certain social or economic phenomena.
Task Calculate AM, GM and HM of first five multiples of 3.Which is greatest? Which is
smallest?
! Geometric mean cannot be calculated if any observation is zero or negative.

Caution

Self Assessment Notes
25. The geometric mean of a series of n positive observations is defined as the nth root of their
product.
26. In case of arithmetic mean, the sum of deviations of logarithms of values from the log GM
is equal to zero.
6.7 Harmonic Mean
The harmonic mean of n observations, none of which is zero, is defined as the reciprocal of the
arithmetic mean of their reciprocals.
6.7.1 Calculation of Harmonic Mean
Individual Series
If there are n observations X1, X2, ...... Xn, their harmonic mean is defined as
n n
HM
1 1 1 n 1

X1 X2 Xn i 1 Xi
Example: Obtain harmonic mean of 15, 18, 23, 25 and 30.

Solution:
5
HM = = 5 = 20.92 Ans.
1 1 1 1 1 0. 239
+ + + +
15 18 23 25 30
Ungrouped Frequency Distribution
For ungrouped data, i.e., each X1, X2, ...... Xn, occur with respective frequency f1, f2 ...... fn, where
fi = N is total frequency, the arithmetic mean of the reciprocals of observations is given by
1 n fi
N i 1 Xi .
N
Thus, HM
fi
Xi
Example: Calculate harmonic mean of the following data:
X : 10 11 12 13 14
f : 5 8 10 9 6

Notes Solution:
Calculation of Harmonic Mean
X 10 11 12 13 14 Total
Frequency ( f ) 5 8 10 9 6 38
1
f 0.5000 0.7273 0.8333 0.6923 0.4286 3.1815
X
38
= = 11.94
3.1815
Continuous Frequency Distribution
In case of a continuous frequency distribution, the class intervals are given. The mid-values of
the first, second ...... nth classes are denoted by X1, X2, ...... Xn. The formula for the harmonic mean
is same, as given in (b) above.
Example: Find the harmonic mean of the following distribution :
Class Intervals : 0 - 10 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70 70 - 80
Frequency : 5 8 11 21 35 30 22 18
Solution.
Calculation of Harmonic Mean
Class Intervals 0-10 10-20 20-30 30-40 40-50 50-60 60-70 70-80 Total
Frequency ( f ) 5 8 11 21 35 30 22 18 150
Mid -Values ( X ) 5 15 25 35 45 55 65 75
f
1.0000 0.5333 0.4400 0.6000 0.7778 0.5455 0.3385 0.2400 4.4751
X
HM = 150 = 33. 52 Ans.

4. 4751
6.7.2 Weighted Harmonic Mean
If X1, X2, ...... Xn are n observations with weights w1,w2, ...... wn respectively, their weighted
harmonic mean is defined as follows :
wi
HM = wi
Xi
Example: A train travels 50 kms at a speed of 40 kms/hour, 60 kms at a speed of 50 kms/

hour and 40 kms at a speed of 60 kms/hour. Calculate the weighted harmonic mean of the speed
of the train taking distances travelled as weights. Verify that this harmonic mean represents an
appropriate average of the speed of train.

Solution: Notes
wi 150 150
HM = wi 50 60 40 1.25 1.20 0.67 .... (1)
Xi 40 50 60
= 48.13 kms/hour
Total distance travelled

Verification: Average speed
Total time taken
We note that the numerator of Equation (1) gives the total distance travelled by train. Further, its
50
denominator represents total time taken by the train in travelling 150 kms, since is time
40
60 40
taken by the train in travelling 50 kms at a speed of 40 kms/hour. Similarly and are time
50 60
taken by the train in travelling 60 kms and 40 kms at the speeds of 50 kms./hour and 60 kms/
hour respectively. Hence, weighted harmonic mean is most appropriate average in this case.
Example: Ram goes from his house to office on a cycle at a speed of 12 kms/hour and
returns at a speed of 14 kms/hour. Find his average speed.
Solution:
Since the distances of travel at various speeds are equal, the average speed of Ram will be given
by the simple harmonic mean of the given speeds.
2 2
Average speed 12.92 kms/hour
1 1 0.1547
12 14
6.7.3 Merits and Demerits of Harmonic Mean
Merits
1. It is a rigidly defined average.
3. It gives less weight to large items and vice-versa.
4. It is capable of further mathematical treatment.
5. It is suitable in computing average rate under certain conditions.
Demerits
1. It is not easy to compute and is difficult to understand.
2. It may not be an actual item of the given observations.
3. It cannot be calculated if one or more observations are equal to zero.
4. It may not be representative of the data if small observations are given correspondingly
small weights.

Notes
Did u know? If all the observations of a variable are same, all the three measures of central
tendency coincide, i.e., AM = GM = HM. Otherwise, we have AM > GM > HM.
Quadratic Mean
Notes
Quadratic mean is the square root of the arithmetic mean of squares of observations.
If X1, X2 ...... Xn are n observations, their quadratic mean is given by
X12 X 2 2  X n2 X i2
QM
n n
Similarly, the QM of observations X1, X2 ...... Xn with their respective frequencies as f1, f2
fi X i 2
...... fn is given by QM , where N = fi .
N
Moving Average
This is a special type of average used to eliminate periodic fluctuations from the time
series data.
Progressive Average
A progressive average is a cumulative average which is computed by taking all the available
figures in each succeeding years. The average for different periods are obtained as shown
below:
X1 X 2 X1 X2 X3
X1, , ,  etc.
2 3
This average is often used in the early years of a business.
Composite Average
A composite average is an average of various other averages. If for example,
1, 2 ,  are the arithmetic means of k series, their composite average
1 2 
.
Self Assessment
Fill in the blanks:
27. The harmonic mean of n observations, none of which is............................. , is defined as the
reciprocal of the arithmetic mean of their reciprocals.
28. If all the observations of a variable are same, all the three measures of central tendency
coincide, i.e., AM = GM = HM. Otherwise, we have .................................

6.8 Summary Notes
Summarization of the data is a necessary function of any statistical analysis.
Average is a value which is typical or representative of a set of data.
Arithmetic Mean is defined as the sum of observations divided by the number of

observations.
In order that the mean wage gives a realistic picture of the distribution, the wages of
managers should be given less importance in its computation. The mean calculated in this
manner is called weighted arithmetic mean.
If a constant B is added (subtracted) from every observation, the mean of these observations
also gets added (subtracted) by it.
If every observation is multiplied (divided) by a constant b, the mean of these observations

also gets multiplied (divided) by it.
If some observations of a series are replaced by some other observations, then the mean of
original observations will change by the average change in magnitude of the changed
observations.
Arithmetic mean is rigidly defined by an algebraic formula.
Median of distribution is that value of the variate which divides it into two equal parts.
Median conveys the idea of a typical observation
The values of a variable that divide a distribution into four equal parts are called quartiles
Deciles divide a distribution into 10 equal parts and there are, in all, 9 deciles denoted as
D1, D2, ...... D9 respectively.
Percentiles divide a distribution into 100 equal parts and there are, in all, 99 percentiles
denoted as P1, P2, ...... P25, ...... P40, ...... P60, ...... P99 respectively.
Mode is that value of the variate which occurs maximum number of times in a distribution
and around which other items are densely distributed.
For a moderately skewed distribution, the difference between mean and mode is
approximately three times the difference between mean and median, i.e.,
The geometric mean of a series of n positive observations is defined as the nth root of their
product.
The harmonic mean of n observations, none of which is zero, is defined as the reciprocal
of the arithmetic mean of their reciprocals.
6.9 Keywords
Average: An average is a single value within the range of the data that is used to represent all the
values in the series.
Arithmetic Mean: Arithmetic Mean is defined as the sum of observations divided by the number
of observations.
Deciles: Deciles divide a distribution into 10 equal parts and there are, in all, 9 deciles denoted as
D1, D2, ...... D9 respectively.

Notes Geometric Mean: The geometric mean of a series of n positive observations is defined as the nth
root of their product.
Harmonic Mean: The harmonic mean of n observations, none of which is zero, is defined as the
reciprocal of the arithmetic mean of their reciprocals
Measure of Central Tendency: A measure of central tendency is a typical value around which
other figures congregate.
Measure of Central Value: Since an average is somewhere within the range of data it is sometimes
called a measure of central value.
Median: Median of distribution is that value of the variate which divides it into two equal parts.
Mode: Mode is that value of the variate which occurs maximum number of times in a distribution
and around which other items are densely distributed.
Partition Values: The values that divide a distribution into more than two equal parts are
commonly known as partition values or fractiles.
Percentiles: Percentiles divide a distribution into 100 equal parts and there are, in all, 99 percentiles
denoted as P1, P2, ...... P25, ...... P40, ...... P60, ...... P99 respectively.
Quartiles: The values of a variable that divide a distribution into four equal parts are called
quartiles.
Weighted Arithmetic Mean: Weights are assigned to different items depending upon their
importance, i.e., more important items are assigned more weight.
Weighted Geometric Mean: Weighted geometric mean of observations is equal to the antilog of
weighted arithmetic mean of their logarithms.
1. What are the functions of an average? Discuss the relative merits and demerits of various
types of statistical averages.
2. Give the essential requisites of a measure of ‘Central Tendency’. Under what circumstances
would a geometric mean or a harmonic mean be more appropriate than arithmetic mean?
3. Compute arithmetic mean of the following series:

Marks : 0 - 10 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60
No . of Students : 12 18 27 20 17 6
4. Calculate arithmetic mean of the following data:

: 10 12 14 16 18 20
: 3 7 12 18 10 5
5. Find out the missing frequency in the following distribution with mean equal to 30.
Class : 0 - 10 10 - 20 20 - 30 30 - 40 40 - 50
Frequency : 5 6 10 ? 13
6. A distribution consists of three components each with total frequency of 200, 250 and 300
and with means of 25, 10 and 15 respectively. Find out the mean of the combined distribution.
7. The mean of a certain number of items is 20. If an observation 25 is added to the data, the
mean becomes 21. Find the number of items in the original data.

8. The mean age of a combined group of men and women is 30 years. If the mean age of the Notes
men’s group is 32 years and that for the women’s group is 27 years, find the percentage of
men and women in the combined group.
9. Locate median of the following data:
65, 85, 55, 75, 96, 76, 65, 60, 40, 85, 80, 125, 115, 40
10. In a class of 16 students, the following are the marks obtained by them in statistics. Find
out the lower quartile, upper quartile, seventh decile and thirty fifth percentile.
S . No . : 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Marks : 5 12 17 23 28 31 37 41 42 49 54 58 65 68 17 77
11. Find out median from the following:

No . of Workers : 1- 5 6 - 10 11- 15 16 - 20 21- 25
No . of factories : 3 8 13 11 5
12. Find median from the following distribution:

X : 1 2 3 4 5-9 10 - 14 15 - 19 20 - 25
f : 5 10 16 20 30 15 8 6
13. Determine the mode of the following data:
58, 60, 31, 62, 48, 37, 78, 43, 65, 48
14. Find geometric mean from the following daily income (in ) of 10 families:
85, 70, 15, 75, 500, 8, 45, 250, 40 and 36.
15. Calculate geometric mean of the following distribution:

Marks ( less than ) : 10 20 30 40 50
No . of Students : 12 27 72 93 100
16. The value of a machine depreciates at a constant rate from the cost price of 1,000 to the
scrap value of 100 in ten years. Find the annual rate of depreciation and the value of the
machine at the end of one, two, three years.
17. The price of a commodity increased by 12% in 1986, by 30% in 1987 and by 15% in 1988.
Calculate the average increase of price per year.
18. The population of a city was 30 lakh in 1981 which increased to 45 lakh in 1991. Determine
the rate of growth of population per annum. If the same growth continues, what will be
the population of the city in 1995.
19. The value of a machine depreciated by 30% in 1st year, 13% in 2nd year and by 5% in each
of the following three years. Determine the average rate of depreciation for the entire
period.
20. The geometric means of three groups consisting of 15, 20 and 23 observations are 14.5, 30.2
and 28.8 respectively. Find geometric mean of the combined group.
21. A sum of money was invested for 3 years. The rates of interest in the first, second and third
year were 10%, 12% and 14% respectively. Determine the average rate of interest per
annum.
22. The weighted geometric mean of four numbers 8, 25, 17 and 30 is 15.3. If the weights of first
three numbers are 5, 3 and 4 respectively, find the weight of the fourth number.

Notes 23. The annual rates of growth of output of a factory in five years are 5.0, 6.5, 4.5, 8.5 and 7.5
percent respectively. What is the compound rate of growth of output per annum for the
period?
24. Premier Automobiles Ltd. does statistical analysis for an automobile racing team. Here
are the fuel consumption figures in Kilometer per litre for the team’s cars in the recent
races.
4.77 6.11 6.11 5.05 5.99 4.91 5.27 6.01
5.75 4.89 6.05 5.22 6.02 5.24 6.11 5.02
(a) Calculate the median fuel consumption.
(b) Calculate the mean fuel consumption.
(c) Group the given data into equally sized classes. What is the fuel consumption value
of the modal classes.
(d) Which of the three measures of central tendency is best for Allison to use when she
orders fuel? Explain.
1. Summarization 2. tables, frequency distributions
3. measure of central tendency 4. average
5. congregate 6. averages
7. Mathematical 8. False
9. False 10. False
11. False 12. False
13. (b) 14. (a)
15. (c) 16. True
17. True 18. True

19. True 20. True
21. True 22. Mode
23. most typical value 24. three times
25. True 26. True
27. zero 28. AM > GM > HM.

Guilford J.P. (1965), Fundamental Statistics in Psychology and Education, Mc Graw Notes
New Delhi.
York.
2002.
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Notes Unit 7: Measures of Dispersion
CONTENTS
Objectives
Introduction
7.1 Definitions
7.2 Objectives of Measuring Dispersion
7.3 Characteristics of a Good Measure of Dispersion
7.4 Measures of Dispersion
7.5 Range
7.5.1 Merits and Demerits of Range
7.5.2 Uses of Range
7.6 Interquartile Range
7.6.1 Interpercentile Range
7.6.2 Quartile Deviation or Semi-Interquartile Range
7.6.3 Merits and Demerits of Quartile Deviation
7.7 Mean Deviation or Average Deviation
7.7.1 Calculation of Mean Deviation
7.7.2 Merits and Demerits of Mean Deviation
7.8 Standard Deviation
7.8.1 Calculation of Standard Deviation
7.8.2 Coefficient of Variation
7.8.3 Properties of Standard Deviation
7.8.4 Merits, Demerits and Uses of Standard Deviation
7.8.5 Skewness
7.8.6 Graphical Measure of Dispersion
7.8.7 Empirical relation among various measures of dispersions
7.9 Summary
7.10 Keywords
Objectives
Define the term dispersion and range
Discuss the objectives and characteristics of a good measure of dispersion

Unit 7: Measures of Dispersion
State the merits and demerits of mean deviation Notes
Explain the concept of standard deviation
Describe coefficient of variation
Introduction
A measure of central tendency summarizes the distribution of a variable into a single figure
which can be regarded as its representative. This measure alone, however, is not sufficient to
describe a distribution because there may be a situation where two or more different distributions
have the same central value. Conversely, it is possible that the pattern of distribution in two or
more situations is same but the values of their central tendency are different. Hence, it is necessary
to define some additional summary measures to adequately represent the characteristics of a
distribution. One such measure is known as the measure of dispersion or the measure of variation.
7.1 Definitions
The concept of dispersion is related to the extent of scatter or variability in observations. The
variability, in an observation, is often measured as its deviation from a central value. A suitable
average of all such deviations is called the measure of dispersion.
Some important definitions of dispersion are given below:
“Dispersion is the measure of variation of the items.” — A.L. Bowley
“Dispersion is the measure of extent to which individual items vary.” — L.R. Connor
“The measure of the scatteredness of the mass of figures in a series about an average is called the
measure of variation or dispersion.” — Simpson and Kafka
“The degree to which numerical data tend to spread about an average value is called variation
or dispersion of the data.” — Spiegel
Did u know?
1. Measures of central tendency are known as the averages of first order.
2. Measures of dispersion are known as the averages of second order.
Self Assessment
Fill in the blanks:
1. A measure of central tendency summarizes the distribution of a variable into a single

figure which can be regarded as its ...............................
2. It is possible that the pattern of distribution in two or more situations is ....................... but
the values of their central tendency are ..................................
3. The concept of ..............................is related to the extent of scatter or variability in

observations.
4. Measures of central tendency are known as the ..................................
5. Dispersion are also known as the ....................................

Notes 7.2 Objectives of Measuring Dispersion
The main objectives of measuring dispersion of a distribution are:
1. To test reliability of an average: A measure of dispersion can be used to test the reliability
of an average. A low value of dispersion implies that there is greater degree of homogeneity
among various items and, consequently, their average can be taken as more reliable or
representative of the distribution.
2. To compare the extent of variability in two or more distributions: The extent of variability
in two or more distributions can be compared by computing their respective dispersions.
A distribution having lower value of dispersion is said to be more uniform or consistent.
3. To facilitate the computations of other statistical measures: Measures of dispersions are

used in computations of various important statistical measures like correlation, regression,
test statistics, confidence intervals, control limits, etc.
4. To serve as the basis for control of variations: The main objective of computing a measure
of dispersion is to know whether the given observations are uniform or not. This knowledge
may be utilised in many ways. In the words of Spurr and Bonini, “In matters of health,
variations in body temperature, pulse beat and blood pressure are basic guides to diagnosis.
Prescribed treatment is designed to control their variations. In industrial production,
efficient operation requires control of quality variations, the causes of which are sought
through inspection and quality control programs”. The extent of inequalities of income
and wealth in any society may help in the selection of an appropriate policy to control
their variations.
Self Assessment
6. A measure of dispersion can be used to test the reliability of an average.
7. A high value of dispersion implies that there is greater degree of homogeneity among
various items.
8. The extent of variability in two or more distributions can be compared by computing

their respective dispersions.
9. A distribution having lower value of dispersion is said to be more uniform or consistent.
10. Measures of dispersions are used in computations of various important statistical measures
like correlation, regression, test statistics, confidence intervals, control limits, etc.
7.3 Characteristics of a Good Measure of Dispersion
Like the characteristics of a measure of central tendency, a good measure of dispersion should
posses the following characteristics:
1. It should be easy to calculate.
2. It should be easy to understand.
3. It should be rigidly defined.
4. It should be based on all the observations.
5. It should be capable of further mathematical treatment.

6. It should not be unduly affected by extreme observations. Notes
7. It should not be much affected by the fluctuations of sampling.
Self Assessment
Fill in the blanks:
11. A good measure of dispersion should be .........................defined.
12. A good measure of dispersion should be ...................................... all the observations.
13. A good measure of dispersion should not be unduly affected by .................................
14. A good measure of dispersion should not be much affected by the .......................... of
sampling.
7.4 Measures of Dispersion
Various measures of dispersion can be classified into two broad categories:
1. The measures which express the spread of observations in terms of distance between the
values of selected observations. These are also termed as distance measures, e.g., range,
interquartile range, interpercentile range, etc.
2. The measures which express the spread of observations in terms of the average of deviations
of observations from some central value. These are also termed as the averages of second
order, e.g., mean deviation, standard deviation, etc.
The following are some important measures of dispersion
(a) Range
(b) Inter-Quartile Range
(c) Mean Deviation
(d) Standard Deviation
Self Assessment
15. The measures which express the spread of observations in terms of distance between the
values of selected observations are termed as Kilometres measures.
16. The measures which express the spread of observations in terms of the average of deviations
of observations from some central value. These are also termed as the averages of second
order, e.g., mean deviation, standard deviation, etc.
17. An absolute measure of dispersion is expressed in terms of the units of measurement of

the variable.
18. A relative measure of dispersion, popularly known as coefficient of dispersion, is expressed

as a pure number, independent of the units of measurement of the variable.

Notes 7.5 Range
The range of a distribution is the difference between its two extreme observations, i.e., the
difference between the largest and smallest observations. Symbolically, R = L – S where R
denotes range, L and S denote largest and smallest observations, respectively. R is the absolute
measure of range. A relative measure of range, also termed as the coefficient of range, is
defined as:
L S
Coefficient of Range
L S
Example: Find range and coefficient of range for each of the following data:
1. Weekly wages of 10 workers of a factory are:
310, 350, 420, 105, 115, 290, 245, 450, 300, 375.
2. The distribution of marks obtained by 100 students:
Marks : 0 -10 10 -20 20 -30 30 - 40 40 -50

No. of Students : 6 14 21 20 18
Marks : 50 -60 60 -70 70 -80 80 -90 90 -100
No. of Students : 10 5 3 2 1
3. The age distribution of 60 school going children:
Age (in years) : 5 -7 8 -10 11-13 14 -16 17 -19

Frequency : 20 18 10 8 4
Solution:
1. Range = 450 – 105 = 345
450 105
Coefficient of Range = 0.62.
450 105
2. Range = 100 – 0 = 100 marks
100 0
Coefficient of Range = 1.
100 0
3. Range = 19 – 5 = 12 Years
19 5
Coefficient of Range = 0.583
19 5
7.5.1 Merits and Demerits of Range
Merits
1. It is easy to understand and easy to calculate.
2. It gives a quick measure of variability.

Demerits Notes
1. It is not based on all the observations.
2. It is very much affected by extreme observations.
3. It only gives rough idea of spread of observations.
4. It does not give any idea about the pattern of the distribution. There can be two distribution
with the same range but different patterns of distribution.
5. It is very much affected by fluctuations of sampling.
6. It is not capable of being treated mathematically.
7. It cannot be calculated for a distribution with open ends.
7.5.2 Uses of Range
Inspite of many serious demerits, it is useful in the following situations:
1. It is used in the preparation of control charts for controlling the quality of manufactured
items.
2. It is also used in the study of fluctuations of, say, price of a commodity, temperature of a
patient, amount of rainfall in a given period, etc.
Self Assessment
Fill in the blanks:
19. The ................................... of a distribution is the difference between its two extreme
observations.
20. Symbolically, R = L – S where R denotes range, L and S denote ...............................

observations, respectively.
21. A relative measure of range, also termed as the .............................
7.6 Interquartile Range
Interquartile Range is an absolute measure of dispersion given by the difference between third
quartile (Q3) and first quartile (Q1)
Symbolically, Interquartile range = Q3 – Q1.
7.6.1 Interpercentile Range
The difficulty of extreme observations can also be tackled by the use of interpercentile range or
simply percentile range.
Symbolically, percentile range = P(100 - i) – Pi (i < 50).
This measure excludes i% of the observations at each end of the distribution and is a range of the
middle (100 – 2i)% of the observations.
Normally, a percentile range corresponding to i = 10, i.e., P90 – P10 is used. Since Q1 = P25 and
Q3 = P75, therefore, interquartile range is also a percentile range.

Notes
Example: Determine the interquartile range and percentile range of the following
distribution:
Class Intervals : 11 13 13 15 15 17 17 19 19 21 21 23 23 25
Frequency : 8 10 15 20 12 11 4
Solution:
Class Intervals Frequency Less than c. f .

11 13 8 8
13 15 10 18
15 17 15 33
17 19 20 53
19 21 12 65
21 23 11 76
23 25 4 80
1. Calculation of Interquartile Range

Calculation of Q1
N 80
Since 20, the first quartile class is 15 - 17
4 4
Q1
= 15, Q1
= 15, h = 2 and C = 18
20 18
Hence, 1 15 2 15.27
15
Calculation of Q3
3N 3 80
Since 60, the third quartile class is 19 - 21
4 4
Q3
= 19, Q3
= 12, h = 2 and C = 53
60 53
Hence, 3 19 2 20.17
12
Thus, the interquartile range = 20.17 – 15.27 = 4.90
2. Calculation of Percentile Range
Calculation of P10
10 N 10 80
Since, 8, P10 lies in the class interval 11 – 13
100 100
P10
= 11, P10
= 8, h = 2 and C = 0
8 0
Hence, 10 11 2 13
8

Calculation of P90 Notes
90 N 90 80
Since 72, P90 lies in the class interval 21 - 23
100 100
P90
= 21, P90
= 11, h = 2 and C = 65
72 65
Hence, P90 21 2 22.27.
11
Thus, the percentile range = P90 – P10 = 22.27 – 13.0 = 9.27.
7.6.2 Quartile Deviation or Semi-Interquartile Range
Half of the interquartile range is called the quartile deviation or semi-interquartile range.
Q3 Q1
Symbolically, Q. D. .
2
The value of Q.D. gives the average magnitude by which the two quartiles deviate from median.
If the distribution is approximately symmetrical, then Md ± Q.D. will include about 50% of the
observations and, thus, we can write Q1 = Md – Q.D. and Q3 = Md + Q.D.
Further, a low value of Q.D. indicates a high concentration of central 50% observations and vice-
versa.
Quartile deviation is an absolute measure of dispersion. The corresponding relative measure is
known as coefficient of quartile deviation defined as
Q3 Q1
2 Q3 Q1
Coefficient of Q.D. = Q3 Q1 Q3 Q1
2
Analogous to quartile deviation and the coefficient of quartile deviation we can also define a
P100 i Pi P100 i Pi
percentile deviation and coefficient of percentile deviation as and ,
2 P100 i Pi
respectively.
Example: Find the quartile deviation, percentile deviation and their coefficients from
the following data:
Age (in years) : 15 16 17 18 19 20 21
No. of Students : 4 6 10 15 12 9 4
Solution:
Table for the calculation of Q.D. and P.D.
Age ( X ) No. of Students ( f ) Less than c. f .
15 4 4
16 6 10
17 10 20
18 15 35
19 12 47
20 9 56
21 4 60

Notes N 60
We have, 15 Q1 = 17 (by inspection)
4 4
3N 3 60
45 Q3 = 19 "
4 4
10 N 10 60
6 P10 = 16 "
100 100
90 N 90 60
54 P90 = 20 "
100 100
19 17 20 16
Thus, Q.D. = = 1 year and P.D. = = 2 years
2 2
19 17
Also, Coefficient of Q.D. = = 0.056
19 17
20 16
and Coefficient of P.D. = = 0.11
20 16
7.6.3 Merits and Demerits of Quartile Deviation
Merits
1. It is rigidly defined.
2. It is easy to understand and easy to compute.
3. It is not affected by extreme observations and hence a suitable measure of dispersion

when a distribution is highly skewed.
4. It can be calculated even for a distribution with open ends.
Demerits
1. Since it is not based on all the observations, hence, not a reliable measure of dispersion.
2. It is very much affected by the fluctuations of sampling.
3. It is not capable of being treated mathematically.
Self Assessment
22. Interquartile Range is an absolute measure of dispersion given by the difference between
second quartile (Q3) and first quartile (Q1).
23. Symbolically, Interquartile range = Q 3 – Q1/2
24. 60% of the interquartile range is called the quartile deviation or semi-interquartile range.

7.7 Mean Deviation or Average Deviation Notes
Mean deviation is a measure of dispersion based on all the observations. It is defined as the
arithmetic mean of the absolute deviations of observations from a central value like mean,
median or mode. Here the dispersion in each observation is measured by its deviation from a
central value. This deviation will be positive for an observation greater than the central value
and negative for less than it.
7.7.1 Calculation of Mean Deviation
The following are the formulae for the computation of mean deviation (M.D.) of an individual
series of observations X1, X2, ..... Xn:
1 n
1. M.D. from X Xi X
ni 1
1 n
Md Xi Md
2. M.D. from ni 1
1 n
Mo Xi Mo
3. M.D. from ni 1
In case of an ungrouped frequency distribution, the observations X1, X2, ..... Xn occur with respective
1 n
X that
frequencies f1, f2, ..... fn such f i =XN. X corresponding formulae for M.D. can be written as:
i The
Ni 1i
n
1. M.D. from X 1
fi X i X
N i 1
1 n
2. M.D. from M d fi X i Md
Ni 1
n
1
3. M.D. from M o fi X i Mo
N i 1
The above formulae are also applicable to a grouped frequency distribution where the symbols
X1, X2, ..... Xn will denote the mid-values of the first, second ..... nth classes respectively.
Remarks: We state without proof that the mean deviation is minimum when deviations are
taken from median.
Coefficient of Mean Deviation
The above formulae for mean deviation give an absolute measure of dispersion. The formulae
for relative measure, termed as the coefficient of mean deviation, are given below:
M. D. from X
4. Coefficient of M.D. from X
X

Notes M. D. from M d
5. Coefficient of M.D. from M d
Md
M. D. from M o
6. Coefficient of M.D. from M o
Mo
Example: Calculate mean deviation from mean and median for the following data of
heights (in inches) of 10 persons.
60, 62, 70, 69, 63, 65, 60, 68, 63, 64
Also calculate their respective coefficients.

Solution:
Calculation of M.D. from X
60 62 70 69 63 65 60 68 63 64
X 64.4 inches
10
Sum of observations greater than X = 70 + 69 + 65 + 68 = 272.
Sum of observations less than X = 60 + 62 + 63 + 60 + 63 + 64 = 372.

Also, k2= 4 and k1 = 6
1
M.D. from X 272 372 ( 4 6)64.4 = 2.88 inches
10
2.88
Also, coefficient of M.D. from X = 0.045
64.4
Calculation of M.D. from Md
Arranging the observations in order of magnitude, we have

60, 60, 62, 63, 63, 64, 65, 68, 69, 70
63 64
The median of the above observations is = = 63.5 inches.
2
Sum of observations greater than Md = 64 + 65 + 68 + 69 + 70 = 336
Sum of observations less than Md = 60 + 60 + 62 + 63 + 63 = 308
Also, k2= 5 and k1 = 5.
336 308 (5 5)63.5

M.D. from Md = = 22.8
.8 inches
10
2.8
Also, the coefficient of M.D. from Md = = 0.044.
63.5
Example: Calculate mean deviation from median and its coefficient from the given data:
X : 0 1 2 3 4 5 6 7 8 9
f : 15 45 91 162 110 95 82 26 13 2

Solution: Notes
Calculation of Mean Deviation
X f Less than c. f . X 4 f X 4
0 15 15 4 60
1 45 60 3 135
2 91 151 2 182
3 162 313 1 162
4 110 423 0 0
5 95 518 1 95
6 82 600 2 164
7 26 626 3 78
8 13 639 4 52
9 2 641 5 10
Total 938
N 641
Since = 320.5 Md = 4 (by inspection)
2 2
938 1.46
Thus, M.D. = =1.46 and the coefficient of M.D. = = 0.365
641 4
Example: Calculate mean deviation from median for the following data :
Class Intervals : 20 25 25 30 30 40 40 45 45 50 50 55 55 60 60 70 70 80
Frequency : 6 12 17 30 10 10 8 5 2
Also calculate the coefficient of Mean Deviation.
Solution:
Calculation of Median and Mean Deviation
Class Intervals Frequency( f ) c. f . Mid Values fX

20 25 6 6 22.5 135.0
25 30 12 18 27.5 330.0
30 40 17 35 35.0 595.0
40 45 30 65 42.5 1275.0
45 50 10 75 47.5 475.0
50 55 10 85 52.5 525.0
55 60 8 93 57.5 460.0
60 70 5 98 65.0 325.0
70 80 2 100 75.0 150.0
N
Since = 50, the median class is 40 - 45.
2
Lm = 40, fm = 30, h = 5 and C = 35
50 35
Hence, Md = 40 5 = 42.5
30

Notes Calculation of M.D.

Sum of observations which are greater than Md
= 475 + 525 + 460 + 325 + 150 = 1,935
Sum of observations which are less than Md
= 135 + 330 + 595 = 1060
No. of observations which are greater than Md , i.e., k2
= 10 +10 +8 +5 + 2 = 35
No. of observations which are less than Md , i.e., k1
= 6 +12 +17 = 35
1935 1060 8.75

M.D. = = 8.75 and the coefficient of M.D. = = 0.206
100 42.5
7.7.2 Merits and Demerits of Mean Deviation
Merits
1. It is easy to understand and easy to compute.
3. It is less affected by extreme observations vis-a-vis range or standard deviation (to be

discussed in the next section).
4. It is not much affected by fluctuations of sampling.
Demerits
1. It is not capable of further mathematical treatment. Since mean deviation is the arithmetic
mean of absolute values of deviations, it is not very convenient to be algebraically
manipulated.
2. This necessitates a search for a measure of dispersion which is capable of being subjected
to further mathematical treatment.
3. It is not well defined measure of dispersion since deviations can be taken from any measure
of central tendency.
Uses of M.D.
The mean deviation is a very useful measure of dispersion when sample size is small and no
elaborate analysis of data is needed. Since standard deviation gives more importance to extreme
observations the use of mean deviation is preferred in statistical analysis of certain economic,
business and social phenomena.
Task Calculate the Mean Deviation from mean as well as from median of first ten prime
numbers.


25. An important requirement of a measure of dispersion is that it should be based on
......................... the observations.
(a) Some of (b) Few of

(c) All (d) None of
26. ................................... is a measure of dispersion based on all the observations.

(a) Mean (b) Mean deviation
(c) Quartiles (d) Standard deviation

27. Mean deviation is defined as the ............................. of the absolute deviations of observations
from a central value like mean, median or mode.
(a) Mean (b) Arithmetic mean

(c) Geometric mean (d) Harmonic mean
28. Mean deviation will be .......................... for an observation greater than the central value.
(a) Zero (b) Positive
(c) Negative (d) undetermined
7.8 Standard Deviation
From the mathematical point of view, the practice of ignoring minus sign of the deviations,
while computing mean deviation, is very inconvenient and this makes the formula, for mean
deviation, unsuitable for further mathematical treatment. Further, if the signs are taken into
account, the sum of deviations taken from their arithmetic mean is zero. This would mean that
there is no dispersion in the observations. However, the fact remains that various observations
are different from each other. In order to escape this problem, the squares of the deviations from
arithmetic mean are taken and the positive square root of the arithmetic mean of sum of squares
of these deviations is taken as a measure of dispersion. This measure of dispersion is known as
standard deviation or root-mean square deviation. Square of standard deviation is known as
variance. The concept of standard deviation was introduced by Karl Pearson in 1893.
The standard deviation is denoted by Greek letter ‘ ’ which is called ‘small sigma’ or simply
sigma.
In terms of symbols
1 n 2
Xi X , for n individual observations, X , X ...... X , and
ni 1 1 2 n
1 n 2
fi X i X , for a grouped or ungrouped frequency distribution, where an
Ni 1
n
observation Xi occurs with frequency fi for i = 1,2, ...... n and fi N.
i 1
It should be noted here that the units of are same as the units of X.

Notes 7.8.1 Calculation of Standard Deviation
There are two methods of calculating standard deviation: (i) Direct Method (ii) Short-cut Method
Direct Method
1. Individual Series: If there are n observations X1, X2, ...... Xn, various steps in the calculation
of standard deviation are:
Xi
(a) Find X .
n
(b) Obtain deviations X i X for each i = 1, 2, ...... n.
n 2
(c) Square these deviations and add to obtain Xi X .
i 1
n 2
Xi X
(d) Compute variance, i.e., 2 i 1
.
n
(e) Obtain s as the positive square root of 2.
The above method is appropriate when X is a whole number. If X is not a whole number, the
standard deviation is conveniently computed by using the transformed form of the above
formula, given below.
2 1 2 1
= Xi X = Xi X Xi X
n n
1 2
2 1 2
i =
(The 2nd term is sum of deviations from X , which is equal to zero.)

2
1 2 1 Xi
X i2 X X i2 or
n n n
= Mean of squares – Square of mean.
Example: Calculate variance and standard deviation of the weights of ten persons.
Weights (in kgs) : 45, 49, 55, 50, 41, 44, 60, 58, 53, 55
Solution:
Calculation of standard deviation
Let u X X
45 49 55 50 41 44 60 58 53 55 510
–6 –2 4 –1 –10 –7 9 7 2 4 0
36 4 16 1 100 49 81 49 4 16 356

From the above table Notes
510 2 356
X = 51 kgs and =35.6 kgs2
10 10
= 5.97 kgs
2. Ungrouped or Grouped Frequency Distributions: Let the observations X1, X2 ...... Xn appear
with respective frequencies f1, f2 ...... fn, where fi N . As before, if the distribution is
grouped, then X1, X2 ...... Xn will denote the mid-values of the first, second ..... nth class
intervals respectively. The formulae for the calculation of variance and standard deviation
can be written as
2 1 n 2 1 n 2
fi Xi X and fi X i X respectively.
Ni 1 Ni 1
Here also, we can show that
Variance = Mean of squares – Square of the mean
Therefore, we can write
2
fi X i2 fi Xi
2
fi Xi2 fi Xi
2
and .
N N N N
Example: Calculate standard deviation of the following data :
X : 10 11 12 13 14 15 16 17 18
f : 2 7 10 12 15 11 10 6 3
Solution.
Calculation of Standard Deviation
Let u X X
10 2 20 –4 16 32 200
11 7 77 –3 9 63 847
12 10 120 –2 4 40 1440
13 12 156 –1 1 12 2028
14 15 210 0 0 0 2940
15 11 165 1 1 11 2475
16 10 160 2 4 40 2560
17 6 102 3 9 54 1734
18 3 54 4 16 48 972
76 1064 300 15196
1064 2 300
14, 3.95 and . . 3.95 1.99
76 76

Notes Alternative Method
From the last column of the above table, we have
Sum of squares = 15196
15196
Mean of squares = = 199.95
76
Thus, 2 = Mean of squares – Square of the mean = 199.96 – (14) 2 = 3.96
Short-cut Method
Before discussing this method, we shall examine an important property of the variance (or
standard deviation), given below:
The variance of a distribution is independent of the change of origin but not of change of scale.
Change of Origin
If from each of the observations, X1, X2 ...... Xn, a fixed number, say A, is subtracted, the resulting
values are X1 – A, X2 – A ...... Xn – A.
We denote Xi – A by di, where i = 1, 2 ...... n the values d1, d2 ...... dn are said to be measured from
A. In order to understand this, we consider the following figure.
Values : 0 1 2 3 4 5 6 7 8
(= – 3) Values : –3 –2 –1 0 1 2 3 4 5
In the above, the origin of Xi values is the point at which Xi = 0. When we make the transformation
di = Xi – 3, the origin of di values shift at the value 3 because di = 0 when Xi = 3.
The first part of the property says that the variance of Xi values is equal to the variance of the di
2 2
values, i.e., X d.
Change of Scale
To make change of scale every observation is divided (or multiplied) by a suitable constant. For
example, if Xi denotes inches, then Yi = Xi /12 will denote feet or if Xi denotes rupees, then Yi = 100
Xi
Xi = will denote paise, etc.
0.01
We can also have simultaneous change of origin and scale, by making the transformation
Xi A
ui , where A refers to change of origin and h refers to change of scale.
h
2 2 2 2
According to second part of the property X Y or X u.
The Relation between 2 and 2

X u
2 1 2
Consider X fi X i X .... (1)
N

Xi A Notes
Let ui , Xi = A + hui .... (2)
h
Also fiXi = fi(A + hui) = AN + h fiui
Dividing both sides by N, we have
fi X i fi ui
A h or X A hu .... (3)
N N
Substituting the values of Xi and X in equation (1), we have
2 1 2 1 2
X fi A hui A hu h2 fi ui u h2 2
u .... (4)
N N
The result shows that variance is independent of change of origin but not of change of scale.
Using this we can write down a short-cut formula for variance of X.
2
2 fi ui2 fi ui
X h2 .... (5)
N N
Further, when only change of origin is made

2
2 fi di2 fi di
X , where di = Xi – A
N N
Example: Calculate standard deviation of the following series:
Weekly wages No. of workers Weekly wages No. of workers

100 -105 200 130 -135 410
105 -110 210 135 -140 320
110 -115 230 140 -145 280
115 -120 320 145 -150 210
120 -125 350 150 -155 160
125 -130 520 155 -160 90
Solution:
Calculation of S.D. by using di (= Xi – A)
Class Intervals No. of Workers ( f ) Mid values (X) d=X - 127.5 fd fd 2

100-105 200 102.5 -25 -5000 125000
105-110 210 107.5 -20 -4200 84000
110-115 230 112.5 -15 -3450 51750
115-120 320 117.5 -10 -3200 32000
120-125 350 122.5 -5 -1750 8750
125-130 520 127.5 0 0 0
130-135 410 132.5 5 2050 10250
135-140 320 137.5 10 3200 32000
140-145 280 142.5 15 4200 63000
145-150 210 147.5 20 4200 84000
150-155 160 152.5 25 4000 100000
155-160 90 157.5 30 2700 81000
Total 3300 2750 671750

Notes 2 2
2 fd 2 fd 671750 2750
X
202.87
N N 3300 3300
2
X 202.87 = 14.24
7.8.2 Coefficient of Variation
The standard deviation is an absolute measure of dispersion and is expressed in the same units
as the units of variable X. A relative measure of dispersion, based on standard deviation is
known as coefficient of standard deviation and is given by 100 .

X
This measure introduced by Karl Pearson, is used to compare the variability or homogeneity or
stability or uniformity or consistency of two or more sets of data. The data having a higher value
of the coefficient of variation is said to be more dispersed or less uniform, etc.
Example: Calculate standard deviation and its coefficient of variation from the following
data:
Measurements : 0 5 5 10 10 15 15 20 20 25
Frequency : 4 1 10 3 2
Solution:
Calculation of X and
2
Class Intervals Frequency ( f ) Mid-values (X) u fu fu
0-5 4 2.5 -2 -8 16
5-10 1 7.5 -1 -1 1
10-15 10 12.5 0 0 0
15-20 3 17.5 1 3 3
20-25 2 22.5 2 4 8
Total 20 -2 28
X 12.5
Here , u
5
2
5 2 28 2
Now X 12.5 12 and 5 5.89
20 20 20
5.89
Thus, the coefficient of variation (CV) = 100 49%.
12
Example: The mean and standard deviation of 200 items are found to be 60 and 20
respectively. If at the time of calculations, two items were wrongly recorded as 3 and 67 instead
of 13 and 17, find the correct mean and standard deviation. What is the correct value of the
coefficient of variation?

Solution: Notes
It is given that X 60 , = 20 and n = 200
The sum of observations 200 60 12,000

To find the sum of squares of observations, we use the relation
2
X i2 n 2
X
From this we can write X i2 200 400 3600 8,00,000
Further the corrected sum of observations ( Xi ) = uncorrected sum of observations – sum of

wrongly recorded observations + sum of correct observations = 12,000 – (3 + 67) + (13 +17)
= 11,960.
11960
Corrected X 59.8
200
Similarly, the corrected sum of squares ( Xi 2 ) = uncorrected sum of squares - sum of squares of
wrongly recorded observations + sum of squares of correct observations
= 8,00,000 – (3 2 + 672) + (132 +172) = 7,95,960
2 795960 2
Hence, corrected = 59.8 403.76 or corrected = 20.09
200
20.09
Also, CV = 100 33.60.
59.8
Example: Find the missing information from the following:

Group I Group II Group III Combined
Number of observations 50 ? 90 200
Standard deviation 6 7 ? 7.746
Mean 113 ? 115 116
Solution:
Let n1, n2, n3 and n denote the number of observations, X 1 , X 2 , X 3 and X be the means and 1 ,
2, 3 and be the standard deviations of the first, second, third and combined group
respectively.
Standard Deviation
–3 –2 – + +2 +3
68%
95%
99%

Notes From the given information we can easily determine the number of observations in group II,
i.e, n2 = n - n1 - n3 = 200 - 50 - 90 = 60.
Further the relation between means is given by
n1 X 1 n2 X 2 n3 X 3
X
n1 n2 n3
n1 n2 n3 X n1 X 1 n3 X 3 200 116 50 113 90 115

X2 = = 120
n2 60
To determine s3, consider the following relationship between variances:
2 2
n = n1 ( 1 + d12 ) + n2 ( 2
2
+ d22 ) + n3 ( 3
2
+ d32 )
2 2
n n1 1 d12 n2 2
2 d 22
2
or 3 d32
n3
Here d1 = 113 - 116 = - 3, d2 = 120 - 116 = 4, d3 = 115 – 116 = –1
2
2 200 7.746 50 36 9 60 49 16
3 1 = 64. Thus, 3 = 8.
90
7.8.3 Properties of Standard Deviation
1. Standard deviation of a given set of observations is not greater than any other root mean
1 2 1 2
square deviation, i.e. Xi X Xi A .
n n
2. Standard Deviation of a given set of observations is not less than mean deviation from
mean, i.e., Standard Deviation Mean Deviation from mean.
3. In an approximately normal distribution, X covers about 68% of the distribution,
X 2 covers about 95% of the distribution and X 3 covers about 99%, i.e., almost
whole of the distribution. This is an Empirical Rule that is based on the observations of
several bell shaped symmetrical distributions. This rule is helpful in determining whether
the deviation of a particular value from its mean is unusual or not. The deviations of more
than 2s are regarded as unusual and warrant some remedial action. Furthermore, all
observations with deviations of more than 3s from their mean are regarded as not
belonging to the given data set.
7.8.4 Merits, Demerits and Uses of Standard Deviation
Merits
1. It is a rigidly defined measure of dispersion.
3. It is capable of being treated mathematically. For example, if standard deviations of a

number of groups are known, their combined standard deviation can be computed.
4. It is not very much affected by the fluctuations of sampling and, therefore, is widely used
in sampling theory and test of significance.

Demerits Notes
1. As compared to the quartile deviation and range, etc., it is difficult to understand and
difficult to calculate.
2. It gives more importance to extreme observations.
3. Since it depends upon the units of measurement of the observations, it cannot be used to
compare the dispersions of the distributions expressed in different units.
Uses of Standard Deviation
1. Standard deviation can be used to compare the dispersions of two or more distributions
when their units of measurements and arithmetic means are same.
2. It is used to test the reliability of mean. It may be pointed out here that the mean of a
distribution with lower standard deviation is said to be more reliable.
7.8.5 Skewness
Skewness of a distribution refers to its asymmetry. The symmetry of a distribution implies that
for a given deviation from a central value, there are equal number of observations on either side
of it. If the distribution is asymmetrical or skewed, its frequency curve would have a prolonged
tail either towards its left or towards its right hand side. Thus, the skewness of a distribution is
defined as the departure from symmetry. We may note here that there may be a situation where
two or more frequency distributions are same with regard to mean and variance but not so with
regard to skewness.
Figure 7.1: Positively verses Negatively Skewed Distribution
Positively Skewed Distribution
Negatively Skewed Distribution

Notes In a symmetrical distribution, mean, median and mode are equal and the ordinate at mean
divides the frequency curve into two parts such that one part is the mirror image of the other,
positive skewness results if some observations of high magnitude are added to a symmetrical
distribution so that the right hand tail of the frequency curve gets elongated. In such a situation,
we have Mode < Median < Mean. Similarly, negative skewness results when some observations
of low magnitude are added to the distribution so that left hand tail of the frequency curve gets
elongated and we have Mode > Median > Mean. As shown in Figure 7.1).
Measures of Skewness
A measure of skewness gives the extent and direction of skewness of a distribution. As in case of
dispersion, we can define the absolute and the relative measures of skewness. Various measures
of skewness can be divided into three broad categories : Measures of Skewness based on (i) X ,
Md and Mo, (ii) quartiles or percentiles and (iii) moments.
1. Measure of Skewness based on X , Md and Mo: This measure was suggested by Karl Pearson.
According to this method, the difference between X and Mo can be taken as an absolute
measure of skewness in a distribution, i.e., absolute measure of skewness = X – Mo.
Alternatively, when mode is ill defined and the distribution is moderately skewed, the
above measure can also be approximately expressed as 3( X – Md).
A relative measure, known as Karl Pearson's Coefficient of Skewness, is given by
X Mo Mean Mode 3 X Md
Sk or Sk
Standard deviation
We note that if Sk > 0, the distribution is positively skewed,

if Sk < 0, the distribution is negatively skewed and
if Sk = 0, the distribution is symmetrical.
2. Measure of Skewness based on Quartiles or Percentiles
(a) Using Quartiles
This measure, suggested by Bowley, is based upon the fact that Q1 and Q3 are
equidistant from median of a symmetrical distribution, i.e., Q3 - Md = Md - Q1.
Therefore, (Q3 - Md) - (Md - Q1) can be taken as an absolute measure of skewness.
A relative measure, known as Bowley's Coefficient of Skewness, is defined as
Q3 Md Md Q1 Q3 2M d Q1 Q3 Q1 2M d
SQ
Q3 Md Md Q1 Q3 Q1 Q3 Q1
The value of SQ will lie between – 1 and + 1.
It may be noted here that Sk and SQ are not comparable, though, in the absence of
skewness, both of them are equal to zero.
(b) Using Percentiles
Bowley's measure of skewness leaves 25% observations on each extreme of the

distribution and hence is based only on the middle 50% of the observations. As an
improvement to this, Kelly suggested a measure based on the middle 80% of the
observations.

Kelly's absolute measure of Skewness = (P90 - P50) - (P50 - P10) and Notes
P90 P50 P50 P10 P90 P10 2P50

Kelly's Coefficient of Skewness SP
P90 P50 P50 P10 P90 P10
( We note that P50 = Md).

3. Measure of Skewness based on Moments
This measure is based on the property that all odd ordered moments of a symmetrical
distribution are zero. Therefore, a suitable -coefficient can be taken as a relative measure
of skewness.
Since 1 = 0 and 2 = 1 for every distribution, these do not provide any information about
the nature of a distribution. The third -coefficient, i.e., 3 can be taken as a measure of the
coefficient of skewness. The skewness will be positive, negative or zero (i.e. symmetrical
distribution) depending upon whether 3 > 0, < 0 or = 0. Thus, the coefficient of Skewness
based on moments is given as
3
SM 3 3 1 1
Alternatively, the skewness is expressed in terms of 1. Since 1

is always a non-negative
number, the sign of skewness is given by the sign of µ3.
Example: Calculate the Karl Pearson's coefficient of skewness from the following data:
Size : 1 2 3 4 5 6 7
Frequency : 10 18 30 25 12 3 2
Solution:
To calculate Karl Pearson's coefficient of skewness, we first find X , Mo and s from the given
distribution.
Size (X) Frequency (f ) d X 4 fd fd2

1 10 3 30 90
2 18 2 36 72
3 30 1 30 30
4 25 0 0 0
5 12 1 12 12
6 3 2 6 12
7 2 3 6 18
Total 100 72 234
fd 72
X A 4 3.28
N 100
2 2
fd 2 fd 234 72
1.35
N N 100 100
Also, (by inspection) = 3.00

Notes
3 . 28 3 . 00
0 . 207
1. 35
Since is positive and small, the distribution is moderately positively skewed.
Example: Calculate Karl Pearson's coefficient of skewness from the following data :
Weights ( lbs.) No. of Students Weights ( lbs.) No. of Students
90 - 100 4 140 - 150 23
100 - 110 10 150 - 160 16
110 - 120 17 160 - 170 5
120 - 130 22 170 - 180 3
130 - 140 30
Solution.
Calculation of X, and Mo
Class Frequency Mid Points X 135

u fu fu 2
Intervals (f ) (X) 10
90-100 4 95 4 16 64
100-110 10 105 3 30 90
110-120 17 115 2 34 68
120-130 22 125 1 22 22
130-140 30 135 0 0 0
140-150 23 145 1 23 23
150-160 16 155 2 32 64
160-170 5 165 3 15 45
170-180 3 175 4 12 48
Total 130 20 424
fu 20
1. X A h 135 10 133.46
N 130
2 2
fu 2 fu 424 20
2. h 10 18.0
N N 130 130
1
3. Mo Lm h
1 2
By inspection, the modal class is 130 - 140.

= 130, 1
= 30 22 = 8, 2
= 30 23 = 7 and = 10
8
Thus, M o 130 10 135.33
15
X Mo 133.46 135.33
Hence, Sk 0.10 , the distribution is moderately
18.0
negatively skewed.

Notes
Example: Calculate Karl Pearson's coefficient of skewness from the following data :
Class Intervals : 40-60 30-40 20-30 15-20 10-15 5-10 3-5 0-3
Frequency : 25 15 12 8 6 4 3 2
Solution:
Since mode is ill defined, skewness will be computed by the use of the median.
Calculation of X, and Md
Class Freq. M.V. Less than

d X 25 fd fd 2
Intervals (f ) (X) (c.f .)
0-3 2 1.5 23.5 47.0 1104.5 2
3-5 3 4.0 21.0 63.0 1323.0 5
5-10 4 7.5 17.5 70.0 1225.0 9
10-15 6 12.5 12.5 75.0 937.5 15
15-20 8 17.5 7.5 60.0 450.0 23
20-30 12 25.0 0.0 0.0 0.0 35
30-40 15 35.0 10.0 150.0 1500.0 50
40-60 25 50.0 25.0 625.0 15625.0 75
Total 75 460.0 22165.0
460
1. X 25 31.13
75
2
22165 460
2. 16.06
75 75
N 75
3. Since 37.5 , median class is 30 - 40.
2 2
Thus, = 30, = 35, = 15, = 10
37.5 35
Md 30 10 31.67
15
3 X Md 3 31.13 31.67
Also Sk 0.10
16.06
Example: Calculate Bowley's coefficient of skewness from the following data:

Class Intervals : 0-5 5-10 10-15 15-20 20-25 25-30 30-35 35-40
Frequency : 7 10 20 13 17 10 14 9

Notes Solution:
Calculation of Md , Q1 and Q3
Class Intervals Frequency (f ) Less than (c.f .)

0-5 7 7
5-10 10 17
10-15 20 37
15-20 13 50
20-25 17 67
25-30 10 77
30-35 14 91
35-40 9 100
Total 100
1. Since N 50 , the median class is 15 - 20.

2
50 37
Thus, =15, = 13, =37, = 5, hence M d 15 5 20
13
N
2. Since 25 , the first quartile class is 10 - 15.
4
25 17
Thus, LQ1 10,f Q1 20 = 17, = 5, hence Q1 10 5 12
20
3N
3. Since 75 , the third quartile class is 25 - 30.
4
75 67
Thus, LQ3 25,f Q3 10 = 67, = 5, hence Q3 25 5 29
10
29 2 20 12 1
Bowley's Coefficient of Skewness SQ = 0.06
29 12 17
Thus, the distribution is approximately symmetrical.
Example: In a frequency distribution the coefficient of skewness based upon quartiles is

0.6. If the sum of upper and lower quartiles is 100 and median is 38, find the values of upper and
lower quartiles.
Solution:
It is given that Q3 + Q1 = 100, Md = 38 and SQ = 0.6

Substituting these values in Bowley's formula, we get
100 2 38
0.6 Q3 Q1 40
Q3 Q1
Adding the equations 3
+ 1
= 100 and 3 1
= 40, we get
2 3
= 140 or 3
= 70
Also 1
= 30 ( 1
+ 3
= 100).

Notes
Example: Calculate the Kelly's coefficient of skewness from the following data :
Wages ( ) No.of Workers Wages ( ) No.of Workers

800-900 10 1200-1300 160
900-1000 33 1300-1400 80
1000-1100 47 1400-1500 60
1100-1200 110
Solution:
Calculation of P10 , P50 and P90
Class Intervals No.of Workers (f ) Less than (c.f .)

800-900 10 10
900-1000 33 43
1000-1100 47 90
1100-1200 110 200
1200-1300 160 360
1300-1400 80 440
1400-1500 60 500
Total 500
10 10 500
1. Since N 50, 10
lies in the interval 1000 - 1100.
100 100
Thus, LP10 1000, C 43, f P10 47, h 100
Hence, 50 43
10 1000 100 Rs1014.89
1014 . 89
47
50
2. Since N = 250 , 50 lies in the interval 1200 - 1300.
100
Thus, LP = 1200, C = 200, fP = 160, h = 100
50 50
Hence, 250 200

50 1200 100 Rs12.31.25
1231. 25
160
90
(iii) Since N = 450 , 90 lies in the class 1400 - 1500.
100
Thus, L P = 1400, C = 440, f P = 60, h = 100.
90 90
Hence, 450 440

90 1400 100 Rs14.16.67
1416 . 67
60
1416.67 1014.89 2 1231.25 30.94
SP 0.08
1416.67 1014.89 401.78
Example: Compute the moment measure of skewness from the following distribution.
Marks obtained : 0 - 10 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70
No . of Students : 8 14 22 26 15 10 5

Notes Solution:
Calculation of Skewness
Class Freq. M.V. X 35

u fu fu 2 fu 3
Intervals (f ) (X) 10
0-10 8 5 3 24 72 216
10-20 14 15 2 28 56 112
20-30 22 25 1 22 22 22
30-40 26 35 0 0 0 0
40-50 15 45 1 15 15 15
50-60 10 55 2 20 40 80
60-70 5 65 3 15 45 135
Total 100 24 250 120
fu 10 24 fu 2 100 250
1 h 2.4 , 2 h2 250 and
N 100 N 100
fu 3 1000 120
3 h3 1200.
N 100
Thus, 2
= 250 ( 2.4)2 = 244.24 and 3
= 1200 + 3 250 2.4 + 2( 2.4)3 = 572.35
2 2
3
572.35
Hence, 1 3 3
0.02248
2 244.24
Since the value of 1
is small and 3
is positive, therefore, the distribution is moderately positively
skewed.
Since 1 is a coefficient, its value can directly be obtained from moments of the moments
without adjustment by the scale factor . Let us denote various moments of as follows:
fu 24 fu 2 250 fu 3 120
1 0.24 , 2 2.50 , 3 1.2
N 100 N 100 N 100
2
2 2 1
= 2.50 ( 0.24)2 = 2.4424
Note: At least 4 places after decimal should be taken to get the correct results.
3
3 3 3 2 1 2 1 = 1.2 3 2.5×( 0.24) + 2×( 0.24)3 = 0.5724
2
3 (0.5724) 2
1 3
= 0.02249
2 (2.4424)3
It may also be pointed out that the central moments can also be obtained from 2
, 3
, etc., by
suitable multiplication of the scale factor.
Example: If the first three moments of an empirical frequency distribution about the
value 2 are 1, 16 and 40. Examine the skewness of the distribution.

Solution: We are given raw moments; 1, 16 and 40 , which should be converted Notes
1 2 3
into central moments.

2
Now 2 2 1 = 16 1 = 15
3
3 3 3 2 1 2 1
= 40 3 16 + 2 = 86
86
1 1 3 = 1.48
(15) 2
7.8.6 Empirical Relation among Various Measures of Dispersions
Although much depends upon the nature of a frequency distribution, it has been observed that
for a symmetrical or moderately skewed distribution, the following approximate results hold
true.
5
QD 0.8453 (approximately ) × MD
6
2
QD 0.6745 (approximately ) × SD
3
4
MD 0.7979 (approximately ) × SD
5
or we can say that 6 SD 9 QD 7.5 MD
Also Range 6 SD
!
Caution Standard deviation is independent of change of origin but not of change of scale.
This implies that if a constant is added (or subtracted) to all the observations, the value of
standard deviation remains unaffected. On the other hand, if all the observations are
multiplied or divided by a constant, the standard deviation also gets multiplied (or divided)
by this constant.
Notes Choice of a Suitable Measure of Dispersion

The choice of a suitable measure depends upon: (i) The nature of available data, (ii) the
objective of measuring dispersion and (iii) the characteristics of the measure of dispersion.
The nature of available data may restrict the choice of a measure of dispersion. For example,
if the distribution has class intervals with open ends, one can only calculate quartile
deviation, percentile deviation, etc. On the other hand, if the objective is to know the
extent of variations in the values of a variable in a given time or situation, the calculation
of range may be more appropriate, e.g., maximum and minimum rainfall in a season,
maximum and minimum temperature on a particular day, etc. Similarly, Lorenz Curves
are generally used to compare the extent of inequalities of income or wealth in two or
more situations. Further, if one is interested in obtaining the magnitude of variation in
observations on the average from a central value, mean deviation and standard deviation
are used. In statistical analysis, the use of standard deviation is preferred to mean deviation
because of its several merits over the later. In the words of M.M. Blair, “These two measures
Contd...

Notes
(Mean Deviation and Standard Deviation) are to the statistician what the axe and cross-cut
saw are to the woodsman – the basic tools for working upon his raw materials”. Since the
mean deviation is inconvenient to handle mathematically, the standard deviation is often
used as a measure of dispersion in the absence of any special reason.
Self Assessment
29. The squares root of the deviations from arithmetic mean are taken and the positive square
of the arithmetic mean of sum of squares of these deviations is taken as a measure of
dispersion. This measure of dispersion is known as standard deviation or root-mean
square deviation.
30. The concept of standard deviation was introduced by Karl Pearson in 1897.
31. The standard deviation is an absolute measure of dispersion and is expressed in the same
units as the units of variable X.
32. A relative measure of dispersion, based on standard deviation is known as coefficient of

standard deviation.
Case Study Philips India Ltd.
P
hilips India Ltd., manufactures the famous Philips tube-lights of 40 watts. The
company has developed a new variety of Flouroscent 24 watt tube lights for specific
applications in control equipments used in defence components. Before it is
commercially launched the manager R&D desires to ensure its reliability and quality. The
test results conducted on 400 such tube lights are shown below.
Life Time (hours) No. of Tubes

14 300-400
46 400-500
58 500-600
76 600-700
68 700-800
62 800-900
48 900-1000
22 1000-1100
6 1100-1200
Compute the coefficient of skewness.
7.9 Summary
Range = L – S, L = largest observation and S = smallest observation.
L S
Coefficient of Range =
L S

Q3 Q1 Notes
Quartile Deviation or Semi-Interquartile Range QD =
2
Q3 Q1
Coefficient of QD = Q
3 Q1
Mean Deviation from X 1

fi X i X
N
1
Mean Deviation from M d fi X i Md
N
1
Mean Deviation from M o fi X i Mo
N
M. D. M. D. M. D.
Coefficient of MD or or .
X Md Mo
Standard Deviation Mean of squares Square of the Mean
2
fX 2 fX
N N
2
fd 2 fd
, where d X A.
N N
2
fu 2 fu X A
h , where u .
N N h
Coefficient of s.d. =
X
Coefficient of Variation = 100

X
Standard Deviation of the combined series
2
n1 1 d12 n2 2
2 d 22  nk 2
k d k2
,
n1 n2  nk
where di Xi X for i = 1,2, ... k
7.10 Keywords
Averages of second order : The measures which express the spread of observations in terms of the
average of deviations of observations from some central value are termed as the averages of
second order, e.g., mean deviation, standard deviation, etc.
Coefficient of standard deviation: A relative measure of dispersion, based on standard deviation

is known as coefficient of standard deviation.
Dispersion: Dispersion is the measure of extent to which individual items vary.

Notes Distance measures: The measures which express the spread of observations in terms of distance
between the values of selected observations. These are also termed as distance measures, e.g.,
range, interquartile range, interpercentile range, etc.
Interquartile Range: Interquartile Range is an absolute measure of dispersion given by the

difference between third quartile (Q3) and first quartile (Q1)
Symbolically, Interquartile range = Q3 – Q1.
Measure of central tendency: A measure of central tendency summarizes the distribution of a

variable into a single figure which can be regarded as its representative.
Measure of variation: The measure of the scatteredness of the mass of figures in a series about an
average is called the measure of variation.
Quartile deviation or semi-interquartile range: Half of the interquartile range is called the
quartile deviation or semi-interquartile range.
Range: The range of a distribution is the difference between its two extreme observations, i.e.,
the difference between the largest and smallest observations. Symbolically, R = L – S where R
denotes range, L and S denote largest and smallest observations.
Standard deviation or root-mean square deviation: The squares of the deviations from arithmetic
mean are taken and the positive square root of the arithmetic mean of sum of squares of these
deviations is taken as a measure of dispersion. This measure of dispersion is known as standard
deviation or root-mean square deviation
Variance: Square of standard deviation is known as variance.
1. “Frequency distribution may either differ in numerical size of their averages though not
necessarily in their formation or they may have the same values of their averages yet
differ in their respective formation”. Explain and illustrate how the measures of dispersion
afford a supplement to the information about frequency distribution furnished by averages.
2. “Indeed the averages and measures of variation together cover most of the need of practical
statistician but their interpretation and use in combination require a good knowledge of
statistical theory”. — Tippet
Discuss this statement with the help of arithmetic mean and standard deviation.
3. “ Measures of dispersion and central tendency are complementary to each other in

highlighting the characteristics of a frequency distribution”. Explain this statement with
suitable examples.
4. Explain briefly the meaning of (i) Range (ii) Quartile Deviation.
5. Distinguish between an absolute measure and relative measure of dispersion. What are
the advantages of using the latter?
6. Explain how the standard deviation is a better measure as compared to other measures of
dispersion? Mention its defects, if any.
7. What do you understand by mean deviation? Explain its merits and demerits.
8. Explain mean deviation, quartile deviation and standard deviation. Discuss the
circumstances in which they may be used.

9. What do you understand by coefficient of variation? Discuss the relative advantages of Notes
coefficient of variation and standard deviation as a measure of variability.
10. Calculate range and its coefficient from the following data:
(a) 159, 167, 139, 119, 117, 168, 133, 135, 147, 160
Weights (lbs.) : 115-125 125-135 135-145 145-155 155- 165 165- 175
(b)
Frequency : 4 5 6 3 1 1
11. Find out quartile deviation and its coefficient from the following data:
Class : 0 - 4 5-9 10-14 15-19 20- 24 25- 29

Frequency : 15 26 12 5 4 3
12. Find out the range of income of (a) middle 50% of workers, (b) middle 80% of the workers
and hence the coefficients of quartile deviation and percentile deviation from the following
data :
Wages less than : 40 50 60 70 80 90 100

No. of workers : 5 8 15 20 30 33 35
13. The following data denote the weights of 9 students of certain class. Calculate mean
deviation from median and its coefficient.
S. No. : 1 2 3 4 5 6 7 8 9
Weight : 40 42 45 47 50 51 54 55 57
14. Calculate mean deviation from median for the following data :
Wages per week : 50 -59 60 -69 70 -79 80 -89 90 -99 100 -109 110 -119
No. of workers : 15 40 50 60 45 90 15
15. Calculate the coefficient of mean deviation from mean and median from the following
data :
Marks : 10 -20 20 -30 30 - 40 40 -50 50 -60 60 -70 70 -80 80 -90

No. of Students : 2 6 12 18 25 20 10 7
16. Calculate mean deviation from mode of the following data:
(a) 7, 4, 6, 4, 4, 5, 2, 4, 1, 7, 7, 6, 2, 3, 4, 2
Size : 0 -10 10 -20 20 - 30 30 - 40 40 -50 50 -60

(b) Frequency : 6 20 44 26 3 1
17. Calculate the standard deviation of the following series:
Marks : 0 -10 10 -20 20 -30 30 - 40 40 -50

Frequency : 10 8 15 8 4
18. Calculate the standard deviation from the following data:
Age less than (in years) : 10 20 30 40 50 60 70 80

No. of Persons : 15 30 53 75 100 110 115 125

Notes 19. Find out standard deviation from the following data:
: 30 35 40 45 50 55 60 65 70 75 80
: 1 2 4 7 9 13 17 12 7 6 3
20. The mean of 150 observations is 35 and their standard deviation is 4. Find sum and sum of
squares of all the observations.
21. The mean and standard deviation of two distributions having 100 and 150 observations
are 50, 5 and 40, 6 respectively. Find the mean and standard deviation of all the 250
observations taken together.
22. The mean and standard deviation of 100 items are found to be 40 and 10. If, at the time of
calculations, two items were wrongly taken as 30 and 70 instead of 3 and 27, find the
correct mean and standard deviation.
23. The sum and the sum of squares of a set of observations are 75 and 435 respectively. Find
the number of observations if their standard deviation is 2.
24. The sum and the sum of squares of 50 observations from the value 20 are -10 and 452
respectively. Find standard deviation and coefficient of variation.
25. The mean and standard deviation of marks obtained by 40 students of a class in statistics
are 55 and 8 respectively. If there are only 5 girls in the class and their respective marks are
40, 55, 63, 75 and 87, find mean and standard deviation of the marks obtained by boys.
26. There are 60 male and 40 female workers in a factory. The standard deviations of their
wages (per hour) were calculated as 8 and 11 respectively. The mean wages of the two
groups were found to be equal. Compute the combined standard deviation of the wages of
all the workers.
1. representative 2. same,different
3. dispersion 4. averages of first order
5. averages of second order 6. True

7. False 8. True
9. True 10. True
11. rigidly 12. based on

13. extreme observations 14. fluctuations
15. False 16. True
17. True 18. True

19. range 20. largest and smallest
21. coefficient of range 22. False

23. False 24. False
25. (c) 26. (b)
27. (b) 28. (b)

29. False 30. False
31. True 32. True

7.9 Further Readings Notes

New Delhi.
York.
2002.
Online links http://en.wikipedia.org/wiki/Statistical_dispersion

http://www.quickmba.com/stats/dispersion/
http://www.mathsisfun.com/data/quartiles.html
http://www.investopedia.com/terms/s/standarddeviation.asp
http://en.wikipedia.org/wiki/Coefficient_of_variation

Notes Unit 8: Correlation Analysis
CONTENTS
Objectives
Introduction
8.1 Correlation
8.1.1 Definitions of Correlation
8.1.2 Scope of Correlation Analysis
8.1.3 Properties of Coefficient of Correlation
8.1.4 Scatter Diagram
8.1.5 Karl Pearson’s Coefficient of Linear Correlation
8.1.6 Merits and Limitations of Coefficient of Correlation
8.2 Spearman’s Rank Correlation
8.2.1 Case of Tied Ranks
8.2.2 Limits of Rank Correlation
8.3 Summary
8.4 Keywords
Objectives
Differentiate between univariate distribution and Bivariate Distribution
Categorize study of relationship between two or more variables
State the definition and scope of Correlation Analysis
Discuss the properties, merits and demerits of coefficient of correlation
Explain spearman’s rank correlation
Analyse the case of tied ranks and focus on limits of rank correlation
Introduction
So far we have considered distributions relating to a single characteristics. Such distributions

are known as Univariate Distribution. When various units under consideration are observed
simultaneously, with regard to two characteristics, we get a Bivariate Distribution. For example,
the simultaneous study of the heights and weights of students of a college. For such data also, we
can compute mean, variance, skewness, etc., for each individual characteristics. In addition to
this, in the study of a bivariate distribution, we are also interested in knowing whether there
exists some relationship between two characteristics or in other words, how far the two variables,
corresponding to two characteristics, tend to move together in same or opposite directions i.e.
how far they are associated.

Unit 8: Correlation Analysis
The knowledge of this type of relationship is useful for predicting the value of one variable Notes
given the value of the other. It also helps in understanding and analysis of various economic and
business problems. It should be noted here that statistical relations are different from the exact
mathematical relations. Given a statistical relation Y = a + bX, between two variables X and Y,
we can only get a value of Y that we expect on the average for a given value of X. The study of
relationship between two or more variables can be divided into two broad categories:
1. To determine whether there exists some sort of association between the variables. If so,
what is the degree of association or the magnitude of correlation between the two.
2. To determine the most suitable form of the relationship between the variables given that
they are correlated.
The first category relates to the study of ‘Correlation’ which will be discussed in this unit and the
second relates to the study of ‘Regression’, to be discussed in next unit.
8.1 Correlation
Various experts have defined correlation in their own words and their definitions, broadly
speaking, imply that correlation is the degree of association between two or more variables.
8.1.1 Definitions of Correlation
Some important definitions of correlation are given below:
“If two or more quantities vary in sympathy so that movements in one tend to be accompanied
by corresponding movements in other(s) then they are said to be correlated.”
— L.R. Connor
“Correlation is an analysis of covariation between two or more variables .”
– A.M. Tuttle
“When the relationship is of a quantitative nature, the appropriate statistical tool for discovering
and measuring the relationship and expressing it in a brief formula is known as correlation .”
— Croxton and Cowden
“Correlation analysis attempts to determine the ‘degree of relationship’ between variables “.

— Ya Lun Chou
Correlation Coefficient: It is a numerical measure of the degree of association between two or

more variables.
8.1.2 Scope of Correlation Analysis
If there is a correlation between two variables, it may be due to any of the following situations:
1. One of the variable may be affecting the other: A correlation coefficient calculated from
the data on quantity demanded and corresponding price of tea would only reveal that the
degree of association between them is very high. It will not give us any idea about
whether price is affecting demand of tea or vice-versa. In order to know this, we need to
have some additional information apart from the study of correlation. For example, if on
the basis of some additional information, we say that the price of tea affects its demand,
then price will be the cause and quantity will be the effect. The causal variable is also
termed as independent variable while the other variable is termed as dependent variable.

Notes 2. The two variables may act upon each other: Cause and effect relation exists in this case
also but it may be very difficult to find out which of the two variables is independent. For
example, if we have data on price of wheat and its cost of production, the correlation
between them may be very high because higher price of wheat may attract farmers to
produce more wheat and more production of wheat may mean higher cost of production,
assuming that it is an increasing cost industry. Further, the higher cost of production may
in turn raise the price of wheat. For the purpose of determining a relationship between the
two variables in such situations, we can take any one of them as independent variable.
3. The two variables may be acted upon by the outside influences: In this case we might get a
high value of correlation between the two variables, however, apparently no cause and
effect type relation seems to exist between them. For example, the demands of the two
commodities, say X and Y, may be positively correlated because the incomes of the
consumers are rising. Coefficient of correlation obtained in such a situation is called a
spurious or nonsense correlation.
4. A high value of the correlation coefficient may be obtained due to sheer coincidence (or
pure chance): This is another situation of spurious correlation. Given the data on any two
variables, one may obtain a high value of correlation coefficient when in fact they do not
have any relationship. For example, a high value of correlation coefficient may be obtained
between the size of shoe and the income of persons of a locality.
8.1.3 Properties of Coefficient of Correlation
1. The coefficient of correlation is independent of the change of origin and scale of

measurements.
This property is very useful in the simplification of computations of correlation. On the

basis of this property, we can write a short-cut formula for the computation of rXY :
n ui vi ui vi
rXY
2 2
n ui2 ui n vi2 vi
2. If X and Y are independent they are uncorrelated, but the converse is not true: This property
points our attention to the fact that rXY is only a measure of the degree of linear association
between X and Y. If the association is non-linear, the computed value of rXY is no longer a
measure of the degree of association between the two variables.
8.1.4 Scatter Diagram
Let the bivariate data be denoted by (Xi, Yi), where i = 1, 2 ...... n. In order to have some idea about
the extent of association between variables X and Y, each pair (Xi, Yi), i = 1, 2......n, is plotted on
a graph. The diagram, thus obtained, is called a Scatter Diagram.
Each pair of values (Xi, Yi) is denoted by a point on the graph. The set of such points (also known
as dots of the diagram) may cluster around a straight line or a curve or may not show any
tendency of association. Various possible situations are shown with the help of following
diagrams:

Figure 8.1: Scatter Diagram

Notes
If all the points or dots lie exactly on a straight line or a curve, the association between the
variables is said to be perfect. This is shown below:
Figure 8.2: Association between the Variables
A scatter diagram of the data helps in having a visual idea about the nature of association
between two variables. If the points cluster along a straight line, the association between variables
is linear. Further, if the points cluster along a curve, the corresponding association is non-linear
or curvilinear. Finally, if the points neither cluster along a straight line nor along a curve, there
is absence of any association between the variables.
It is also obvious from the above figure that when low (high) values of X are associated with low
(high) value of Y, the association between them is said to be positive. Contrary to this, when low
(high) values of X are associated with high (low) values of Y, the association between them is
said to be negative.
This unit deals only with linear association between the two variables X and Y. We shall measure
the degree of linear association by the Karl Pearson’s formula for the coefficient of linear
correlation.

Notes 8.1.5 Karl Pearson’s Coefficient of Linear Correlation
Let us assume, again, that we have data on two variables X and Y denoted by the pairs (Xi, Yi),
i = 1,2, ...... n. Further, let the scatter diagram of the data be as shown in figure 8.3.
Figure 8.3: Scatter Diagram of the Data
Let X and Y be the arithmetic means of X and Y respectively. Draw two lines X = X and Y = Y
on the scatter diagram. These two lines, intersect at the point ( X , Y ) and are mutually
perpendicular, divide the whole diagram into four parts, termed as I, II, III and IV quadrants, as
shown.
As mentioned earlier, the correlation between X and Y will be positive if low (high) values of X
are associated with low (high) values of Y. In terms of the above figure, we can say that when
values of X that are greater (less) than X are generally associated with values of Y that are
greater (less) than Y , the correlation between X and Y will be positive. This implies that there
will be a general tendency of points to concentrate in I and III quadrants. Similarly, when
correlation between X and Y is negative, the point of the scatter diagram will have a general
tendency to concentrate in II and IV quadrants.
Further, if we consider deviations of values from their means, i.e., Xi X and Yi Y , we

note that:
1. Both X i X and Yi Y will be positive for all points in quadrant I.
2. Xi X will be negative and Yi Y will be positive for all points in quadrant II.
3. Both X i X and Yi Y will be negative for all points in quadrant III.
4. Xi X will be positive and Yi Y will be negative for all points in quadrant IV.
It is obvious from the above that the product of deviations, i.e., X i X Yi Y will be positive
for points in quadrants I and III and negative for points in quadrants II and IV.
Since, for positive correlation, the points will tend to concentrate more in I and III quadrants
than in II and IV, the sum of positive products of deviations will outweigh the sum of negative
products of deviations. Thus, Xi X Yi Y will be positive for all the n observations.
Similarly, when correlation is negative, the points will tend to concentrate more in II and IV
quadrants than in I and III. Thus, the sum of negative products of deviations will outweigh the

Notes
sum of positive products and hence Xi X Yi Y will be negative for all the n observations.
Further, if there is no correlation, the sum of positive products of deviations will be equal to the
sum of negative products of deviations such that Xi X Yi Y will be equal to zero.
On the basis of the above, we can consider Xi X Yi Y as an absolute measure of

correlation. This measure, like other absolute measures of dispersion, skewness, etc., will depend
upon (i) the number of observations and (ii) the units of measurements of the variables.
In order to avoid its dependence on the number of observations, we take its average, i.e.,
1
Xi X Yi Y . This term is called covariance in statistics and is denoted as Cov(X,Y).
n
To eliminate the effect of units of measurement of the variables, the covariance term is divided
by the product of the standard deviation of X and the standard deviation of Y. The resulting
expression is known as the Karl Pearson's coefficient of linear correlation or the product moment
correlation coefficient or simply the coefficient of correlation, between X and Y.
Cov X , Y
rXY .... (1)
X Y
1
Xi X Yi Y
rXY n
or 1 2 1 2 .... (2)
Xi X Yi Y
n n
Cancelling 1 from the numerator and the denominator, we get

n
Xi X Yi Y
rXY
2 2 .... (3)
Xi X Yi Y
Consider Xi X Yi Y Xi X Yi Y Xi X
X iYi X Yi (second term is zero)
X iYi nX Y Yi nY
2
Similarly we can write Xi X X i2 nX 2
2
and Yi Y Yi2 nY 2
Substituting these values in equation (3), we have
X iYi nXY
rXY
.... (4)
X i2 nX 2 Yi2 nY 2

Notes
Xi Yi
X iYi n
rXY n n
2 2
Xi Yi
X i2 n Yi 2
n
n n
Xi Yi
X iYi
n
2 2
Xi Yi .... (5)
X i2 Yi 2
n n
On multiplication of numerator and denominator by n, we can write
n X iYi Xi Yi
rXY
2 2 .... (6)
n X i2 Xi n Yi2 Yi
Further, if we assume xi = X i - X and y i = Yi - Y , equation (2), given above, can be written as

1
xi yi
rXY n
1 1 .... (7)
xi2 yi2
n n
xi yi
or rXY
.... (8)
xi2 yi2
1 xi yi
or rXY .... (9)
n x y
Equations (5) or (6) are often used for the calculation of correlation from raw data, while the use
of the remaining equations depends upon the forms in which the data are available. For example,
if standard deviations of X and Y are given, equation (9) may be appropriate.
Example: Calculate the Karl Pearson's coefficient of correlation from the following
pairs of values:
Values of X : 12 9 8 10 11 13 7
Values of Y : 14 8 6 9 11 12 3
Solution:
The formula for Karl Pearson's coefficient of correlation is
n X iYi Xi Yi
rXY
2 2
n X i2 Xi n Yi2 Yi

The values of different terms, given in the formula, are calculated from the following table: Notes
2 2
Xi Yi X i Yi Xi Yi
12 14 168 144 196
9 8 72 81 64
8 6 48 64 36
10 9 90 100 81
11 11 121 121 121
13 12 156 169 144
7 3 21 49 9
70 63 676 728 651
Here n = 7 (no. of pairs of observations)
7 676 70 63
rXY 0.949
2 2
7 728 70 7 651 63
Example: Calculate the Karl Pearson's coefficient of correlation between X and Y from
the following data:
2 2
No. of pairs of observations n = 8, Xi X = 184, Yi Y = 148,
Xi X Yi Y = 164, X = 11 and Y = 10
Solution:
X X i Yi Y
Using the formula, rXY , we get
2 2
Xi X Yi Y
164
rXY = = 0. 99
184 148
Example: Calculate the coefficient of correlation between age group and rate of mortality
from the following data:
Age group : 0 - 20 20 - 40 40 - 60 60 - 80 80 - 100

Rate of Mortality : 350 280 540 760 900
Solution:
Since class intervals are given for age, their mid-values shall be used for the calculation of r.
Table for calculation of r
Age M.V . Rate of X i - 50 Yi - 540 2 2

group (X ) Mort .( Y ) u i = 20 vi =
10
ui v i ui vi
0 - 20 10 350 -2 - 19 38 4 361
20 - 40 30 280 -1 - 26 26 1 676
40 - 60 50 540 0 0 0 0 0
60 - 80 70 760 1 22 22 1 484
80 - 100 90 900 2 36 72 4 1296
Total 0 13 158 10 2817

Notes Here n = 5. Using the formula (10) for correlation, we get
5 158 0 13
rXY 0.95
5 10 02 5 2817 132
Example: From the following table, find the missing values and calculate the coefficient
of correlation by Karl Pearson’s method:
X: 6 2 10 4 ?
Y: 9 11 ? 8 7
Arithmetic means of X and Y series are 6 and 8 respectively.
Solution:
The missing value in X-series = 5 × 6 – (6 + 2 + 10 + 4) = 30 – 22 = 8
The missing value in Y-series = 5 × 8 – (9 + 11 + 8 + 7) = 40 – 35 = 5

Table for Calculation of r
2 2
X Y X X Y Y X X Y Y X X Y Y
6 9 0 1 0 0 1
2 11 4 3 12 16 9
10 5 4 3 12 16 9
4 8 2 0 0 4 0
8 7 2 1 2 4 1
Total 26 40 20
26
Using formula of correlation, we get r 0.92
40 20
Example: Calculate Karl Pearson's coefficient of correlation for the following series :
Price (in ) : 10 11 12 13 14 15 16 17 18 19
Demand (in kgs) : 420 410 400 310 280 260 240 210 210 200
Solution.
Table for calculation of r
Price Demand Y 310
u X 14 v uv u2 v2
(X ) (Y ) 10
10 420 4 11 44 16 121
11 410 3 10 30 9 100
12 400 2 9 18 4 81
13 310 1 0 0 1 0
14 280 0 3 0 0 9
15 260 1 5 5 1 25
16 240 2 7 14 4 49
17 210 3 10 30 9 100
18 210 4 10 40 16 100
19 200 5 11 55 25 121
Total 5 16 236 85 706

Notes
10 236 5 16
r 0.96
10 85 25 10 706 256
Example:
A computer while calculating the correlation coefficient between two variables, X and Y, obtained
the following results :
2 2
= 25, = 125, = 650, = 100, = 460, = 508.
It was, however, discovered later at the time of checking that it had copied down two pairs
X Y X Y
of observations as 6 14 in place of the correct pairs 8 12 . Obtain the correct value of r.
8 6 6 8
Solution:
First we have to correct the values of X, X 2 ...... etc.
Corrected X = 125 – (6 + 8) + (8 + 6) = 125
Corrected X 2 = 650 – (36 + 64) + (64 + 36) = 650
Corrected Y = 100 – (14 + 6) + (12 + 8) = 100
Corrected Y 2 = 460 – (196 + 36) + (144 + 64) = 436
Corrected XY = 508 - (84 + 48) + (96 + 48) = 520
25 520 125 100

r 0.67
2 2
25 650 125 25 436 100
8.1.6 Merits and Limitations of Coefficient of Correlation

The only merit of Karl Pearson’s coefficient of correlation is that it is the most popular method
for expressing the degree and direction of linear association between the two variables in terms
of a pure number, independent of units of the variables. This measure, however, suffers from
certain limitations, given below:
1. Coefficient of correlation r does not give any idea about the existence of cause and effect
relationship between the variables. It is possible that a high value of r is obtained although
none of them seem to be directly affecting the other. Hence, any interpretation of r should
be done very carefully.
2. It is only a measure of the degree of linear relationship between two variables. If the
relationship is not linear, the calculation of r does not have any meaning.
3. Its value is unduly affected by extreme items.
4. As compared with other methods, the computations of r are cumbersome and time
consuming.

Notes
!
Caution If the data are not uniformly spread in the relevant quadrants the value of r may
give a misleading interpretation of the degree of relationship between the two variables.
For example, if there are some values having concentration around a point in first quadrant
and there is similar type of concentration in third quadrant, the value of r will be very
high although there may be no linear relation between the variables.
Did u know? The coefficient of correlation lies between –1 and + 1.
Self Assessment
Fill in the blanks:
1. Distributions relating to a single characteristics are known as ..........................
2. When various units under consideration are observed simultaneously, with regard to two
characteristics, we get a ...............................
3. Study of ‘Correlation’ is meant to determine whether there exists some sort of

.................................. between the variables.
4. ................................. is the degree of association between two or more variables.
5. Correlation is an analysis of .................................. between two or more variables.
6. Correlation analysis attempts to determine the .................................. between variables.
7. .................................... is a numerical measure of the degree of association between two or

more variables.
8. A correlation coefficient calculated from the data on quantity demanded and corresponding
price of tea would only reveal that the degree of association between them is very ..................
9. The coefficient of correlation lies between ............................ and ............................
10. A .................................of the data helps in having a visual idea about the nature of association
between two variables.
8.2 Spearman’s Rank Correlation
This is a crude method of computing correlation between two characteristics. In this method,
various items are assigned ranks according to the two characteristics and a correlation is computed
between these ranks. This method is often used in the following circumstances:
1. When the quantitative measurements of the characteristics are not possible, e.g., the results
of a beauty contest where various individuals can only be ranked.
2. Even when the characteristics is measurable, it is desirable to avoid such measurements

due to shortage of time, money, complexities of calculations due to large data, etc.
3. When the given data consist of some extreme observations, the value of Karl Pearson’s
coefficient is likely to be unduly affected. In such a situation the computation of the rank
correlation is preferred because it will give less importance to the extreme observations.
4. It is used as a measure of the degree of association in situations where the nature of

population, from which data are collected, is not known.

The coefficient of correlation obtained on the basis of ranks is called ‘Spearman’s Rank Correlation’ Notes
or simply the ‘Rank Correlation’. This correlation is denoted by (rho) .
Let Xi be the rank of i th individual according to the characteristics X and Yi be its rank according
to the characteristics Y. If there are n individuals, there would be n pairs of ranks (Xi, Yi), i = 1, 2,
...... n. We assume here that there are no ties, i.e., no two or more individuals are tied to a
particular rank. Thus, Xi’s and Yi’s are simply integers from 1 to n, appearing in any order.
1 2  1
The means of X and Y, i.e., . Also,
2 2
2 2 1 2 ( n 1)2 1 n( n 1)(2n 1) (n 1)2 n2 1

X Y [1 22  n2 ]
n 4 n 6 4 12
Let di be the difference in ranks of the i th individual, i.e.,
di = Xi - Yi Xi X Yi Y X Y
Squaring both sides and taking sum over all the observations, we get
2
di2 Xi X Yi Y
2 2
Xi X Yi Y 2 Xi X Yi Y
Dividing both sides by n, we get
1 1 2 1 2 2
di2 Xi X Yi Y Xi X Yi Y
n n n n
2
X
2
Y 2Cov X , Y 2 2
X 2Cov X , Y  2
X
2
Y
Cov X,Y
2 2
X 2 X Y 2 2
X 2 2
X 2 2
X 1 
X Y
1 di2
From this, we can write 1
n 2
2 X
1 di2 1 di2 12 6 di2

or 1 2
1 1
n 2 X n 2 n2 1 n n2 1
Note: This formula is not applicable in case of a bivariate frequency distribution.
8.2.1 Case of Tied Ranks
In case of a tie, i.e., when two or more individuals have the same rank, each individual is
assigned a rank equal to the mean of the ranks that would have been assigned to them in the
event of there being slight differences in their values. To understand this, let us consider the
series 20, 21, 21, 24, 25, 25, 25, 26, 27, 28. Here the value 21 is repeated two times and the value 25
is repeated three times. When we rank these values, rank 1 is given to 20. The values 21 and
21 could have been assigned ranks 2 and 3 if these were slightly different from each other. Thus,
each value will be assigned a rank equal to mean of 2 and 3, i.e., 2.5. Further, the value 24 will be
assigned a rank equal to 4 and each of the values 25 will be assigned a rank equal to 6, the mean
of 5, 6 and 7 and so on.

Notes Since the Spearman's formula is based upon the assumption of different ranks to different
individuals, therefore, its correction becomes necessary in case of tied ranks. It should be noted
that the means of the ranks will remain unaffected. Further, the changes in the variances are
usually small and are neglected. However, it is necessary to correct the term Sdi2 and accordingly
m m2 1
the correction factor , where m denotes the number of observations tied to a particular
12
2 4 1
rank, is added to it for every tie. We note that there will be two correction factors, i.e.,
12
39 1
and in the above example.
12
8.2.2 Limits of Rank Correlation
A positive rank correlation implies that a high (low) rank of an individual according to one
characteristic is accompanied by its high (low) rank according to the other. Similarly, a negative
rank correlation implies that a high (low) rank of an individual according to one characteristic
is accompanied by its low (high) rank according to the other. When = +1, there is said to be
perfect consistency in the assignment of ranks, i.e., every individual is assigned the same rank
with regard to both the characteristics. Thus, we have di 2 = 0 and hence, = 1.
Similarly, when = –1, an individual that has been assigned 1st rank according to one characteristic
must be assigned nth rank according to the other and an individual that has been assigned 2nd
rank according to one characteristic must be assigned (n – 1)th rank according to the other, etc.
Thus, the sum of ranks, assigned to every individual, is equal to (n + 1), i.e., Xi + Yi = n + 1 or
Yi = (n + 1) – Xi, for all i = 1, 2, ...... n.
Further, di = Xi – Yi = Xi – (n + 1) + Xi = 2Xi – (n + 1)
Squaring both sides, we have

2 2
di2 2Xi n 1 4 X i2 n 1 4 n 1 Xi
Taking sum over all the observations, we have

2
4n n 1 2n 1 4n n 1
n n 12 4 n 1
2
di2 4 X i2 Xi n n 1
6 2
2 n n 1 n 1 n n2 1
n n 1 2n 1 n 1 2 n 1
3 3 3
Substituting this value in the formula for rank correlation we have
6n n 2 1 1
1 1
3 2
n n 1
Hence, the Spearman's coefficient of correlation lies between - 1 and + 1.
Example: The following table gives the marks obtained by 10 students in commerce and
statistics. Calculate the rank correlation.
Marks in Statistics : 35 90 70 40 95 45 60 85 80 50
Marks in Commerce : 45 70 65 30 90 40 50 75 85 60

Solution: Notes
Calculation Table
From the above table, we have di2 16.
6 di2 6 16
Rank Correlation 1 1 0.903
n n2 1 10 99
Example: Calculate the Spearman's rank correlation coefficient between the series A and
B given below:
Series A : 57 59 62 63 64 65 55 58 57
Series B : 113 117 126 126 130 129 111 116 112
Solution:
Calculation Table
( X ) Rank of (Y ) Rank of
Series A Series B di Xi Yi di2
Series A Series B
57 113 2.5 3 0.5 0.25
59 117 5 5 0 0
62 126 6 6.5 0.5 0.25
63 126 7 6.5 0.5 0.25
64 130 8 9 1 1.00
65 129 9 8 1 1.00
55 111 1 1 0 0
58 116 4 4 0 0
57 112 2.5 2 0.5 0.25
From the above table, we get di2 3.00
Since there are two ties and two observations are tied in each case, therefore, the correction
m m2 1 m m2 1 m m2 1 2 4 1
factor will be 1
12 12 6 6
Thus, corrected di2 3.00 1 4.00
6 di2 6 4
Now, 1 1 0.967
n n2 1 9 80

Notes
Notes Probable error of r

It is an old measure to test the significance of a particular value of r without the knowledge
of test of hypothesis.
According to Horace Secrist “The probable error of correlation coefficient is an amount

which if added to and subtracted from the mean correlation coefficient, gives limits within
which the chances are even that a coefficient of correlation from a series selected at random
will fall.”
1 r2 1 r2
Since standard error of r, i.e., S . E .r , P. E . r 0.6745
n n
Did u know?
1. Probable error of r, denoted by P.E.(r) is 0.6745 times its standard error.
2. The value 0.6745 is obtained from the fact that in a normal distribution covers 50%
of the total distribution.
Task Calculate Karl Pearson’s coefficient of correlation of first 5 coprime numbers. Also
find the rank correlation for the same data. Observe the difference, if any.
Self Assessment
11. Spearman’s rank correlation is a ............................. method of computing correlation between

two characteristics.
(a) Simple (b) Complex

(c) Rude (d) Crude
12. In Spearman’s rank correlation, various items are assigned ............................. according to
the two characteristics and a correlation is computed between these ranks.
(a) Ranks (b) Tanks
(c) Numbers (d) Standard
13. When the given data consist of some .................................... observations, the value of karl
pearson’s coefficient is likely to be unduly affected.
(a) Special (b) Extreme
(c) General (d) Usual
14. The coefficient of correlation obtained on the basis of ranks is called ....................................
(a) Spearman’s rank correlation (b) Correlation
(c) Regression (d) Karl Pearson correlation

15. A ............................rank correlation implies that a high (low) rank of an individual according Notes
to one characteristic is accompanied by its high (low) rank according to the other.
(a) Positive (b) Negative

(c) Neutral (d) Zero
Case Study Rank Correlation
A
teacher ranked seven of his pupils according to their academic achievement. The
order of achievement from high to low, together with family income of each
pupil is given as follows:
Ray ( 9,200), Bhatnagar ( 4,500), Kaul ( 6,500), Das ( 8,000), Aggarwal ( 27,000), Banerjee
( 17,500) and Kannan ( 16,700). Compute rank correlation between academic achievement
and family income.
8.3 Summary
Summary of Formulae
n X iYi Xi Yi
r (without deviations)
2 2
n X i2 Xi n Yi2 Yi
Xi X Yi Y
r
2 2 (when deviations are taken from means)
Xi X Yi Y
n ui vi ui vi Xi - A Yi - B
ui = and v i =
r , where h k
2 2
n ui2 ui n vi2 vi
N fij ui v j fi ui f j vj
r , where N fij
2 2
N fiui2 fiui N f j v 2j f j vj
2
1- r
Standard Error of r =
n
Probable Error of r = 0.6745 × SEr
6 di2
1 (when ranks are not repeated)
n n2 1
2 2
1 1
6 2

12 12
1 (repeated ranks)
2
1

Notes
2C D
rC (concurrent deviation formula)
D
8.4 Keywords
Bivariate Distribution: When various units under consideration are observed simultaneously,
with regard to two characteristics, we get a Bivariate Distribution
Correlation: When the relationship is of a quantitative nature, the appropriate statistical tool for
discovering and measuring the relationship and expressing it in a brief formula is known as
correlation.
Correlation analysis: Correlation analysis attempts to determine the ‘degree of relationship’

between variables.
Correlation Coefficient: It is a numerical measure of the degree of association between two or
more variables.
Dots of the diagram: Each pair of values (Xi, Yi) is denoted by a point on the graph. The set of
such points (also known as dots of the diagram.
Scatter Diagram: Let the bivariate data be denoted by (Xi, Yi), where i = 1, 2 ...... n. In order to
have some idea about the extent of association between variables X and Y, each pair (Xi, Yi), i =
1, 2......n, is plotted on a graph. The diagram, thus obtained, is called a Scatter Diagram.
Spearman’s Rank Correlation: This is a crude method of computing correlation between two
characteristics. In this method, various items are assigned ranks according to the two characteristics
and a correlation is computed between these ranks.
Univariate Distribution: Distributions relating to a single characteristics are known as univariate
Distribution.
1. Define correlation between two variables. Distinguish between positive and negative
correlation. Illustrate by using diagrams.
2. Write down an expression for the Karl Pearson’s coefficient of linear correlation. Why is
it termed as the coefficient of linear correlation? Explain.
3. “If two variables are independent the correlation between them is zero, but the converse
is not always true”. Explain the meaning of this statement.
4. Distinguish between the Spearman’s coefficient of rank correlation and Karl Pearson’s
coefficient of correlation. Explain the situations under which Spearman’s coefficient of
rank correlation can assume a maximum and a minimum value. Under what conditions
will Spearman’s formula and Karl Pearson’s formula give equal results?
5. Write short notes on scatter diagram.

6. Compute Karl Pearson’s coefficient of correlation from the following data:
X : 8 11 15 10 12 16
Y : 6 9 11 7 9 12

7. Calculate Karl Pearson’s coefficient of correlation between the marks obtained by Notes
10 students in economics and statistics.
Roll No. : 1 2 3 4 5 6 7 8 9 10
Marks in eco. : 23 27 28 29 30 31 33 35 36 39
Marks in stat. : 18 22 23 24 25 26 28 29 30 32
8. Find Karl Pearson’s coefficient of correlation from the following data and interpret its
value.
: 100 101 103 102 100 99 97 98 96 95

: 98 99 99 97 95 92 95 94 90 91
9. Find the coefficient of correlation between X and Y. Assume 69 and 112 as working origins
for X and Y respectively.
X : 78 89 96 69 59 79 68 61
Y : 125 137 156 112 107 136 123 108
10. (a) Calculate the coefficient of correlation from the following data and interpret the
result.
XY 8425, X 28.5, Y 28.0, X 10.5, Y 5.6, and n 10
(b) Draw a scatter diagram of the following data and indicate whether the correlation
between the variables is positive or negative.
Height ( inches ) : 62 72 70 60 67 70 64 65 60 70
Weight ( lbs.) : 50 65 63 52 56 60 59 58 54 65
11. The coefficient of rank correlation of the marks obtained by 10 students in biology and
chemistry was found to be 0.8. It was later discovered that the difference in ranks in the
two subjects obtained by one of the students was wrongly taken as 2 instead of 5. Find the
correct value of coefficient of correlation.
12. Rank correlation coefficient for a certain number of pairs of observations was found to be
0.75. If the sum of squares of the differences between the corresponding ranks is 91, find
the number of pairs.
13. Coefficient of rank correlation and the sum of squares of differences in corresponding
ranks are 0.9021 and 28 respectively. Determine the number of pairs of observations.
1. Univariate Distribution 2. Bivariate Distribution
3. association 4. Correlation
5. covariation 6. ’degree of relationship’
7. Correlation Coefficient 8. high
9. –1,+1 10. scatter diagram
11. (d) 12. (a)
13. (b) 14. (a)
15. (a)

Notes 8.6 Further Readings

New Delhi.
York.
2002.
Online links http://www.mathsisfun.com/data/correlation.html

http://www.mathsisfun.com/data/scatter-xy-plots.html
http://www.experiment-resources.com/correlation-and-regression.html

Unit 9: Regression Analysis
Unit 9: Regression Analysis Notes
CONTENTS
Objectives
Introduction
9.1 Two Lines of Regression
9.1.1 Line of Regression of Y on X
9.1.2 Line of Regression of X on Y
9.1.3 Correlation Coefficient and the two Regression Coefficients
9.1.4 Regression Coefficient in a Bivariate Frequency Distribution
9.2 Least Square Methods
9.2.1 Fitting of Linear Trend
9.2.2 Fitting of Parabolic Trend
9.2.3 Fitting of Exponential Trend
9.3 Summary
9.4 Keywords
Objectives
Define the term regression equation
State the relevance of regression equation in statistics

Discuss two lines of regression
Analyze correlation coefficient and the two regression coefficients
Explain various methods of least square and mention its merits and demerits
Introduction
If the coefficient of correlation calculated for bivariate data (Xi, Yi), i = 1,2, ...... n, is reasonably
high and a cause and effect type of relation is also believed to be existing between them, the next
logical step is to obtain a functional relation between these variables. This functional relation is
known as regression equation in statistics. Since the coefficient of correlation is measure of the
degree of linear association of the variables, we shall discuss only linear regression equation.
This does not, however, imply the non-existence of non-linear regression equations.
The regression equations are useful for predicting the value of dependent variable for given
value of the independent variable. As pointed out earlier, the nature of a regression equation is
different from the nature of a mathematical equation, e.g., if Y = 10 + 2X is a mathematical

Notes equation then it implies that Y is exactly equal to 20 when X = 5. However, if Y = 10 + 2X is a

regression equation, then Y = 20 is an average value of Y when X = 5.
The term regression was first introduced by Sir Francis Galton in 1877.
Did u know?
9.1 Two Lines of Regression
For a bivariate data (Xi, Yi), i = 1,2, ...... n, we can have either X or Y as independent variable. If X
is independent variable then we can estimate the average values of Y for a given value of X. The
relation used for such estimation is called regression of Y on X. If on the other hand Y is used for
estimating the average values of X, the relation will be called regression of X on Y. For a
bivariate data, there will always be two lines of regression. It will be shown later that these two
lines are different, i.e., one cannot be derived from the other by mere transfer of terms, because
the derivation of each line is dependent on a different set of assumptions.
9.1.1 Line of Regression of Y on X
The general form of the line of regression of Y on X is YCi = a + bXi , where YCi denotes the
average or predicted or calculated value of Y for a given value of X = Xi. This line has two
constants, a and b. The constant a is defined as the average value of Y when X = 0. Geometrically,
it is the intercept of the line on Y-axis. Further, the constant b, gives the average rate of change
of Y per unit change in X, is known as the regression coefficient.
Figure 9.1
The above line is known if the values of a and b are known. These values are estimated from the
observed data (Xi, Yi), i = 1,2, ...... n.
Note: It is important to distinguish between YCi and Yi. Where as Yi is the observed value, YCi is
a value calculated from the regression equation.
Deviation taken from Actual Mean as well as from assumed mean
Using the regression YCi = a + bXi, we can obtain YC1, YC2, ...... YCn corresponding to the X values
X1, X2, ...... Xn respectively. The difference between the observed and calculated value for a
particular value of X say Xi is called error in estimation of the ith observation on the assumption
of a particular line of regression. There will be similar type of errors for all the n observations.
We denote by ei = Yi - YCi (i = 1,2,.....n), the error in estimation of the ith observation. As is obvious
from figure, ei will be positive if the observed point lies above the line and will be negative if
the observed point lies below the line. Therefore, in order to obtain a figure of total error,
e i ' s are squared and added. Let S denote the sum of squares of these errors,
n n
2
i.e., S ei2 Yi YCi .
i 1 i 1

9.1.2 Line of Regression of X on Y Notes
The general form of the line of regression of X on Y is XCi = c + dYi , where XCi denotes the
predicted or calculated or estimated value of X for a given value of Y = Yi and c and d are
constants. d is known as the regression coefficient of regression of X on Y.
Figure 9.2
In this case, we have to calculate the value of c and d so that

S' = (Xi - XCi)2 is minimised.
As in the previous section, the normal equations for the estimation of c and d are
Xi = nc + d Yi .... (13)
2
and XiYi = c Yi + d Yi .... (14)
Dividing both sides of equation (13) by n, we have X = c + dY .
Graphing Regression Lines
This shows that the line of regression also passes through the point X, Y . Since both the lines
of regression passes through the point X, Y , therefore X, Y is their point of intersection as
Figure 9.3
We can write c = X - dY .... (15)

As before, the various expressions for d can be directly written, as given below.
X iYi nXY
d .... (16)
2
Yi nY 2
Xi X Yi Y
or d 2 .... (17)
Yi Y

Notes
xi yi
or d .... (18)
yi2
1
Xi X Yi Y Cov X , Y
n
1 2 2 .... (19)
Yi Y Y
n
n X iYi Xi Yi
d 2
Also .... (20)
n Yi2 Yi
This expression is useful for calculating the value of d. Another short-cut formula for the
calculation of d is given by
h n ui vi ui vi
d
k 2 .... (21)
n vi2 vi
Xi - A Yi - B
where ui = and vi =
h k
Consider equation (19)
Cov X , Y r X Y X
d 2 2
r .... (22)
Y Y Y
Substituting the value of c from equation (15) into line of regression of X on Y we have
XCi X dY dYi or XCi X d Yi Y .... (23)
or X Ci X r X Yi Y .... (24)
Y
This shows that the line of regression also passes through the point X, Y . Since both the lines
of regression passes through the point X, Y , therefore X, Y is their point of intersection as
9.1.3 Correlation Coefficient and the two Regression Coefficients
Y X
Since b r and d r we have
X Y
b.d r Y
r X
r2 or r b.d This shows that correlation coefficient is the geometric
X Y
mean of the two regression coefficients.
Example: From the data given below, find:

1. The two regression equations.
2. The coefficient of correlation between marks in economics and statistics.

3. The most likely marks in statistics when marks in economics are 30. Notes
Marks in Eco. : 25 28 35 32 31 36 29 38 34 32
Marks in Stat. : 43 46 49 41 36 32 31 30 33 39
Solution:
Calculation table
.
31 41
25 43 6 2 12 36 4
28 46 3 5 15 9 25
35 49 4 8 32 16 64
32 41 1 0 0 1 0
31 36 0 5 0 0 25
36 32 5 9 45 25 81
29 31 2 10 20 4 100
38 30 7 11 77 49 121
34 33 3 8 24 9 64
32 39 1 2 2 1 4
10 30 123 150 488
From the table, we have
10 30
X = 31 + = 32 and Y = 41 - = 38.
10 10
1. The lines of regression
(a) Regression of Y on X
n uv u v 1230 300
b 2
0.66
n u 2
u 1500 100
a = Y - bX = 38 + 0.66 × 32 = 59.26
Regression equation is
YC = 59.26 - 0.66X
(b) Regression of X on Y
n uv u v 1230 300
d 2
0.23
4880 900
n v2 v
c X dY 32 0.23 38 40.88
Regression equation is
XC = 40.88 - 0.23Y

Notes 2. Coefficient of correlation
r b d 0.66 0.23 0.39
Note that r, b and d are of same sign.

Since we have to estimate marks in statistics denoted by Y, therefore, regression of Y on X
will be used. The most likely marks in statistics when marks in economics are 30, is given
by
YC = 59.26 – 0.66 × 30 = 39.33
Example: For a bivariate data, you are given the following information:
(X – 58) = 46 (X – 58)2 = 3086

(Y – 58) = 9 (Y – 58)2 = 483
(X – 58)(Y – 58) = 1095.
Number of pairs of observations = 7. You are required to determine (i) the two regression
equations and (ii) the coefficient of correlation between X and Y.
Solution:
Let u = X – 58 and v = Y – 58. In terms of our notations, we are given Su = 46, Su2 = 3086, Sv = 9,
Sv2 = 483, Suv = 1095 and n = 7.
46 9
Now X = 58 + = 64.7 and Y = 58 + = 59. 29
7 7
1. For regression equation of Y on X, we have
7 1095 46 9
b 2
0.37
7 3086 46
and a Y bX 59.29 0.37 64.57 35.40

The line of regression of Y on X is given by
YC = 35.40 + 0.37X
2. For regression equation of X on Y, we have
7 1095 46 9
d 2
2.20
7 483 9
and c X dY 64.57 2.2 59.29 65.87

The line of regression of X on Y is given by
XC = - 65.87 + 2.2Y
3. The coefficient of correlation
r b d 0.37 2.2 0.90

9.1.4 Regression Coefficient in a Bivariate Frequency Distribution Notes
As in case of calculation of correlation coefficient, we can directly write the formula for the two
regression coefficients for a bivariate frequency distribution as given below :
N fij X iY j fi X i f j Yj
b 2
N fi X i2 fi X i
Xi A Yj B
or, if we define ui and vj
h k
k N fij ui v j fi ui f jv j
b 2
h
N fiui2 fiui
N fij X iY j fi X i f j Yj
Similarly, d 2
N f j Y j2 f j Yj
h N fij ui v j fiui f jv j
or d 2
k
N f j v 2j f jv j
!
Caution A different line of regression means a different pair of constants a and b.
Self Assessment
Fill in the blanks:
1. Study of ....................... meant to determine the most suitable form of the relationship
between the variables given that they are correlated.
2. If the coefficient of correlation calculated for bivariate data (Xi, Yi), i = 1,2, ...... n, is reasonably
high and a cause and effect type of relation is also believed to be existing between them,
the next logical step is to obtain a functional relation between these variables. This
functional relation is known as .......................... in statistics.
3. Coefficient of correlation is measure of the degree of ...............................of the variables.
4. The regression equations are useful for predicting the value of .............................. variable
for given value of the independent variable.
5. The nature of a regression equation is ......................... the nature of a mathematical equation.
6. The term regression was first introduced by Sir Francis Galton in ..........................
(a) 1857 (b) 1871
(c) 1877 (d) 1987

Notes 7. If X is independent variable then we can estimate the average values of Y for a given value
of X. The relation used for such estimation is called regression of ..............................
(a) X on X (b) Y on Y
(c) X on Y (d) Y on X
8. If Y is used for estimating the average values of X, the relation will be called regression of
................................
(a) X on X (b) Y on Y
(c) X on Y (d) Y on X
9. For a bivariate data, there will always be .............................of regression.
(a) Single line (b) Two lines

(c) Three lines (d) Four lines
10. Derivation of each line is dependent on a different set of ...............................

(a) Functions (b) Assumptions
(c) Symbols (d) Presumptions
9.2 Least Square Methods
This is one of the most popular methods of fitting a mathematical trend. The fitted trend is
termed as the best in the sense that the sum of squares of deviations of observations, from it, are
minimised. We shall use this method in the fitting of following trends:
1. Linear Trend
2. Parabolic Trend
3. Exponential Trend
9.2.1 Fitting of Linear Trend
Given the data (Yt, t) for n periods, where t denotes time period such as year, month, day, etc., we
have to find the values of the two constants, a and b, of the linear trend equation Yt = a + bt.
Using the least square method, the normal equation for obtaining the values of a and b are:
Yt = na + b t and
2
tYt = a t + b t
Let X = t – A, such that X = 0, where A denotes the year of origin.

The above equations can also be written as
Y = na + b X
XY = a X + b X2
(Dropping the subscript t for convenience).
Y XY
Since X = 0, we can write a and b
n X2

9.2.2 Fitting of Parabolic Trend Notes
The mathematical form of a parabolic trend is given by Yt = a + bt + ct2 or Y = a + bt + ct2

(dropping the subscript for convenience). Here a, b and c are constants to be determined from
the given data.
Using the method of least squares, the normal equations for the simultaneous solution of a, b,
and c are:
Y = na + b t + c t 2
tY = a t + b t 2 + c t 3
t 2Y = a t 2 + b t 3 + c t 4
By selecting a suitable year of origin, i.e., define X = t - origin such that SX = 0, the computation
work can be considerably simplified. Also note that if SX = 0, then SX3 will also be equal to zero.
Thus, the above equations can be rewritten as:
Y = na + c X 2 ..(i)
XY = b X 2 ...(ii)
X 2Y = a X 2 + c X 4 ...(iii)
XY
From equation (ii), we get b .... (iv)
X2
Y c X2
Further, from equation (i), we get a .... (v)
n
n X 2Y X2 Y
And from equation (iii), we get c 2
.... (vi)
n X4 X2
Thus, equations (iv), (v) and (vi) can be used to determine the values of the constants a, b and c.
9.2.3 Fitting of Exponential Trend
The general form of an exponential trend is Y = a.bt, where a and b are constants to be determined
from the observed data.
Taking logarithms of both sides, we have logY = log a + t log b.
This is a linear equation in log Y and t and can be fitted in a similar way as done in case of linear
trend. Let A = log a and B = log b, then the above equation can be written as log Y = A + Bt.
The normal equations, based on the principle of least squares are:
log Y = nA + B t
and tlog Y = A t + B t2 .

Notes By selecting a suitable origin, i.e., defining X = t - origin, such that SX = 0, the computation work
logY X log Y
can be simplified. The values of A and B are given by A and B
n X2
respectively. Thus, the fitted trend equation can be written as log Y = A + BX
or Y = Antilog [A + BX] = Antilog [log a + X log b]
= Antilog [log a.bX] = a.bX.
Notes Merits and Demerits of Least Squares Method

Merits
1. Given the mathematical form of the trend to be fitted, the least squares method is an
objective method.
2. Unlike the moving average method, it is possible to compute trend values for all the
periods and predict the value for a period lying outside the observed data.
3. The results of the method of least squares are most satisfactory because the fitted
trend satisfies the two important properties, i.e., (i) (Yo – Yt) = 0 and (ii) (Yo – Yt)2
is minimum. Here Yo denotes the observed value and Yt denotes the calculated
trend value.
The first property implies that the position of fitted trend equation is such that the
sum of deviations of observations above and below this is equal to zero. The second
property implies that the sum of squares of deviations of observations, about the
trend equation, are minimum.
Demerits
1. As compared with the moving average method, it is a cumbersome method.
2. It is not flexible like the moving average method. If some observations are added,
then the entire calculations are to be done once again.
3. It can predict or estimate values only in the immediate future or past.
4. The computation of trend values, on the basis of this method, doesn’t take into
account the other components of a time series and hence not reliable.
5. Since the choice of a particular trend is arbitrary, the method is not, strictly, objective.
6. This method cannot be used to fit growth curves, the pattern followed by the most
of the economic and business time series.
Task Study various methods used for fitting of trends and analyze them.
Self Assessment
11. Least square root method is one of the most popular methods of fitting a mathematical
trend.

12. The fitted trend is termed as the best in the sense that the sum of squares of deviations of Notes
observations, from it, are minimized.
13. The procedure for calculation of the two constants is highly different for even and odd
number of observations.
14. The general form of linear trend equation is Y t = a + bt.
15. The mathematical form of a parabolic trend is given by Yt = a + bt - ct2 or Y = a + bt – ct2

16. The general form of an exponential trend is Y = a.bt
17. Given the mathematical form of the trend to be fitted, the least squares method is an
descriptive method.
18. The results of the method of least squares are most satisfactory.
19. Least square method can be used to fit growth curves.

20. Least square method estimate values only in the immediate future or past.
Case Study Average Growth Rate
T
he weights (in lbs.) of a newly born calf are taken at weekly intervals. Below are the
observations for ten weeks.
Age ( X weeks ) : 1 2 3 4 5 6 7 8 9 10
Weight ( Y lbs . ) : 52. 5 58. 7 65. 0 70. 2 75. 4 81.1 87. 2 95. 5 102. 2 108. 4
Let Y = a + bu, where u = 2X - 11. Use normal equations to estimate a and b. Use these values
to obtain the line of best fit of Y on X and write down the average rate of growth of weight
of the calf per week.
9.3 Summary
Regression of Y on X
XY nX Y n XY X Y
Regression coefficient: b 2 2 2
X nX n X2 X
Cov X , Y Y
Also b 2 r
X X
Change of scale and origin:
X A Y B k n uv u v
If u and v , then b 2
h h h n u2 u
Constant term: a Y bX
Alternative form of regression equation:
Y
YC Y X X or YC Y r X X
X

Notes Regression coefficient in bivariate frequency distribution
k N fij ui v j fi ui f jvj
b 2
h N fi ui2 fi ui
Standard Error of the estimate
sY . X Y 1 r2 for large n ( i.e., n > 30)
2
Yi Y 1 r2
for small n
n 2
Regression of X on Y
XY nX Y n XY X Y
Regression Coefficient d 2
Y 2 nY 2 n Y2 Y
Cov X , Y X
2
r
Y Y
Change of scale and origin
X A Y B h n uv u v
If u and v , then d
h h k 2 2
n v v
Constant term c X dY
Alternative form of regression equation
Regression coefficient in a bivariate frequency distribution
h N f ij ui v j f i ui f jv j
d 2
k N f j v 2j f jv j
Standard error of the estimate
s X .Y X 1 r2 for large n ( i.e., n > 30)
2
Xi X 1 r2
for small n
n 2
Relation of r with b and d
b d r Y
r X
r2
X Y
or r b d

9.4 Keywords Notes
Exponential trend: The general form of an exponential trend is Y = a.bt, where a and b are
constants.
Least square methods: This is one of the most popular methods of fitting a mathematical trend.
The fitted trend is termed as the best in the sense that the sum of squares of deviations of
observations, from it, are minimized.
Line of Regression Y on X: The general form of the line of regression of Y on X is YCi = a + bXi ,
where YCi denotes the average or predicted or calculated value of Y for a given value of X = Xi.
This line has two constants, a and b.
Line of Regression of X on Y: The general form of the line of regression of X on Y is X Ci = c + dYi,

where XCi denotes the predicted or calculated or estimated value of X for a given value of Y = Y i
and c and d are constants. d is known as the regression coefficient of regression of X on Y.
Linear Trend: The linear trend equation is given by relation Y t = a + bt. where t denotes time
period such as year, month, day, etc., and a, b are the constants.
Parabolic Trend: The mathematical form of a parabolic trend is given by Y t = a + bt + ct2 or

Y = a + bt + ct2 Where a, b and c are constants.
Regression equation: If the coefficient of correlation calculated for bivariate data (X i, Yi), i =
1,2, ...... n, is reasonably high and a cause and effect type of relation is also believed to be existing
between them, the next logical step is to obtain a functional relation between these variables.
This functional relation is known as regression equation in statistics.
1. Distinguish between correlation and regression. Discuss least square method of fitting
regression.
2. What do you understand by linear regression? Why there are two lines of regression?
Under what condition(s) can there be only one line?
3. Define the regression of Y on X and of X on Y for a bivariate data (Xi, Yi), i = 1, 2, ...... n. What
would be the values of the coefficient of correlation if the two regression lines (a) intersect
at right angle and (b) coincide?
4. (a) Show that the proportion of variations explained by a regression equation is r2.
(b) What is the relation between Total Sum of Squares (TSS), Explained Sum of Squares
(ESS) and Residual Sum of squares (RSS)? Use this relationship to prove that the
coefficient of correlation has a value between –1 and +1.
5. Write a note on the standard error of the estimate.
6. “The regression line gives only a ‘best estimate’ of the quantity in question. We may
assess the degree of uncertainty in this estimate by calculating its standard error “. Explain.
7. Show that the coefficient of correlation is the geometric mean of the two regression
coefficients.
8. What is the method of least squares? Show that the two lines of regression obtained by this
method are irreversible except when r = ± 1. Explain.

Notes 9. Show that, in principle, there are always two lines of regression for a bivariate data. Prove
that the coefficient of correlation between two variables is either + 1 or –1 when the two
lines are identical and is zero when they are perpendicular.
10. Fit a linear regression of Y on X to the following data:

X : 1 2 3 4 5 6 7 8
Y : 65 80 45 86 178 205 200 250
11. The following table gives the data relating to purchases and sales. Obtain the two regression
equations by the method of least squares and estimate the likely sales when purchases
equal 100.
Purchases : 62 72 98 76 81 56 76 92 88 49
Sales : 112 124 131 117 132 96 120 136 97 85
12. The following table gives the marks of ten students in economics (X) and statistics (Y).
Compute the appropriate regression equation to estimate the marks in statistics of a
student who scored 65 marks in economics.
X : 54 50 63 65 50 65 54 55 61 60
Y : 65 58 78 72 62 72 60 63 66 70
13. In a partially destroyed record the following data are available:
The two regression lines are 5X + 3Y = 290 and 3X + 2Y = 180. The variance of X = 16.
Find (a) Mean values of X and Y
(b) Standard deviation of Y
(c) Coefficient of correlation between X and Y.
14. The two regression lines obtained by a student were as given below:
3X - 4Y = 5
8X + 16Y = 15
Do you agree with him? Explain with reasons.
15. Obtain the lines of regression of Y on X and X on Y for the data given below:
2 2
X 50, Y 60, XY 350, n 10, X 4 and Y 9
1. 'Regression’ 2. regression equation
3. linear association 4. dependent

5. different from 6. (c)
7. (d) 8. (c)
9. (b) 10. (b)

11. False 12. True
13. False 14. True

15. False 16. True
17. False 18. True
19. False 20. True

9.6 Further Readings Notes
Books Bhardwaj R S., Business Statistics, Excel Books.

Hooda R.P., Statistics for Business and Economics, Macmillan India Delhi, 2008.
2002.
Sharma J.K, Business Statistics, Pearson Education Asia, New Delhi, 2009.
Online links http://www.experiment-resources.com/correlation-and-regression.html

http://www.managers-net.com/regression.html
http://www.investopedia.com/terms/r/regression.asp#axzz1VvD6cSeJ
http://en.wikipedia.org/wiki/Regression_analysis
http://www.law.uchicago.edu/files/files/20.Sykes_.Regression.pdf

Notes Unit 10: Index Number
CONTENTS
Objectives
Introduction
10.1 Definitions and Characteristics of Index Numbers
10.2 Uses of Index Numbers
10.3 Construction of Index Numbers
10.4 Notations and Terminology
10.5 Price Index Numbers
10.6 Quantity Index Numbers
10.7 Value Index Number
10.8 Comparison of Laspeyres’s and Paasche’s Index Numbers
10.9 Relation between Weighted Aggregative and Weighted Arithmetic Average of Price
Relatives Index Numbers
10.9.1 Change in the Cost of Living due to Change in Price of an Item
10.10 Chain Base Index Numbers
10.10.1 Chained Index Numbers
10.10.2 Conversion of Chain Base Index Number into Fixed Base Index Number
and vice-versa
10.11 Summary
10.12 Keywords
Objectives

Define the term index number
Discuss the features and uses of an index number
Familiar with notations and terminologies used in index numbers
Establish relation between weighted aggregative and weighted arithmetic average of

price relatives index numbers
Make comparison of Laspeyres's and Paasche's Index Numbers
Tell about chain base index numbers

Unit 10: Index Number
Introduction Notes
An index number is a statistical measure used to compare the average level of magnitude of a
group of distinct but related variables in two or more situations. Suppose that we want to
compare the average price level of different items of food in 1992 with what it was in 1990. Let
the different items of food be wheat, rice, milk, eggs, ghee, sugar, pulses, etc. If the prices of all
these items change in the same ratio and in the same direction; assume that prices of all the items
have increased by 10% in 1992 as compared with their prices in 1990; then there will be no
difficulty in finding out the average change in price level for the group as a whole. Obviously,
the average price level of all the items taken as a group will also be 10% higher in 1992 as
compared with prices of 1990. However, in real situations, neither the prices of all the items
change in the same ratio nor in the same direction, i.e., the prices of some commodities may
change to a greater extent as compared to prices of other commodities. Moreover, the price of
some commodities may rise while that of others may fall. For such situations, the index numbers
are very useful device for measuring the average change in prices or any other characteristics
like quantity, value, etc., for the group as a whole.
Another important feature of the index number is that it is often used to average a characteristics
expressed in different units for different items of a group. For example, the price of wheat may
be quoted as /kg., price of milk as /litre, price of eggs as /dozen, etc. To arrive at a single
figure that expresses the average change in price for the whole group, various prices have to be
combined and averaged in a suitable way. This single figure is known as price index and can be
used to determine the extent and direction of average change in the prices for the group. In a
similar way we can construct quantity index numbers, value index numbers, etc. It should be
noted here that.
Did u know? Index numbers are specialized type of averages that are used to measure the
changes in a characteristics which is not capable of being directly measured. For example,
it is not possible to measure business activity in a direct way, however, relative changes in
a business activity can be determined by the direct measurement of changes in some
factors that affect it. Similarly, it is not possible to measure, directly, the price level of a
group of items, but changes in price level can be measured by using price index numbers.
10.1 Definitions and Characteristics of Index Numbers
Some important definitions of index numbers are given below:
“An index number is a device for comparing the general level of magnitude of a group of
distinct, but related, variables in two or more situations.” — Karmel and Polasek
“An index number is a special type of average that provides a measurement of relative changes
from time to time or from place to place.” — Wessell, Wilett and Simone
“Index number shows by its variation the changes in a magnitude which is not susceptible either
of accurate measurement in itself or of direct valuation in practice.” — Edgeworth
“An index number is a single ratio (usually in percentage) which measures the combined (i.e.,
averaged) change of several variables between two different times, places or situations.”
— Tuttle

Notes On the basis of the above definitions, the following characteristics of index numbers are worth
mentioning:
1. Index numbers are specialised averages: As we know that an average of data is its
representative summary figure. In a similar way, an index number is also an average,
often a weighted average, computed for a group. It is called a specialised average because
the figures, that are averaged, are not necessarily expressed in homogeneous units.
2. Index numbers measure the changes for a group which are not capable of being directly
measured: The examples of such magnitudes are: Price level of a group of items, level of
business activity in a market, level of industrial or agricultural output in an economy, etc.
3. Index numbers are expressed in terms of percentages: The changes in magnitude of a group
are expressed in terms of percentages which are independent of the units of measurement.
This facilitates the comparison of two or more index numbers in different situations.
10.2 Uses of Index Numbers
The main uses of index numbers are:

1. To measure and compare changes: The basic purpose of the construction of an index number
is to measure the level of activity of phenomena like price level, cost of living, level of
agricultural production, level of business activity, etc. It is because of this reason that
sometimes index numbers are termed as barometers of economic activity. It may be
mentioned here that a barometer is an instrument which is used to measure atmospheric
pressure in physics.
The level of an activity can be expressed in terms of index numbers at different points of
time or for different places at a particular point of time. These index numbers can be easily
compared to determine the trend of the level of an activity over a period of time or with
reference to different places.
2. To help in providing guidelines for framing suitable policies: Index numbers are
indispensable tools for the management of any government or non-government
organisation. For example, the increase in cost of living index is helpful in deciding the
amount of additional dearness allowance that should be paid to the workers to compensate
them for the rise in prices. In addition to this, index numbers can be used in planning and
formulation of various government and business policies.
3. Price index numbers are used in deflating: This is a very important use of price index
numbers. These index numbers can be used to adjust monetary figures of various periods
for changes in prices. For example, the figure of national income of a country is computed
on the basis of the prices of the year in question. Such figures, for various years often
known as national income at current prices, do not reveal the real change in the level of
production of goods and services. In order to know the real change in national income,
these figures must be adjusted for price changes in various years. Such adjustments are
possible only by the use of price index numbers and the process of adjustment, in a
situation of rising prices, is known as deflating.
4. To measure purchasing power of money: We know that there is inverse relation between
the purchasing power of money and the general price level measured in terms of a price
index number. Thus, reciprocal of the relevant price index can be taken as a measure of the
purchasing power of money.

10.3 Construction of Index Numbers Notes
To illustrate the construction of an index number, we reconsider various items of food mentioned
earlier. Let the prices of different items in the two years, 1990 and 1992, be as given below:
Price in 2009 Price in 2011

Item
(in /unit) (in /unit)
1. Wheat 300/quintal 360/quintal
2. Rice 12/kg. 15/kg.
3. Milk 7/litre 8/litre
4. Eggs 11/dozen 12/dozen
5. Ghee 80/kg. 88/kg.
6. Sugar 9/kg. 10/kg.
7. Pulses 14/kg. 16/kg.
The comparison of price of an item, say wheat, in 1992 with its price in 1990 can be done in two
ways, explained below:
1. By taking the difference of prices in the two years, i.e., 360 – 300 = 60, one can say that the
price of wheat has gone up by 60/quintal in 1992 as compared with its price in 1990.
360
2. By taking the ratio of the two prices, i.e., 1.20 , one can say that if the price of wheat
300
in 1990 is taken to be 1, then it has become 1.20 in 1992. A more convenient way of
comparing the two prices is to express the price ratio in terms of percentage, i.e.,
360
100 120 , known as Price Relative of the item. In our example, price relative of
300
wheat is 120 which can be interpreted as the price of wheat in 1992 when its price in 1990
is taken as 100. Further, the figure 120 indicates that price of wheat has gone up by 120 – 100
= 20% in 1992 as compared with its price in 1990.
The first way of expressing the price change is inconvenient because the change in price depends
upon the units in which it is quoted. This problem is taken care of in the second method, where
price change is expressed in terms of percentage. An additional advantage of this method is that
various price changes, expressed in percentage, are comparable. Further, it is very easy to grasp
the 20% increase in price rather than the increase expressed as 60/quintal.
For the construction of index number, we have to obtain the average price change for the group
in 1992, usually termed as the Current Year, as compared with the price of 1990, usually called
the Base Year. This comparison can be done in two ways:
1. By taking suitable average of price relatives of different items. The methods of index
number construction based on this procedure are termed as Average of Price Relative
Methods.
2. By taking ratio of the averages of the prices of different items in each year. These methods
are popularly known as Aggregative Methods.
Since the average in each of the above methods can be simple or weighted, these can further be
divided as simple or weighted. Various methods of index number construction can be classified
as shown below:

Notes Figure 10.1: Various Methods of Index Number Construction
In addition to this, a particular method would depend upon the type of average used. Although,
geometric mean is more suitable for averaging ratios, arithmetic mean is often preferred because
of its simplicity with regard to computations and interpretation.
10.4 Notations and Terminology
Before writing various formulae of index numbers, it is necessary to introduce certain notations
and terminology for convenience.
Base Year: The year from which comparisons are made is called the base year. It is commonly
denoted by writing ‘0’ as a subscript of the variable.
Current Year: The year under consideration for which the comparisons are to be computed is
called the current year. It is commonly denoted by writing ‘1’ as a subscript of the variable.
Let there be n items in a group which are numbered from 1 to n. Let p0i denote the price of the
ith item in base year and p1i denote its price in current year, where i = 1, 2, ...... n. In a similar way
q0i and q1i will denote the quantities of the ith item in base and current years respectively.
Using these notations, we can write an expression for price relative of the ith item as
p1i q1i
Pi 100 , and quantity relative of the i th item as Qi q0i
100
p0i
Further, P01 will be used to denote the price index number of period ‘1’ as compared with the
prices of period ‘0’. Similarly, Q01 and V01 would denote the quantity and the value index
numbers respectively of period ‘1’ as compared with period ‘0’.
10.5 Price Index Numbers

1. Simple Average of Price Relatives:
(a) When arithmetic mean of price relatives is used
p1i
100
The index number formula is given by P Pi p0i Omitting
01 or P01
n n
p1
100
the subscript i, the above formula can also be written as P01 = p0
n
(b) When geometric mean of price relatives is used
The index number formula is given by
 Antilog
( is used to denote the product of terms.)

Notes
Example: Given below are the prices of 5 items in 2005 and 2010. Compute the simple
price index number of 1990 taking 2005 as base year. Use (a) arithmetic mean and (b) geometric
mean.
Price in 2005 Price in 2010
Item
(Rs/unit) (Rs/unit)
1 15 20
2 8 7
3 200 300
4 60 110
5 100 130
Solution:
Calculation Table
Price Relative
Price in Price in
Item p1i log Pi
2005 (P0i ) 2010 (P0i ) Pi = p ×100
0i
1 15 20 133.33 2.1249
2 8 7 87.50 1.9420
3 200 300 150.00 2.1761
4 60 110 183.33 2.2632
5 100 130 130.00 2.1139
Total 684.16 10.6201
684.16
Index number, using A.M., is P01 136.83
5
10.6201
and Index number, using G.M., is P01 Antilog = 133.06
5
2. Weighted Average of Price Relatives: In the method of simple average of price relatives,
all the items are assumed to be of equal importance in the group. However, in most of the
real life situations, different items of a group have different degree of importance. In
order to take this into account, weighing of different items, in proportion to their degree
of importance, becomes necessary.
Let wi be the weight assigned to the i th item (i = 1, 2, ...... n). Thus, the index number, given
Pw
i i
by the weighted arithmetic mean of price relatives, is P01 wi .
Similarly, the index number, given by the weighted geometric mean of price relatives can
be written as follows:
1 1
w1 w2 wn wi wi wi
P01 P1 .P2  P Pi
n
wi log Pi
or P01 Antilog
wi

Notes Nature of weights
While taking weighted average of price relatives, the values are often taken as weights . These
weights can be the values of base year quantities valued at base year prices, i.e., p0iq0i, or the
values of current year quantities valued at current year prices, i.e., p1iq1i, or the values of current
year quantities valued at base year prices, i.e., p0iq1i, etc., or any other value.
Example: Construct an index number for 2002 taking 2010 as base for the following data,
by using
(a) weighted arithmetic mean of price relatives and
(b) weighted geometric mean of price relatives.
Prices in Prices in
Commodities Weights
2002 2010
A 60 100 30
B 20 20 20
C 40 60 24
D 100 120 30
E 120 80 10
Solution:
Calculation Table
P.R. P
Comm - Prices in Prices in p Wts
Pw log P w log P
odities 2002(p0 ) 2010 (p1 ) = p1 × 100 (w)
0
A 60 100 166.67 30 5000.1 2.2219 66.657
B 20 20 100.00 20 2000.0 2.0000 40.000
C 40 60 150.00 24 3600.0 2.1761 52.226
D 100 120 120.00 30 3600.0 2.0792 62.376
E 120 80 66.67 10 666.7 1.8239 18.239
Total 114 14866.8 239.48
14866.8
Index number using A.M. is P01 130.41
114
239.498
and index number using G.M. is P01 Antilog 126.15
114
3. Simple Aggregative Method: In this method, the simple arithmetic mean of the prices of all
the items of the group for the current as well as for the base year are computed separately.
The ratio of current year average to base year average multiplied by 100 gives the required
index number.
p0i
Using notations, the arithmetic mean of prices of n items in current year is given by
n
p1i
n p1i
Simple aggregative price index P01 100 100
p0i p0i
n

Omitting the subscript i, the above index number can also be written as: Notes
p1
P01 100
p0
Example: The following table gives the prices of six items in the years 2010 and 2011. Use
simple aggregative method to find index of 2011 with 2010 as base.
Price in Price in
Item
2010 ( ) 2011 ( )
A 40 50
B 60 60
C 20 30
D 50 70
E 80 90
F 100 100
Solution:
Let p0 be the price in 2010 and p1 be the price in 2011. Thus, we have
Sp0 = 350 and Sp1 = 400
400
P01 100 114.29
350
4. Weighted Aggregative Method: This index number is defined as the ratio of the weighted
arithmetic means of current to base year prices multiplied by 100.
Using the notations, defined earlier, the weighted arithmetic mean of current year prices
p1i wi
can be written as = wi
p0i wi
Similarly, the weighted arithmetic mean of base year prices wi
p1i wi
wi p1i wi
Price Index Number, P01 100 100
p0i wi p0i wi
wi
p1w
Omitting the subscript, we can also write P01 100
p0 w
Nature of Weights
In case of weighted aggregative price index numbers, quantities are often taken as weights.
These quantities can be the quantities purchased in base year or in current year or an average of
base year and current year quantities or any other quantities. Depending upon the choice of
weights, some of the popular formulae for weighted index numbers can be written as follows:

Notes 1. Laspeyres’s Index: Laspeyres’ price index number uses base year quantities as weights.
Thus, we can write:
p1i q0i p1q0

P01La 100 or P01La 100
p0i q0i p0 q0
2. Paasche’s Index: This index number uses current year quantities as weights. Thus, we can
write
p1i q1i p1q1

P01Pa 100 or P01Pa 100
p0i q1i p0 q1
3. Fisher’s Ideal Index: As will be discussed later that the Laspeyres’s Index has an upward
bias and the Paasche’s Index has a downward bias. In view of this, Fisher suggested that an
ideal index should be the geometric mean of Laspeyres’ and Paasche’s indices. Thus, the
Fisher’s formula can be written as follows:
p1q0 p1q1
P01F P01La P01Pa 100 100
p0 q0 p0 q1
p1q0 p1q1
If we write L = and P = , the Fisher’s Ideal Index can also be written
p0 q0 p0 q1
as P01 L P 100
4. Dorbish and Bowley’s Index: This index number is constructed by taking the arithmetic
mean of the Laspeyres’s and Paasche’s indices.
1 p1q0 p1q1
P01DB 100 100
2 p0 q0 p0 q1
1 p1q0 p1q1 1
100 L P 100
2 p0 q0 p0 q1 2
5. Marshall and Edgeworth’s Index: This index number uses arithmetic mean of base and
current year quantities.
q0 q1
p1
ME 2 p1 q0 q1 p1q0 p1q1
P01 100 100 100
q0 q1 p0 q0 q1 p0 q0 p0 q1
p0
2

Notes
Example: Calculate the weighted aggregative price index for 2010 from the
following data:
Price in Price in
Item Weights
2000 2010
A 8 9.5 5
B 12 12.5 1
C 6.5 9 3
D 4 4.5 6
E 6 7 4
F 2 4 3
Solution:
Calculation Table
Price in Price in Weights

Item p0 w p1w
2000 (p0 ) 2010 (p1 ) (w)
A 8 9.5 5 40.0 47.5
B 12 12.5 1 12.0 12.5
C 6.5 9 3 19.5 27.0
D 4 4.5 6 24.0 27.0
E 6 7 4 24.0 28.0
F 2 4 3 6.0 12.0
Total 125.5 154.0
154.0
Price Index (2000 = 100) P01 100 122.71
125.5
Note: The term within bracket, i.e., 2000= 100, indicates that base year is 2000.
Example: For the data given in the following table, compute

1. Laspeyres’s Price Index
2. Paasche’s Price Index
3. Fisher’s Ideal Index
4. Dorbish and Bowley’s Price Index
5. Marshall and Edgeworth’s Price Index
Commodity p0 q0 p1 q1
A 10 30 12 50
B 8 15 10 25
C 6 20 6 30
D 4 10 6 20

Notes Solution:
Calculation Table
Comm-
p0 q0 p1 q1 p0 q0 p1q0 p0 q1 p1q1 q0 q1 q0 q1 p0 q0 q1 p1 q0 q1
odity
A 10 30 12 50 300 360 500 600 1500 38.73 387.3 464.8
B 8 15 10 25 120 150 200 250 375 19.36 154.9 193.6
C 6 20 6 30 120 120 180 180 600 24.49 146.9 146.9
D 4 10 6 20 40 60 80 120 200 14.14 56.6 84.8
580 690 960 1150 745.7 890.1
The calculation of various price index numbers are done as given below:
690
1. P01La 118.97
580
1150
2. P01Pa 100 119.79
960
690 1150
3. P01Fi 100 119.38
580 960
1 690 1150
4. P01DB 100 119.4
2 580 960
690 1150
5. P01ME 100 119.48
580 960
10.6 Quantity Index Numbers
A quantity index number measures the change in quantities in current year as compared with a
base year. The formulae for quantity index numbers can be directly written from price index
numbers simply by interchanging the role of price and quantity. Similar to a price relative, we
q1
can define a quantity relative as Q q0
100
Various formulae for quantity index numbers are as given below :
q1
1. Simple aggregative index Q01 100
q0
2. Simple average of quantity relatives
q1
100
q0 Q
(a) Taking A.M. Q01
n n
log Q
(b) Taking G.M. Q01 Antilog
n

3. Weighted aggregative index Notes
q1 p0
(a) Q01La 100 (base year prices are taken as weights)
q0 p0
q1 p1
(b) Q01Pa 100 (current year prices are taken as weights)
q0 p1
q1 p0 q1 p1
(c) Q01Fi 100
q0 p0 q0 p1
Other aggregative formulae can also be written in a similar way.
4. Weighted average of quantity relatives
Qw
(a) Taking A.M. Q01
w
w log Q
(b) Taking G.M. Q01 Antilog
w
Like weighted average of price relatives, values are taken as weights.
Example: Using Fisher’s formula, the quantity index number from the following data:
2009 2011
Article
Price (Rs) Value (Rs) Price (Rs) Value (Rs)
A 5 50 4 48
B 8 48 7 49
C 6 18 5 20
Solution:
2009 2011
Article V0 V1 p0q1 p1q0
p0 V0 q0 p1 V1 q1
p0 p1
A 5 50 10 4 48 12 60 40
B 8 48 6 7 49 7 56 42
C 6 18 3 5 20 4 24 15
Total p0q 0 116 p1q1 117 140 97
q1 p0 q1 p1 140 117
Fi
Q01 100 120.65
q0 p0 q0 p1 116 97

Notes 10.7 Value Index Number
A value index number gives the change in value in current period as compared with base period.
The value index, denoted by V01, is given by the formula
p1q1
V01 100 .
p0 q0
Tasks
1. “For the construction of index numbers, the best method on theoretical grounds is
not the best from practical point of view, so, out of a long list of methods no method
is really ideal “. Comment.
2. Study conceptual differences between price index number and quantity index
numbers.
Self Assessment
Fill in the blanks:

1. An .................................. is a statistical measure used to compare the average level of
magnitude of a group of distinct but related variables in two or more situations.
2. The index numbers are very useful device for measuring the average change in prices or
any other characteristics like............................., ..............................etc.
3. Index number is often used to average a ................................. expressed in different units for
different items of a group.
4. Price of eggs is expressed as ..............................
5. Price index can be used to determine the ............................... and ............................. of average
change in the prices for the group.
6. The year from which comparisons are made is called the ........................year.
7. The year under consideration for which the comparisons are to be computed is called the
.................................. year.
8. While taking weighted average of price relatives, the .............................. are often taken as
weights.
9. Laspeyres’s Index has an ......................... bias.
10. Paasche’s Index has a .............................. bias.
10.8 Comparison of Laspeyres’s and Paasche’s Index Numbers
Out of various formulae discussed so far, the Laspeyres's and Paasche's formulae are generally
preferred for the construction of index numbers. The main reason for this is that the values of
these index numbers have a simple interpretation. For example, in case of Laspeyres's index, the
base year quantities are used as weights and Sp1q0 gives the cost of base year bundle of goods
valued at current year prices. Similarly, Sp0q0 gives the cost of base year bundle valued at base
p1q0
year prices. Therefore, the ratio gives the change in cost of purchasing the bundle q0.
p0 q0

In a similar manner the Paasche's price index can be interpreted as the change in cost of purchasing Notes
the bundle q1. Out of these two, the Laspeyres's index is preferred because weights do not change
over different periods and hence the index numbers of various periods remain comparable.
Furthermore, Laspeyres's index requires less calculation work than the one with changing
weights in every period. The main disadvantage of Laspeyres's formula is that with passage of
time the relative importance of various items may change and the base year weights may
become outdated. Paasche's index, on the other hand, uses current year weights which truly
reflect the relative importance of the items. The main difficulty, in this case, is that index numbers
of various periods are not comparable because of changing weights. Moreover, it may be too
expensive and difficult to obtain these weights.
When both the index number formulae are applied to the same data, they will in general give
different values. However, "if prices of all the commodities change in the same ratio, then the
Laspeyres's index is equal to Paasche's index, for then the two weighing systems become
irrelevant; or, if quantities of all the commodities change in same ratio, the two index numbers
will again be equal, for then the two weighing systems are same relatively." (Karmel & Polasek)
In order to show this, let p1i be the price of i th commodity in current year and p0i be its price in
p1i 105
base year. If prices of all the commodities increase by 5%, then we can write p 100 or
0i
p1i = 1.05 ×p0i, for all values of i. To generalise, we assume that p1i = a.p0i (or p1 = a.p0 , on dropping
the subscript i), where a is constant.
p1q0
La
We can write the Laspeyres's index as P01 100
p0 q0
Substituting p1=ap0, we have
p0 q0 p0 q0
La
P01 100 100 100 .... (1)
p0 q0 p0 q0
Similarly, the Paasche's index is given by
p1q1 p0 q1 p0 q1
Pa
P01 100 100 100 .... (2)
p0 q1 p0 q1 p0 q1
La
Hence, P01 = P01Pa
Further, when quantities of all the commodities change in same proportion, we can write,
q1 = b.q0, for all commodities. Here b is a constant.
Thus, we can write the Paasche's index as
Pa p1q1 p1q0 p1q0

P01 100 100 100
p0q1 p0q0 p0q0
Pa
Hence, P01 = P01La

11. The Laspeyres’s and Paasche’s formulae are generally preferred for the construction of
....................................
(a) Index numbers (b) Frequency table
(c) Pie charts (d) Bar graphs
12. Index numbers are expressed in terms of .
(a) Constant (b) Decimals
(c) Percentages (d) Decimals
13. Laspeyres’s index requires .................................. calculation work than the one with changing
weights in every period.
(a) Simple (b) Complex
(c) Less (d) More
14. In practical situations, neither ............................... nor .......................... change in the same
proportion, the two index numbers are in general different from each other.
(a) Prices, quantities (b) Size, Volume
(c) Price, Value (d) Ratio, Quantity
10.9 Relation between Weighted Aggregative and Weighted

Arithmetic Average of Price Relatives Index Numbers
It will be shown here that, basically, the two types of index numbers, weighted aggregative and
weighted arithmetic average of price relatives, are same and that one type of index number can
be obtained from the other by suitable selection of weights. Since the weighted aggregative
index numbers are easy to calculate and have simple interpretation, they are preferred to weighted
arithmetic average of price relatives indices.
p1q0
Consider the Laspeyre’s index P01La 100
p0 q0
p1
p1 p0 q0
p0 q0 , p0 Pw
Rewriting p1q0 as
p0 we have P01La 100 (1)
p0 q0 w
p1
Here P 100 and w = p0q0
p0
In a similar way, the other aggregative type of index numbers can also be converted into
average type index numbers.

Further, it can be shown that an arithmetic average type of index number can be converted into Notes
an aggregative type by a suitable selection of weights.
p1
w
p0
Consider P01 100
w
Let w = p0q1, then the above equation can be written as
p1
p0 q1
p0 p1q1
P01 100 100 P01Pa
p0 q1 p0 q1
From the practical point of view, the weighted aggregative methods are preferred to weighted
average of price relatives because the former are easy to compute and have simple interpretation.
However, the weighted average of price relatives may be useful when we are interested in
knowing the extent of homogeneity in price movements of a certain sub-group or the whole
group of commodities. Further, to determine the relative importance of an item, it is necessary
to write the index number formula in weighted average of price relative form.
p1 p0 q0
From equation (1), we can write P01La 100
p0 p0 q0
p0 q0 p0 q0
Let w then Sw = 1. Thus, for an item gives its relative importance (or
p0 q0 p0 q0
weight) in the group.
10.9.1 Change in the Cost of Living due to Change in Price of an Item

Let q1, q2, ...... qn be the fixed quantities of the n commodities consumed by a group of consumers
irrespective of price changes; and p01, p02, ...... p0n and p11, p12, ...... p1n be their prices in base and
current years respectively. Their cost of living index, measured by the change in expenditure of
p1i qi
purchasing a given bundle of commodities, can be written as P01 100
p0i qi
Let the price of ith commodity changes by 100a%. Thus, the new price, denoted as p'01, can be
written as (1 + a)p1i and the changed index number would be
p1i qi p1i qi p1i qi

P '01 100 P01 100
p0i qi p0i qi
Hence, the absolute change in the cost of living is given by
p1i qi
P '01 P01 100 and the proportionate change is given by
p0i qi
P '01 P01 p1i qi p0i qi 1 p1i qi

100
P01 p0i qi p1i qi 100 p1i qi

Notes p1i qi
th
We note that p1i qi is the proportion of expenditure on the i commodity before the change
of price.
Alternatively, the above equation can be written as:
Proportionate Change in Proportion of expenditure Proportionate Change in

price of the commodity on the commodity the cost of living
It may be pointed out here that the above result assumes that the consumption of the commodity
remains unchanged as a result of change in its price.
Consumer price index number was formerly known as cost of living index.
Did u know?
Self Assessment
Fill in the blanks:
15. Weighted aggregative and weighted arithmetic average of price relatives, are ...................
16. One type of index number can be obtained from the other by .......................... of weights.
17. The weighted aggregative index numbers are ....................... to calculate and have
.............................. interpretation.
10.10 Chain Base Index Numbers
So far, we have considered index numbers where comparisons of various periods were done
with reference to a particular period, termed as base period. Such type of index number series is
known as fixed base series. There are several examples of fixed base series like the series of
index numbers of industrial production, of agricultural production, of wholesale prices, etc. The
main problem with a fixed base series arises when the base year becomes too distant from the
current year. In such a situation, it may happen that commodities which used to be very important
in the base year are no longer so in current year. Furthermore, certain new commodities might
be in use while some old commodities are dropped in current year. In short, this implies that the
relative importance of various items is likely to change and, therefore, the comparison of a
particular year with a remote base year may appear to be meaningless. A way out to this
problem is to construct Chain Base Index Numbers, where current year is compared with its
preceding year.
Similar to price relatives, here we define link relatives. A link relative of a commodity in a
particular year is equal to the ratio of this year’s price to last year’s price multiplied by hundred.
pti
Using symbols, the link relative of i th commodity in period t is written as Lti 100 .
pt 1i
When there are n commodities, the chain base index for period t is given by a suitable average
of their link relatives. For example, taking simple arithmetic mean of link relatives we can write
pt
Lt 100
the chain base index as PCB pt 1 .... (1)
t 100
n n
We may note here that a chain base index is equal to link relative of a commodity when there is
only one commodity.

10.10.1 Chained Index Numbers Notes
The chain base index numbers, obtained above, are as such of not much use because these have
been computed with reference to a different base period and hence not comparable with each
other. To avoid this difficulty, these are required to be chained to a common base period. The
process of chaining is based upon the concept of circular test. The expression for chained index
for period ‘t’ with ‘0’ as base period, denoted as P0Ch

t , can be written as
Ch P1CB P2CB P CB
P0t = × × L × t × 100
100 100 100
PtCB ×P0(t-1)
Ch
P1CB P CB
or Ch
P0t =
Ch
Q P0(t-1) = × L × t-1 ×100 .... (2)
100 100 100
10.10.2 Conversion of Chain Base Index Number into Fixed Base Index
Number and vice-versa
CB P0FB
t
We can write Pt 100
P0FB
t 1
Chain Base Index
Fixed Base Index of current year
i.e., Number of current = ×100 .... (3)
Fixed Base Index of previous year
year
Chain Base Index Fixed Base Index
×
Fixed Base Index of Current year of previous year
= .... (4)
of Current year 100
Example: From the following data, construct chain base index numbers:
Years
Items
2006 2007 2008 2009 2010
Prices in
A 5 8 10 12 15
B 3 6 8 10 12
C 2 3 5 7 10.5
Solution:
Calculation of Chain Base Index Numbers
LR *
2006 2007 2008 2009 2010
Items B
8 10 12 15
A 100 100 = 160 100 = 125 100 = 120 100 = 125
5 8 10 12
6 8 10 12
B 100 100 = 200 100 = 133.3 100 = 125 100 = 120
3 6 8 10
3 5 7 10.5
C 100 100 = 150 100 = 166.7 100 = 140 100 = 150
2 3 5 7
Total 300 510 425.0 385 395
300 510 425 385 395
CBI = 100 = 170 = 141.7 = 128.3 = 131.7
3 3 3 3 3
* LR = LinkRelatives

Notes
Example: From the chain base index numbers given below, prepare fixed base index
numbers; (a) when 1975 is not the base year and (b) when 1975 is taken as base year.
Years : 2007 2008 2009 2010 2011

Index : 80 110 120 90 140
Solution:
Chain Base Index Fixed Base Index
×
Fixed Base Index of current year = of current year of previous year
100
Calculation of Fixed Base Index Numbers
F.B.I. F.B.I.
Years C.B.I.
1975 100 1975=100
2007 80
80 100
110×80 110×100
2008 110 =88 =110
100 100
120×88 120×110
2009 120 =105.6 =132
100 100
90×105.6 90×132
=95 =118.8
2010 90 100 100
140×95 140×118.8
=133 =166.32
2011 140 100 100
Some additional weighted index numbers

Notes
1. Walsh’s Index: Geometric mean of base and current year quantities are used as
weights in this index number.
p1 q0 q1
Wa
P01 100
p0 q0 q1
2. Kelly's Fixed Weights Aggregative Index: The weights, in this index number, are
quantities which may not necessarily relate to base or current year. The weights,
once decided, remain fixed for all periods. The main advantage of this index over
Laspeyres's index is that weights do not change with change of base year. Using
symbols, the Kelly's Index can be written as
p1q
Ke
P01 100
p0 q
!
Caution An index number can be computed by using a number of formulae and different
formulae will give different results. Unless a proper method is used, the results are likely
to be inaccurate and misleading.

State whether the following statements are true or false
18. Index numbers where comparisons of various periods were done with reference to a
particular period, termed as base period.
19. There is no problem with a fixed base series even when the base year becomes too distant
from the current year.
20. When there is a single commodity, the chained index will be equal to the fixed base index.
Case Study Cost of Living Index
A
n enquiry into the budgets of middle class families of certain city revealed that,
on an average, the percentage expenses on the different groups were as follows:
Food 45, Rent 15, Clothing 12, Fuel and Light 8, Miscellaneous 20.
The group index numbers for the current year as compared to a fixed base were 410, 150,
343, 248 and 285 respectively. Calculate the cost of living index for the current year.
Mr. X was getting 240 in the base year and 430 in current year. State, how much he ought
to have received as extra allowance to maintain his former standard of living.
10.11 Summary
An index number is a statistical measure used to compare the average level of magnitude
of a group of distinct but related variables in two or more situations.
In real situations, neither the prices of all the items change in the same ratio nor in the
same direction, i.e., the prices of some commodities may change to a greater extent as
compared to prices of other commodities.
The index numbers are very useful device for measuring the average change in prices or
any other characteristics like quantity, value, etc., for the group as a whole.
Index numbers are specialized type of averages that are used to measure the changes in a
characteristics which is not capable of being directly measured.
The changes in magnitude of a group are expressed in terms of percentages which are
independent of the units of measurement. This facilitates the comparison of two or more
index numbers in different situations.
Index numbers are indispensable tools for the management of any government or non-
government organizations.
There is inverse relation between the purchasing power of money and the gene ral price
level measured in terms of a price index number.
The reciprocal of the relevant price index can be taken as a measure of the purchasing
power of money.
The year from which comparisons are made is called the base year. It is commonly denoted
by writing ‘0’ as a subscript of the variable.

Notes While taking weighted average of price relatives, the values are often taken as weights.
These weights can be the values of base year quantities valued at base year prices.
In case of weighted aggregative price index numbers, quantities are often taken as weights.
These quantities can be the quantities purchased in base year or in current year or an
average of base year and current year quantities or any other quantities.
A quantity index number measures the change in quantities in current year as compared
with a base year.
Index numbers where comparisons of various periods were done with reference to a
particular period, termed as base period. Such type of index number series is known as
fixed base series.
10.12 Keywords
Barometers of economic activity: Sometimes index numbers are termed as barometers of

economic activity.
Base Year: The year from which comparisons are made is called the base year. It is commonly
denoted by writing ‘0’ as a subscript of the variable.
Current Year: The year under consideration for which the comparisons are to be computed is
called the current year. It is commonly denoted by writing ‘1’ as a subscript of the variable.
Dorbish and Bowley’s Index: This index number is constructed by taking the arithmetic mean of
the Laspeyres’s and Paasche’s indices.
Fisher’s Index: Fisher suggested that an ideal index should be the geometric mean of Laspeyres’
and Paasche’s indices.
Index number: An index number is a statistical measure used to compare the average level of
magnitude of a group of distinct but related variables in two or more situations.
Kelly’s Fixed Weights Aggregative Index: The weights, in this index number, are quantities
which may not necessarily relate to base or current year. The weights, once decided, remain
fixed
Laspeyres’s Index: Laspeyres’ price index number uses base year quantities as weights
Marshall and Edgeworth’s Index: This index number uses arithmetic mean of base and current
year quantities.
Paasche’s Index: This index number uses current year quantities as weights.
Quantity Index Number: A quantity index number measures the change in quantities in current
year as compared with a base year.
Simple Aggregative Method: In this method, the simple arithmetic mean of the prices of all the
items of the group for the current as well as for the base year are computed separately. The ratio
of current year average to base year average multiplied by 100 gives the required index number
Value index Number: A value index number gives the change in value in current period as
compared with base period. The value index is denoted by V01. for all periods
Walsh’s Index: Geometric mean of base and current year quantities are used as weights in this
index number.
Weighted Aggregative Method: This index number is defined as the ratio of the weighted arithmetic
means of current to base year prices multiplied by 100.

1. What are index numbers? Discuss their uses?
2. Examine various steps in the construction of an index number.
3. “Index numbers are barometers of economic activity“. Explain the meaning of this
statement.
4. “An index number is a specialised type of average“. Explain.
5. Distinguish between average type and aggregative type of index numbers. Discuss the
nature of weights used in each case.
6. Explain the role of weighing in the construction of an index number. What are commonly
proposed weighing schemes ?
7. Distinguish between simple and weighted index numbers. Explain ‘weighted aggregative’
and ‘weighted average of relatives’ methods for the construction of index numbers.
8. Explain the role of weighing in the construction of an index number of prices. What are the
commonly proposed weighing schemes?
8. “In the construction of index numbers the advantages of geometric mean are greater than
those of arithmetic mean “. Discuss.
9. If we wish to calculate an average of price relatives of commodities, each of which is

regarded as being of equal importance, which average would you use: Arithmetic Mean,
Geometric Mean or Harmonic Mean? Explain, why?
10. Show that the Laspeyres’s index has an upward bias and the Paasche’s index has a downward
bias. Under what conditions the two index numbers will be equal?
11. Show that Laspeyres price index number can be written as a weighted average of price
relatives. What are the weights?
12. “Index numbers are used to measure the changes in some magnitude that is not capable of
being directly observed “. Explain this statement and point out the uses and limitations of
index numbers.
13. Distinguish between fixed base and chain base methods of index number construction.
What are the advantages and disadvantages of the two methods?
14. Explain the meaning of circular test. Discuss the use of this test in the construction of chain
base index numbers.
15. What are time reversal and factor reversal tests? Under what conditions these tests are
satisfied by Laspeyres’s and Paasche’s index numbers ?
16. Calculate price index of 2011 with 2007 as base from the following data by:
(a) Simple aggregative method
(b) Laspeyres’s method
(c) Paasche’s method
(d) Fisher’s ideal index method

Notes (e) Dorbish and Bowley’s method and
(f) Marshall and Edgeworth’s method.
2007 2011
Commodity
Price Quantity Price Quantity
A 16 50 24 45
B 18 30 24 25
C 20 5 15 8
D 10 6 12 6
E 10 10 14 12
1. Index Number 2. quantity, value
3. characteristics 4. /dozen
5. extent, direction 6. base

7. current 8. values
9. upward 10. downward
11. (a) 12. (c)
13. (c) 14. (a)
15. same 16. suitable selection
17. easy, simple 18. True
19. False 20. True
Books Balwani Nitin Quantitative Techniques, First Edition: 2002. Excel Books, New Delhi
Bhardwaj R S., Business Statistics, Excel Books
New York.
Selvaraj R, Loganathan, C Quantitative Methods in Management
Publishing Co., Calcutia.

Notes
Online links http://www.netcomuk.co.uk/~jenolive/sindexes.html

http://www.mathsisfun.com/data/index.html
www.imf.org/external/np/sta/tegppi/ch15.pdf

Notes Unit 11: Analysis of Time Series
CONTENTS
Objectives
Introduction
11.1 Time Series
11.1.1 Objectives of Time Series Analysis
11.1.2 Components of a Time Series
11.1.3 Analysis of Time Series
11.1.4 Method of Averages
11.2 Seasonal Variations
11.2.1 Methods of Measuring Seasonal Variations
11.3 Summary
11.4 Keywords
Objectives
Define the term time series
Discuss the objective and components of time series
Make analysis of time series
Brief about seasonal variations
Explain various methods of measuring seasonal variations and state their merits and
demerits
Introduction
The data on the population of India is a time series data where time interval between two
successive figures is 10 years. Similarly figures of national income, agricultural and industrial
production, etc., are available on yearly basis.
Did u know? The successive intervals are usually equal time intervals, e.g., it can be
10 years, a year, a quarter, a month, a week, a day, an hour, etc.

Unit 11: Analysis of Time Series
11.1 Time Series Notes
A series of observations, on a variable, recorded after successive intervals of time is called a time
series.
It should be noted here that the time series data are bivariate data in which one of the variables
is time. This variable will be denoted by t. The symbol Yt will be used to denote the observed
value, at point of time t, of the other variable. If the data pertains to n periods, it can be written
as (t, Yt), t = 1, 2, .... n.
11.1.1 Objectives of Time Series Analysis
The analysis of time series implies its decomposition into various factors that affect the value of
its variable in a given period. It is a quantitative and objective evaluation of the effects of
various factors on the activity under consideration.
There are two main objectives of the analysis of any time series data:
1. To study the past behaviour of data.
2. To make forecasts for future.
The study of past behaviour is essential because it provides us the knowledge of the effects of
various forces. This can facilitate the process of anticipation of future course of events and, thus,
forecasting the value of the variable as well as planning for future.
11.1.2 Components of a Time Series
An observed value of a time series, Yt, is the net effect of many types of influences such as
changes in population, techniques of production, seasons, level of business activity, tastes and
habits, incidence of fire floods, etc. It may be noted here that different types of variables may be
affected by different types of factors, e.g., factors affecting the agricultural output may be entirely
different from the factors affecting industrial output. However, for the purpose of time series
analysis, various factors are classified into the following three general categories applicable to
any type of variable.
1. Secular Trend or simply Trend
2. Periodic or Oscillatory Variations
(a) Seasonal Variations
(b) Cyclical Variations
3. Random or Irregular Variations
1. Secular Trend: Secular trend or simply trend is the general tendency of the data to increase
or decrease or stagnate over a long period of time. Most of the business and economic time
series would reveal a tendency to increase or to decrease over a number of years. For
example, data regarding industrial production, agricultural production, population, bank
deposits, deficit financing, etc., show that, in general, these magnitudes have been rising
over a fairly long period. As opposed to this, a time series may also reveal a declining
trend, e.g., in the case of substitution of one commodity by another, the demand of the
substituted commodity would reveal a declining trend such as the demand for cotton
clothes, demand for coarse grains like bajra, jowar, etc. With the improved medical facilities,
the death rate is likely to show a declining trend, etc. The change in trend, in either case, is
attributable to the fundamental forces such as changes in population, technology,
composition of production, etc.

Notes Objectives of Measuring Trend
There are four main objectives of measuring trend of a time series data:
(a) To study past growth or decline of the series. On ignoring the short-term fluctuations,
trend describes the basic growth or decline tendency of the data.
(b) Assuming that the same behaviour would continue in future also, the trend curve
can be projected into future for forecasting.
(c) In order to analyse the influence of other factors, the trend may first be measured
and then eliminated from the observed values.
(d) Trend values of two or more time series can be used for their comparison.
2. Periodic Variations: These variations, also known as oscillatory movements, repeat

themselves after a regular interval of time. This time interval is known as the period of
oscillation. These oscillations are shown in the following figure:
Figure 11.1: Periodic Variations
The oscillatory movements are termed as Seasonal Variations if their period of oscillation
is equal to one year, and as Cyclical Variations if the period is greater than one year.
A time series, where the time interval between successive observations is less than or
equal to one year, may have the effects of both the seasonal and cyclical variations. However,
the seasonal variations are absent if the time interval between successive observations is
greater than one year.
Although the periodic variations are more or less regular, they may not necessarily be
uniformly periodic, i.e., the pattern of their variations in different periods may or may not
be identical in respect of time period and size of periodic variations. For example, if a
cycle is completed in five years then its following cycle may take greater or less than five
years for its completion.
(a) Causes of Seasonal variations: The main causes of seasonal variations are:
(i) Climatic Conditions
(ii) Customs and Traditions
(i) Climatic Conditions: The changes in climatic conditions affect the value of
time series variable and the resulting changes are known as seasonal variations.
For example, the sale of woolen garments is generally at its peak in the month
of November because of the beginning of winter season. Similarly, timely
rainfall may increase agricultural output, prices of agricultural commodities
are lowest during their harvesting season, etc., reflect the effect of climatic
conditions on the value of time series variable.

(ii) Customs and Traditions: The customs and traditions of the people also give Notes
rise to the seasonal variations in time series. For example, the sale of garments
and ornaments may be highest during the marriage season, sale of sweets
during Diwali, etc., are variations that are the results of customs and traditions
of the people.
It should be noted here that both of the causes, mentioned above, occur regularly
and are often repeated after a gap of less than or equal to one year.
Objectives of Measuring Seasonal Variations
The main objectives of measuring seasonal variations are:
(i) To analyse the past seasonal variations.
(ii) To predict the value of a seasonal variation which could be helpful in short-
term planning.
(iii) To eliminate the effect of seasonal variations from the data.
(b) Causes of Cyclical Variations: Cyclical variations are revealed by most of the economic
and business time series and, therefore, are also termed as trade (or business) cycles.
Any trade cycle has four phases which are respectively known as boom, recession,
depression and recovery phases. These phases are shown in Figure 11.1. Various
phases repeat themselves regularly one after another in the given sequence. The
time interval between two identical phases is known as the period of cyclical
variations. The period is always greater than one year. Normally, the period of
cyclical variations lies between 3 to 10 years.
Objectives of Measuring Cyclical Variations
The main objectives of measuring cyclical variations are:
(i) To analyse the behaviour of cyclical variations in the past.
(ii) To predict the effect of cyclical variations so as to provide guidelines for

future business policies.
3. Random or Irregular Variations: As the name suggests, these variations do not reveal any
regular pattern of movements. These variations are caused by random factors such as
strikes, floods, fire, war, famines, etc. Random variations is that component of a time
series which cannot be explained in terms of any of the components discussed so far. This
component is obtained as a residue after the elimination of trend, seasonal and cyclical
components and hence is often termed as residual component.
Random variations are usually short-term variations but sometimes their effect may be so
intense that the value of trend may get permanently affected.
11.1.3 Analysis of Time Series
As mentioned earlier, the purpose of analysis of a time series is to decompose Yt into various
components. However, before doing this, we have to make certain assumptions regarding the
manner in which these components have combined themselves to give the value Yt. Very often
it is assumed that Yt is given by either the summation or the multiplication of various
components, and accordingly we shall assume two type of models, i.e., additive model or
multiplicative model.

Notes 1. Additive Model: This model is based on the assumption that the value of the variable of a
time series, at a point of time t, is the sum of the four components. Using symbols, we can
write
Yt = Tt + St + Ct + Rt, where Tt, St, Ct and Rt are the values of trend, seasonal, cyclical and
random components respectively, at a point of time t.
This model assumes that all the four components of time series act independently of one
another. This assumption implies that one component has no effect on the other(s)
irrespective of their magnitudes.
2. Multiplicative Model: This model assumes that Yt is given by the multiplication of various
components. Symbolically, we can write
Yt = Tt × St × Ct × Rt
This model implies that although the four components may be due to different causes,
these are, strictly speaking, not independent of each other. For example, the seasonal
component may be some percentage of trend. Similarly, we can have other components
expressed in terms of certain percentage.
There is, in fact, very little agreement amongst the experts about the validity of the
models assumed above. It is not very certain that the components combine themselves in
the manner mentioned in the two models. Consequently, various mixed type of models
have also been suggested, such as
Yt = Tt.St.Ct + Rt
or Yt = Tt.Ct + St.Rt or Yt = Tt + Ct.St.Rt, etc.
Out of all the models, given above, the additive and the multiplicative models are often
used. The two models, when applied to the same data, would give different answers.
Though, the additive model may be appropriate in some of the situations, yet it is the
multiplicative model which characterises the majority of the time series in economic and
business fields.
11.1.4 Method of Averages
1. Method of Selected Points: In this method, two points, considered to be the most
representative or normal, are joined by a straight line to get secular trend. This, again, is
a subjective method since different persons may have different opinions regarding the
representative points. Further, only linear trend can be determined by this method.
Example: Determine the trend of the following time series data by the method of selected
points:
Years : 2001 02 2002 03 2003 04 2004 05 2005 06

Per Capita availability
: 521 511 462 525 518
of Tea (gms)
Years : 2006 07 2007 08 2008 09 2009 10
Per Capita availability
: 575 589 546 593
of Tea (gms)

Solution: Notes
Figure
2001-02 2003-04 2005-06 2007-08 2009-10
In the above figure, we have taken the years 2004-2005 and 2009-2010 as the normal years.
The corresponding points are joined by a straight line to get the trend of the observed
values.
2. Method of Semi-averages: The given time series data are divided into two equal parts and
the arithmetic mean of the values of each part is computed. The computed means are
termed as semi-averages. Each semi-average is paired with the centre of time period of its
part. The two pairs are then plotted on a graph paper and the points are joined by a straight
line to get the trend. It should be pointed out here that in case of odd number of observations,
the two equal parts are obtained by dropping the middle most observation.
Merits
(a) It is simple method of measuring trend.
(b) It is an objective method because anyone applying this to a given data would get
identical trend values.
Demerits
(a) This method can give only a linear trend of the data irrespective of whether it exists
or not.
(b) This is only a crude method of measuring trend, since we do not know whether the
effects of other components is completely eliminated or not.
3. Method of Moving Average: This method is based on the principle that the total effect of
periodic variations at different points of time in its cycle gets completely neutralised, i.e.,
St = 0 in one year and Ct = 0 in the period of cyclical variations.
In the method of moving average, successive arithmetic averages are computed from
overlapping groups of successive values of a time series. Each group includes all the
observations in a given time interval, termed as the period of moving average. The next
group is obtained by replacing the oldest value by the next value in the series. The averages
of such groups are known as the moving averages.

Notes The moving average of a group is always shown at the centre of its period. The process of
computing moving averages smoothens out the fluctuations in the time series data. It can
be shown that if the trend is linear and the oscillatory variations are regular, the moving
average with period equal to the period of oscillatory variations would completely
eliminate them. Further, the effect of random variations would get minimised because the
average of a number of observations must lie between the smallest and the largest
observation. It should be noted here that the larger is the period of moving average the
more would be the reduction in the effect of random component but more information is
lost at the two ends of data.
When the trend is non-linear, the moving averages would give biased rather than the
actual trend values.
Let Y1, Y2, ...... Yn be the n values of a time series for successive time periods 1, 2, ...... n
respectively. The calculation of 3-period and 4-period moving averages are shown in the
following tables:
It should be noted that, in case of 3-period moving average, it is not possible to get the
moving averages for the first and the last periods. Similarly, the larger is the period of
moving average the more information will be lost at the ends of a time series.
When the period of moving average is even, the computed average will correspond to the
middle of the two middle most periods. These values should be centered by taking
arithmetic mean of the two successive averages. The computation of moving average in
such a case is also illustrated in the above table.
Example: Determine the trend values of the following data by using 3-year moving
average. Also find short-term fluctuations for various years, assuming additive model. Plot the
original and the trend values on the same graph.
Year : 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Production
: 26 27 28 30 29 27 30 31 32 31
('000' tonnes)

Solution: Notes
Calculation of Trend and Short-term fluctuations
Production 3-Year Moving 3-Year M.A. or Short-term fluctuations

Years
(Y) Total Trend values (T) (Y T)
2001 26   
2002 27 81 27.00 0.00
2003 28 85 28.33 0.33
2004 30 87 29.00 1.00
2005 29 86 28.67 0.33
2006 27 86 28.67 1.67
2007 30 88 29.33 0.67
2008 31 93 31.00 0.00
2009 32 94 31.33 0.67
2010 31   
Graphical presentation of Y and T values
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Merits
1. This method is easy to understand and easy to use because there are no mathematical
complexities involved.
2. It is an objective method.
3. It is a flexible method in the sense that if a few more observations are added, the entire
calculations are not changed.
4. When the period of oscillatory movements is equal to the period of moving average,
these movements are completely eliminated.
5. By the indirect use of this method, it also possible to isolate seasonal, cyclical and random
components.
Demerits
1. It is not possible to calculate trend values for all the items of the series. Some information
is always lost at its ends.
2. This method can determine accurate values of trend only if the oscillatory and random
fluctuations are uniform in terms of period and amplitude and the trend is, at least,
approximately linear. However, these conditions are rarely met in practice. When the
trend is not linear, the moving averages will not give correct values of trend.

Notes 3. The selection of period of moving average is a difficult task and a great deal of care is
needed to determine it.
4. Like arithmetic mean, the moving averages are too much affected by extreme values.
5. The trend values obtained by moving averages may not follow any mathematical pattern
and thus, cannot be used for forecasting which perhaps is the main task of any time series
analysis.
Task Assuming a four-yearly cycle, find the trend values for the following data by the
method of moving average.
Year : 1997 1998 1999 2000 2001 2002 2003

Sales (in '000) : 74 100 97 87 90 115 126
Year : 2004 2005 2006 2007 2008 2009 2010
Sales (in '000) : 108 100 125 118 113 122 126
!
Caution Method of moving average should be used only if the trend is linear, When the
trend is not linear, we often use weighted rather than simple moving average.
Self Assessment
Fill in the blanks:

1. The successive intervals are usually ........................ time intervals.
2. ......................... can be 10 years, a year, a quarter, a month, a week, a day, an hour, etc.
3. The data on the population of India is a time series data where time interval between two
successive figures is ...................................
4. Figures of national income, agricultural and industrial production, etc., are available on
............................. basis.
5. A series of observations, on a variable, recorded after successive intervals of time is called
a ...............................
6. The time series data are .............................. data in which one of the variables is time.
7. Factors affecting the agricultural output may be ......................... from the factors affecting
industrial output.
8. ............................. is the general tendency of the data to increase or decrease or stagnate
over a long period of time.
9. Periodic Variations are also known as ..................................which repeat themselves after a
regular interval of time.
10. Any trade cycle has four phases which are respectively known as boom, recession,
.............................. and .............................. phases.
11. The time interval between two identical phases is known as the period of .........................
12. Normally, the period of cyclical variations lies between ..................... years.
13. ............................. or ............................... Variations variations do not reveal any regular pattern
of movements.

11.2 Seasonal Variations Notes
If the time series data are in terms of annual figures, the seasonal variations are absent. These
variations are likely to be present in data recorded on quarterly or monthly or weekly or daily
or hourly basis. As discussed earlier, the seasonal variations are of periodic nature with period
equal to one year. These variations reflect the annual repetitive pattern of the economic or
business activity of any society. The main objectives of measuring seasonal variations are :
1. To understand their pattern.

2. To use them for short-term forecasting or planning.
3. To compare the pattern of seasonal variations of two or more time series in a given period
or of the same series in different periods.
4. To eliminate the seasonal variations from the data. This process is known as
deseasonalisation of data.
11.2.1 Methods of Measuring Seasonal Variations
The measurement of seasonal variation is done by isolating them from other components of a
time series. There are four methods commonly used for the measurement of seasonal variations.
These method are :
1. Method of Simple Averages
2. Ratio to Trend Method
3. Ratio to Moving Average Method
4. Method of Link Relatives
Note: In the discussion of the above methods, we shall often assume a multiplicative model. However,
with suitable modifications, these methods are also applicable to the problems based on additive model.
Method of Simple Averages
This method is used when the time series variable consists of only the seasonal and random
components. The effect of taking average of data corresponding to the same period (say 1st
quarter of each year) is to eliminate the effect of random component and thus, the resulting
averages consist of only seasonal component. These averages are then converted into seasonal
indices, as explained in the following examples.
Example: Assuming that trend and cyclical variations are absent, compute the seasonal
index for each month of the following data of sales (in ‘000) of a company.
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2008 46 45 44 46 45 47 46 43 40 40 41 45
2009 45 44 43 46 46 45 47 42 43 42 43 44
2010 42 41 40 44 45 45 46 43 41 40 42 45

Notes Solution:
Calculation Table
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2008 46 45 44 46 45 47 46 43 40 40 41 45
2009 45 44 43 46 46 45 47 42 43 42 43 44
2010 42 41 40 44 45 45 46 43 41 40 42 45
Total 133 130 127 136 136 137 139 128 124 122 126 134
Ai 44.3 43.3 42.3 45.3 45.3 45.7 46.3 42.7 41.3 40.7 42.0 44.7
S.I. 101.4 99.1 96.8 103.7 103.7 104.6 105.9 97.7 94.5 93.1 96.1 102.3
In the above table, Ai denotes the average and S.I. the seasonal index for a particular month of
various years. To calculate the seasonal index, we compute grand average G, given by
Ai 524
G 43.7 . Then the seasonal index for a particular month is given
12 12
Ai
by. S .I . 100
G
Further, S.I. = 1198.9 1200 . Thus, we have to adjust these values such that their total is 1200.
1200
This can be done by multiplying each figure by . The resulting figures are the adjusted
1198.9
seasonal indices, as given below:
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
101.5 99.2 96.9 103.8 103.8 104.7 106.0 97.8 94.6 93.2 96.2 102.3
Remarks: The totals equal to 1200, in case of monthly indices and 400, in case of quarterly
indices, indicate that the ups and downs in the time series, due to seasons, neutralise themselves
within that year. It is because of this that the annual data are free from seasonal component.
Example: Compute the seasonal index from the following data by the method of simple
averages.
Year Quarter Y Year Quarter Y Year Quarter Y

2005 I 106 2007 I 90 2009 I 80
II 124 II 112 II 104
III 104 III 101 III 95
IV 90 IV 85 IV 83
2006 I 84 2008 I 76 2010 I 104
II 114 II 94 II 112
III 107 III 91 III 102
IV 88 IV 76 IV 84

Solution. Notes
Calculation of Seasonal Indices
Years 1st Qr 2nd Qr 3rd Qr 4th Qr

2005 106 124 104 90
2006 84 114 107 88
2007 90 112 101 85
2008 76 94 91 76
2009 80 104 95 83
2010 104 112 102 84
Total 540 660 600 506
Ai 90 110 100 84.33
Ai
100 93.67 114.49 104.07 87.77
G
Ai 384.33
We have G 96.08 . Further, since the sum of terms in the last row of
4 4
the table is 400, no adjustment is needed. These terms are the seasonal indices of respective
quarters.
Merits and Demerits
This is a simple method of measuring seasonal variations which is based on the unrealistic
assumption that the trend and cyclical variations are absent from the data. However, we shall
see later that this method being a part of the other methods of measuring seasonal variations, is
very useful.
Ratio to Trend Method
This method is used when cyclical variations are absent from the data, i.e., the time series
variable Y consists of trend, seasonal and random components.
Using symbols, we can write Y = T.S.R
Various steps in the computation of seasonal indices are:
(i) Obtain the trend values for each month or quarter, etc., by the method of least squares.
(ii) Divide the original values by the corresponding trend values. This would eliminate trend
values from the data. To get figures in percentages, the quotients are multiplied by 100.
Y T .S .R
Thus, we have 100 100 S .R.100
T T
(iii) Finally, the random component is eliminated by the method of simple averages.

Notes
Example: Assuming that the trend is linear, calculate seasonal indices by the ratio to
moving average method from the following data:
Quarterly output of coal in 4 years (in thousand tonnes)
Year I II III IV
2007 65 58 56 61
2008 68 63 63 67
2009 70 59 56 52
2010 60 55 51 58
Solution:
By adding the values of all the quarters of a year, we can obtain annual output for each of the four
years. Fit a linear trend to the data and obtain trend values for each quarter.
Year Output X 2 t 1983.5 XY X2

2007 240 3 720 9
2008 261 1 261 1
2009 237 1 237 1
2010 224 3 672 9
Total 962 0 72 20
962 72
From the above table, we get a 240.5 and b 3.6
4 20
Thus, the trend line is Y = 240.5 - 3.6X, Origin: 1st January 2009, unit of X: 6 months.
240.5 3.6
The quarterly trend equation is given by Y X or Y = 60.13 – 0.45X,
4 8
Origin : 1st January 2009, unit of X : 1 quarter (i.e., 3 months).
Shifting origin to 15th Feb. 2009, we get
1
Y = 60.13 - 0.45(X + ) = 59.9 – 0.45X, origin I-quarter, unit of X = 1 quarter.
2
The table of quarterly values is given by
Year I II III IV
2007 63.50 63.05 62.60 62.15
2008 61.70 61.25 60.80 60.35
2009 59.90 59.45 59.00 58.55
2010 58.10 57.65 57.20 56.75
Y
The table of Ratio to Trend Values, i.e., 100
T

Years I II III IV Notes

2007 102.36 91.99 89.46 98.15
2008 110.21 102.86 103.62 111.02
2009 116.86 99.24 94.92 88.81
2010 103.27 95.40 89.16 102.20
Total 432.70 389.49 377.16 400.18
Average 108.18 97.37 94.29 100.05
S .I . 108.20 97.40 94.32 100.08
399.89
Note: Grand Average, G 99.97
4
Example: Find seasonal variations by the ratio to trend method, from the following
data:
Year I -Qr II -Qr III -Qr IV -Qr

2006 30 40 36 34
2007 34 52 50 44
2008 40 58 54 48
2009 54 76 68 62
2010 80 92 86 82
Solution:
First we fit a linear trend to the annual totals.
Annual Totals
Years X XY X2
(Y )
2006 140 2 280 4
2007 180 1 180 1
2008 200 0 0 0
2009 260 1 260 1
2010 340 2 680 4
Total 1120 0 480 10
1120 480
Now a 224 and b 48.
5 10
The trend equation is Y = 224 + 48X, origin : 1st July 2008, unit of X = 1 year.
The quarterly trend equation is Y = 224 + 48 X = 56 + 3 X , origin: 1st July 2008, unit of X = 1
4 16
quarter.
Shifting the origin to III quarter of 2008, we get
1
Y = 56 + 3(X + ) = 57.5 + 3X
2

Notes Table of Quarterly Trend Values
Year I II III IV
2006 27.5 30.5 33.5 36.5
2007 39.5 42.5 45.5 48.5
2008 51.5 54.5 57.5 60.5
2009 63.5 66.5 69.5 72.5
2010 75.5 78.5 81.5 84.5
Ratio to Trend Values
Year I II III IV
2006 109.1 131.1 107.5 93.2
2007 86.1 122.4 109.9 90.7
2008 77.7 106.4 93.9 79.3
2009 85.0 114.3 97.8 85.5
2010 106.0 117.2 105.5 97.0
Total 463.9 591.4 514.6 445.7
Ai 92.78 118.28 102.92 89.14
S.I. 92.10 117.35 102.11 88.44
403.12
Note that the Grand Average G 100.78 . Also check that the sum of indices is 400.
4
Remarks: If instead of multiplicative model we have an additive model, then Y = T + S + R or S

+ R = Y – T. Thus, the trend values are to be subtracted from the Y values. Random component is
then eliminated by the method of simple averages.
Merits and Demerits
It is an objective method of measuring seasonal variations. However, it is very complicated and

doesn’t work if cyclical variations are present.
Ratio to Moving Average Method
The ratio to moving average is the most commonly used method of measuring seasonal
variations. This method assumes the presence of all the four components of a time series.
Various steps in the computation of seasonal indices are as follows:
1. Compute the moving averages with period equal to the period of seasonal variations.
This would eliminate the seasonal component and minimise the effect of random
component. The resulting moving averages would consist of trend, cyclical and random
components.
2. The original values, for each quarter (or month) are divided by the respective moving
average figures and the ratio is expressed as a percentage, i.e., , where R’ and R’’ denote the
changed random components.
3. Finally, the random component R’’ is eliminated by the method of simple averages.

Notes
Example: Given the following quarterly sale figures, in thousand of rupees, for the year
2007-2010, find the specific seasonal indices by the method of moving averages.
Year I II III IV
2007 34 33 34 37
2008 37 35 37 39
2009 39 37 38 40
2010 42 41 42 44
Solution:
Calculation of Ratio to Moving Averages
4 Period Y
Year / Quarter Sales Centred Total 4 Period M 100
Moving Total M
2007 I 34   
II 33   
138 34.9 97.4
III 34 279
141 35.5 104.2
IV 37 284
143 36.1 102.5
2008 I 37 289
146 294 36.8 95.1
II 35
148 99.2
III 37 298 37.3
150
IV 39 302 37.8 103.2
152
2009 I 39 305 38.1 102.4
153
II 37 307 38.4 96.4
154 38.9
III 38 311 97.7
157 39.8
IV 40 318 100.5
161 40.8 102.9
2010 I 42 326
165 334 41.8 98.1
II 41
169
III 42   
IV 44   
Calculation of Seasonal Indices
Year I II III IV
2007 97.4 104.2
2008 102.5 95.1 99.2 103.2
2009 102.4 96.4 97.7 100.5
2010 102.9 98.1
Total 307.8 289.6 294.3 307.9
Ai 102.6 96.5 98.1 102.6
S.I. 102.7 96.5 98.1 102.7
399.8
Note that the Grand Average G 99.95 . Also check that the sum of indices is 400.
4

Notes Merits and Demerits

This method assumes that all the four components of a time series are present and, therefore,
widely used for measuring seasonal variations. However, the seasonal variations are not
completely eliminated if the cycles of these variations are not of regular nature. Further, some
information is always lost at the ends of the time series.
Link Relatives Method
This method is based on the assumption that the trend is linear and cyclical variations are of
uniform pattern. As discussed in earlier unit, the link relatives are percentages of the current
period (quarter or month) as compared with previous period. With the computation of link
relatives and their average, the effect of cyclical and random component is minimised. Further,
the trend gets eliminated in the process of adjustment of chained relatives. The following steps
are involved in the computation of seasonal indices by this method:
1. Compute the link relative (L.R.) of each period by dividing the figure of that period
with the figure of previous period. For example, link relative of 3rd quarter
figure of 3rd quarter
100
figure of 2nd quarter
2. Obtain the average of link relatives of a given quarter (or month) of various years. A.M. or
Md can be used for this purpose. Theoretically, the later is preferable because the former
gives undue importance to extreme items.
3. These averages are converted into chained relatives by assuming the chained relative of
the first quarter (or month) equal to 100. The chained relative ( C.R.) for the current period
C.R. of the previous period L.R. of the current period
(quarter or month)
100
4. Compute the C.R. of first quarter (or month) on the basis of the last quarter (or month).
C.R. of last quarter (or month) average L.R. of 1st quarter (or month)
This is given by
100
This value, in general, be different from 100 due to long term trend in the data. The
chained relatives, obtained above, are to be adjusted for the effect of this trend. The
1
adjustment factor is d New C.R. for 1st quarter 100 for quarterly data and
4
1
d New C .R. for 1st month 100 for monthly data.
12
On the assumption that the trend is linear, d, 2d, 3d, etc., is respectively subtracted from
the 2nd, 3rd, 4th, etc., quarter (or month).
5. Express the adjusted chained relatives as a percentage of their average to obtain seasonal
indices.
6. Make sure that the sum of these indices is 400 for quarterly data and 1200 for monthly data.

Notes
Example: Determine the seasonal indices from the following data by the method of link
relatives:
Year 1st Qr 2nd Qr 3rd Qr 4th Qr

2006 26 19 15 10
2007 36 29 23 22
2008 40 25 20 15
2009 46 26 20 18
2010 42 28 24 21
Solution.
Calculation Table
Year I II III IV
2006 73.1 78.9 66.7
2007 360.0 80.5 79.3 95.7
2008 181.8 62.5 80.0 75.0
2009 306.7 56.5 76.9 90.0
2010 233.3 66.7 85.7 87.5
Total 1081.8 339.3 400.8 414.9
Mean 270.5 67.9 80.2 83.0
C.R. 100.0 67.9 54.5 45.2
C.R.(adjusted) 100.0 62.3 43.3 28.4
S.I. 170.9 106.5 74.0 48.6
The chained relative (C.R.) of the 1st quarter on the basis of C.R. of the 4th quarter
270.5 45.2
122.3 .
100
1
The trend adjustment factor d 122.3 100 5.6
4
Thus, the adjusted C.R. of 1st quarter = 100
and for 2nd = 67.9 – 5.6 = 62.3
for 3rd = 54.5 - 2 5.6 = 43.3
for 4th = 45.2 - 3 5.6 = 28.4
100 62.3 43.3 28.4

The grand average of adjusted C.R., G 58.5
4
Adjusted C.R. 100
The seasonal index of a quarter
G
Merits and Demerits
This method is less complicated than the ratio to moving average and the ratio to trend methods.
However, this method is based upon the assumption of a linear trend which may not always
hold true.

Notes
Deseasonalisation of Data
Notes
The deseasonalisation of data implies the removal of the effect of seasonal variations from
the time series variable. If Y consists of the sum of various components, then for its
deseasonalisation, we subtract seasonal variations from it. Similarly, in case of
multiplicative model, the deseasonalisation is done by taking the ratio of Y value to the
corresponding seasonal index. A clue to this is provided by the fact that the sum of seasonal
indices is equal to zero for an additive model while their sum is 400 or 1200 for a
multiplicative model.
It may be pointed out here that the deseasonalisation of a data is done under the assumption
that the pattern of seasonal variations, computed on the basis of past data, is similar to the
pattern of seasonal variations in the year of deseasonalisation.
Did u know? Ratio to moving average method is most general and, therefore, most popular
method of measuring seasonal variations.
Self Assessment
14. If the time series data are in terms of annual figures, the seasonal variations are.....................
(a) Present (b) Absent
(c) In fixed ratio (d) transitory
15. The seasonal variations are of ............................. nature with period equal to one year.
(a) Linear (b) Cyclic
(c) Periodic (d) Varying
16. The measurement of seasonal variation is done by .................................. them from other
components of a time series.
(a) Separating (b) Dissociating
(c) Isolating (d) Filtering
17. Method of Simple Averages is used when the time series variable consists of only the
seasonal and random components.
18. Ratio to Trend Method is used when cyclical variations are absent from the data.
19. Link Relatives Method is based on the assumption that the trend is linear and cyclical
variations are of uniform pattern.
20. Seasonalisation is the process to eliminate the seasonal variations from the data.

Notes
Case Study Production Estimate
S
uppose that there is a series of quarterly production figures (in thousand tonnes) in
an industry for the years 2004 to 2010 and the equation of linear trend fitted to the
annual data is Xt = 107.2 + 2.93t , where t = year 2007 and Xt the annual production in
time period t. Use this equation to estimate the annual production for the year 2005 and
2011.
Suppose now the quarterly indices of seasonal variations are: January-March 125, April-
June 105, July-September 87, October-December 88. (The multiplicative model for the
time series is assumed.) Use these indices to estimate the production during the first
quarter of 1987.
11.3 Summary
A series of observations, on a variable, recorded after successive intervals of time is called

a time series.
The data on the population of India is a time series data where time interval between
two successive figures is 10 years. Similarly figures of national income, agricultural and
industrial production, etc., are available on yearly basis.
The analysis of time series implies its decomposition into various factors that affect the
value of its variable in a given period.
It is a quantitative and objective evaluation of the effects of various factors on the activity
under consideration.
Secular trend or simply trend is the general tendency of the data to increase or decrease or
stagnate over a long period of time.
Trend values of two or more time series can be used for their comparison
Oscillatory movements, repeat themselves after a regular interval of time. This time
interval is known as the period of oscillation.
The main objective of measuring seasonal variations is to eliminate the effect of seasonal
variations from the data.
Random variations are usually short-term variations but sometimes their effect may be so
intense that the value of trend may get permanently affected.
The main objectives of measuring seasonal variations is to understand their pattern.
The measurement of seasonal variation is done by isolating them from other components
of a time series.
There are four methods commonly used for the measurement of seasonal variations.
These methods are:
Method of Simple Averages
Ratio to Trend Method
Ratio to Moving Average Method
Method of Link Relatives

Notes 11.4 Keywords
Additive Model: This model is based on the assumption that the value of the variable of a time
series, at a point of time t, is the sum of the four components. Using symbols, we can write
Yt = Tt + St + Ct + Rt, where Tt, St, Ct and Rt are the values of trend, seasonal, cyclical and random
components respectively, at a point of time t.
Cyclical Variations: The oscillatory movements are termed as Cyclical Variations if their
period of oscillation is greater than one year.
Link Relatives Method: This method is based on the assumption that the trend is linear and
cyclical variations are of uniform pattern.
Multiplicative Model: This model assumes that Yt is given by the multiplication of various
components. Symbolically, we can write Yt = Tt × St × Ct × Rt.
Periodic Variations: These variations, also known as oscillatory movements, repeat themselves
after a regular interval of time. This time interval is known as the period of oscillation.
Random or Irregular Variations: As the name suggests, these variations do not reveal any
regular pattern of movements. These variations are caused by random factors such as strikes,
floods, fire, war, famines, etc.
Seasonal Variations: The oscillatory movements are termed as Seasonal Variations if their
period of oscillation is equal to one year.
Secular Trend: Secular trend or simply trend is the general tendency of the data to increase or
decrease or stagnate over a long period of time.
Time Series: A series of observations, on a variable, recorded after successive intervals of time is
called a time series.
1. Explain the meaning and objectives of time series analysis. Describe briefly the methods
of measurement of trend.
2. What is a time series? What are its main components? How would you study the seasonal
variations in any time series?
3. Distinguish between secular trend and periodic variations. How would you measure
trend in a time series data by the method of least squares? Explain your answer with an
example.
4. Explain the method of moving average for the determination of trend in a time series
data. What are its merits and demerits?
5. Discuss the underlying assumptions of additive and multiplicative models in a time series
analysis. Which of these is more popular in practice and why?
6. Distinguish between the ratio to trend and the ratio to moving average methods of
measuring seasonal variations. Which method is more general and why?
7. “All periodic variations are not necessarily seasonal”. Discuss the above statement with a
suitable example.
8. Determine secular trend by the method of semi-averages from the following data on the
production of sugarcane (in million tonnes). Plot the observed and the trend values on a
graph.

Years : 2003 2004 2005 2006 2007 2008 2009 2010 Notes
Production : 152 129 154 186 189 174 170 186
9. Draw a trend line by the method of semi-averages from the following data. The figures of
sales are in ‘000.
Years : 2004 2005 2006 2007 2008 2009 2010

Sales : 85 102 80 89 92 87 94
10. Fit a linear trend to the following data, on average monthly output, with origin at mid-
point of the year 2006. Convert this into a monthly trend equation. Estimate the average
output for June and August, 2006.
Year : 2002 2003 2004 2005 2006 2007 2008 2009 2010
Output : 6.3 7.4 9.3 7.4 8.3 10.6 9.0 8.7 7.9
11. Fit a straight line trend to the following data on average monthly domestic demand (in
million barrels) for motor fuel:
Year : 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Demand : 61 66 72 76 82 90 96 100 103 110 114
12. Fit a straight line trend by the method of least squares for the following data and obtain
the trend values in the form of average monthly production for each year. Also estimate
the average monthly production for 2011 and the production for individual months, May
and July of 2011.
Year : 2004 2005 2006 2007 2008 2009 2010

Production : 70 80 82 73 84 89 82
1. equal 2. Successive intervals
3. 10 years 4. yearly
5. time series 6. bivariate
7. entirely different 8. Secular trend
9. Oscillatory movements 10. depression, recovery
11. cyclical variations. 12. 3 to 10
13. Random, Irregular 14. (b)
15. (c) 16. (c)
17. True 18. True
19. True 20. False

Notes Garrett H.E. (1956), Elementary Statistics, Longmans, Green & Co., New York.

New Delhi.
York.
2002.
Online links http://en.wikipedia.org/wiki/Time_series

http://www.itl.nist.gov/div898/handbook/pmc/section4/pmc4.htm
http://www.abs.gov.au/websitedbs/d3310114.nsf/
4a256353001af3ed4b2562bb00121564/
b81ecff00cd36415ca256ce10017de2f!OpenDocument
http://www.statsoft.com/textbook/time-series-analysis/
http://www.iasri.res.in/ebook/EBADAT/
5Modeling%20and%20Forecasting%20Techniques%20in%20Agriculture/2-
time_series_analysis_22-02-07_revised.pdf

Unit 12: Probability and Expected Value
Unit 12: Probability and Expected Value Notes
CONTENTS
Objectives
Introduction
12.1 Definitions
12.2 Theorems on Expectation
12.2.1 Expected Monetary Value (EMV)
12.2.2 Expectation of the Sum or Product of two Random Variables
12.2.3 Expectation of a Function of Random Variables
12.3 Counting Techniques
12.3.1 Fundamental Principle of Counting
12.3.2 Permutation
12.3.3 Combination
12.3.4 Ordered Partitions
12.3.5 Statistical or Empirical Definition of Probability
12.3.6 Axiomatic or Modern Approach to Probability
12.3.7 Theorems on Probability
12.4 Summary
12.5 Keywords
Objectives
Define the term random experiment and probability
Discuss various associated terms while defining probability
State Addition theorem of probability
Explain multiplicative theorem of probability
Describe various theorem of expectation
Introduction
The theory of probability is a study of Statistical or Random Experiments. It is the backbone of

Statistical Inference and Decision Theory that are essential tools of the analysis of most of the
modern business and economic problems.

Notes Often, in our day-to-day life, we hear sentences like ‘it may rain today’, ‘Mr X has fifty-fifty
chances of passing the examination’, ‘India may win the forthcoming cricket match against Sri
lanka’, ‘the chances of making profits by investing in shares of company A are very bright’, etc.
Each of the given sentences involves an element of uncertainty.
A phenomenon or an experiment which can result into more than one possible outcome, is
called a random phenomenon or random experiment or statistical experiment. Although, we
may be aware of all the possible outcomes of a random experiment, it is not possible to
predetermine the outcome associated with a particular experimentation or trial.
Consider, for example, the toss of a coin. The result of a toss can be a head or a tail, therefore, it
is a random experiment. Here we know that either a head or a tail would occur as a result of the
toss, however, it is not possible to predetermine the outcome. With the use of probability
theory, it is possible to assign a quantitative measure, to express the extent of uncertainty,
associated with the occurrence of each possible outcome of a random experiment.
Did u know? The concept of probability originated from the analysis of the games of
chance in the 17th century.
12.1 Definitions
Classical Definition: This definition, also known as the mathematical definition of probability,
was given by J. Bernoulli. With the use of this definition, the probabilities associated with the
occurrence of various events are determined by specifying the conditions of a random
experiment.
Did u know? The classical definition of probability is also known as ‘a priori’ definition of
probability.
Definition
If n is the number of equally likely, mutually exclusive and exhaustive outcomes of a random
experiment out of which m outcomes are favourable to the occurrence of an event A, then the
probability that A occurs, denoted by P(A), is given by:
Number of outcomes favourable to A m

P A
Number of exhaustive outcomes n
Various terms used in the above definition are explained below:

1. Equally likely outcomes: The outcomes of random experiment are said to be equally
likely or equally probable if the occurrence of none of them is expected in preference to
others. For example, if an unbiased coin is tossed, the two possible outcomes, a head or a
tail are equally likely.
2. Mutually exclusive outcomes: Two or more outcomes of an experiment are said to be
mutually exclusive if the occurrence of one of them precludes the occurrence of all others
in the same trial i.e. they cannot occur jointly. For example, the two possible outcomes of
toss of a coin are mutually exclusive. Similarly, the occurrences of the numbers 1, 2, 3, 4, 5,
6 in the roll of a six faced die are mutually exclusive.
3. Exhaustive outcomes: It is the totality of all possible outcomes of a random experiment.
The number of exhaustive outcomes in the roll of a die are six. Similarly, there are
52 exhaustive outcomes in the experiment of drawing a card from a pack of 52 cards.

4. Event: The occurrence or non-occurrence of a phenomenon is called an event. For example, Notes
in the toss of two coins, there are four exhaustive outcomes, viz. (H, H), (H, T), (T, H),
(T, T). The events associated with this experiment can be defined in a number of ways. For
example, (i) the event of occurrence of head on both the coins, (ii) the event of occurrence
of head on at least one of the two coins, (iii) the event of non-occurrence of head on the two
coins, etc.
!
Caution An event can be simple or composite depending upon whether it corresponds to
a single outcome of the experiment or not. In the example, given above, the event defined
by (i) is simple, while those defined by (ii) and (iii) are composite events.
Example: Find the probability of obtaining an odd number in the roll of an unbiased die.
Solution:
The number of equally likely, mutually exclusive and exhaustive outcomes, i.e., n = 6. There are
three odd numbers out of the numbers 1, 2, 3, 4, 5 and 6. Therefore, m = 3.
Thus, probability of occurrence of an odd number
Example: What is the chance of drawing a face card in a draw from a pack of 52 well-
shuffled cards?
Solution:
Total possible outcomes n = 52.
Since the pack is well-shuffled, these outcomes are equally likely. Further, since only one card is
to be drawn, the outcomes are mutually exclusive.
There are 12 face cards, m = 12.
Thus, probability of drawing a face card = 12 = 3

52 13
Task What is the probability that a leap year selected at random will contain 53 Mondays?
Self Assessment
1. The concept of probability originated from the analysis of the games of chance in the
17th century.
2. The theory of probability is a study of Statistical or Random Experiments.
3. It is the backbone of Statistical Inference and Decision Theory that are essential tools of the
analysis of most of the modern business and economic problems.
4. A phenomenon or an experiment which can result into more than one possible outcome,
is called a random phenomenon or random experiment or statistical experiment.
5. The result of a toss can be a head or a tail. thus, it is a non random experiment

Notes 6. Mathematical definition of probability, was given by J. Bernoulli.
7. Classical definition is also known as ‘a priori’ definition of probability.
8. Two or more outcomes of an experiment are said to be mutually exclusive if the occurrence
of one of them precludes the occurrence of all others in the same trial i.e. they cannot occur
jointly.
12.2 Theorems on Expectation
Theorem 1:
Expected value of a constant is the constant itself, i.e., E(b) = b, where b is a constant.
Theorem 2:
E(aX) = aE(X), where X is a random variable and a is constant.
12.2.1 Expected Monetary Value (EMV)
When a random variable is expressed in monetary units, its expected value is often termed as
expected monetary value and symbolised by EMV.
Example: If it rains, an umbrella salesman earns 100 per day. If it is fair, he loses 15 per
day. What is his expectation if the probability of rain is 0.3?
Solution:
Here the random variable X takes only two values, X1 = 100 with probability 0.3 and X2 = – 15
with probability 0.7.
Thus, the expectation of the umbrella salesman
= 100 0.3 - 15 0.7 = 19.5
The above result implies that his average earning in the long run would be 19.5 per day.
12.2.2 Expectation of the Sum or Product of two Random Variables
Theorem 1:
If X and Y are two random variables, then E(X + Y) = E(X) + E(Y).
Theorem 2:
If X and Y are two independent random variables, then
E(X.Y) = E(X).E(Y)
12.2.3 Expectation of a Function of Random Variables
Let X , Y be a function of two random variables X and Y. Then we can write
m n
E X ,Y X i , Y j pij
i 1 j 1

Expression for Covariance Notes
As a particular case, assume that X i ,Y j Xi X Yj Y , where E ( X ) X and E (Y ) Y
m n
Thus, E X X Y Y Xi X Yj Y pij
i 1 j 1
The above expression, which is the mean of the product of deviations of values from their
respective means, is known as the Covariance of X and Y denoted as Cov(X, Y) or XY . Thus, we
can write Cov X , Y E X X Y Y
An alternative expression of Cov(X, Y)
Cov( X , Y ) E X E( X ) Y E (Y )
E X. Y E (Y ) E ( X ). Y E (Y )
E X .Y X .E (Y ) E ( X .Y ) E ( X ).E (Y )
Note that E[{Y – E(Y)}] = 0, the sum of deviations of values from their arithmetic mean.
Mean and Variance of a Linear Combination
Let Z X ,Y aX bY be a linear combination of the two random variables X and Y, then

using the theorem of addition of expectation, we can write
Z E (Z ) E (aX bY ) aE ( X ) bE (Y ) a X b Y
Further, the variance of Z is given by

2 2 2 2
Z E Z E (Z ) E aX bY a X b Y E a X X bY Y
2 2
a2E X X b2 E Y Y 2abE X X Y Y
a 2 2X b 2 Y2 2ab XY
Example: A random variable X has the following probability distribution:
X : 2 1 0 1 2
1 1 1
Probability : p p
6 4 6
1. Find the value of p.
2. Calculate E(X + 2) and E(2X2 + 3X + 5).

Solution:
Since the total probability under a probability distribution is equal to unity, the value of p
1 1 1
should be such that p p 1.
6 4 6

Notes 5
This condition gives p
24
Further
1 5 1 5 1
E( X ) 2.1. 0. 1. 2. 0
6 24 4 24 6
1 5 1 5 1 7
E ( X 2 ) 4. 1. 0. 1. 4.
6 24 4 24 6 4
E ( X 2) E ( X ) 2 0 2 2
2 7
And E (2 X 3X 5) 2 E ( X 2 ) 3E ( X ) 5 2. 0 5 8.5
4
Self Assessment
Fill in the blanks:
9. Expected value of a constant is the ...................................
10. When a random variable is expressed in monetary units, its expected value is often termed
as ...............................
11. If X and Y are two random variables, then E(X + Y) = ......................................
12.3 Counting Techniques
Counting techniques or combinatorial methods are often helpful in the enumeration of total
number of outcomes of a random experiment and the number of cases favourable to the
occurrence of an event.
12.3.1 Fundamental Principle of Counting
If the first operation can be performed in any one of the m ways and then a second operation can
be performed in any one of the n ways, then both can be performed together in any one of the
m × n ways.
This rule can be generalised. If first operation can be performed in any one of the n1 ways, second
operation in any one of the n2 ways, ...... kth operation in any one of the nk ways, then together
these can be performed in any one of the n1 × n2 × ...... × nk ways.
12.3.2 Permutation
A permutation is an arrangement of a given set of objects in a definite order. Thus composition

and order both are important in a permutation.
1. Permutations of n objects: The total number of permutations of n distinct objects is n!.
Using symbols, we can write = n!, (where n denotes the permutations of n objects, all taken
together).
Let us assume there are n persons to be seated on n chairs. The first chair can be occupied
by any one of the n persons and hence, there are n ways in which it can be occupied.
Similarly, the second chair can be occupied in n – 1 ways and so on. Using the fundamental
principle of counting, the total number of ways in which n chairs can be occupied by
n persons or the permutations of n objects taking all at a time is given by:
n
Pn = n(n – 1)(n – 2) ...... 3.2.1 = n!

2. Permutations of n objects taking r at a time: In terms of the example, considered above, Notes
now we have n persons to be seated on r chairs,
where r n.
Thus, n Pr = n(n – 1)(n – 2) ...... [n – (r – 1)] = n(n – 1)(n – 2) ...... (n – r + 1).

On multiplication and division of the R.H.S. by (n - r)!, we get
n n n 1 n 2 .... n r 1 n r ! n!
Pr
n r! (n r)!
3. Permutations of n objects taking r at a time when any object may be repeated any number
of times: Here, each of the r places can be filled in n ways. Therefore, total number of
permutations is nr.
4. Permutations of n objects in a circular order: Suppose that there are three persons A, B and
C, to be seated on the three chairs 1, 2 and 3, in a circular order. Then, the following three
arrangements are identical:
Figure 12.1: Permutations of n objects in a circular order
Similarly, if n objects are seated in a circle, there will be n identical arrangements of the
above type. Thus, in order to obtain distinct permutation of n objects in circular order we
n n
divide Pn by n, where Pn denotes number of permutations in a row. Hence, the number
n!
of permutations in a circular order n 1!
n
5. Permutations with restrictions: If out of n objects n1 are alike of one kind, n2 are alike of
n!
another kind, ...... nk are alike, the number of permutations are n ! n ! .... n !
1 2 k
Since permutation of ni objects, which are alike, is only one (i = 1, 2, ...... k). Therefore, n!
is to be divided by n1!, n2! .... nk!, to get the required permutations.
Example: What is the total number of ways of simultaneous throwing of (i) 3 coins,
(ii) 2 dice and (iii) 2 coins and a die?
Solution:
1. Each coin can be thrown in any one of the two ways, i.e, a head or a tail, therefore, the
number of ways of simultaneous throwing of 3 coins = 23 = 8.
2. Similarly, the total number of ways of simultaneous throwing of two dice is equal to
62 = 36 and

Notes 3. the total number of ways of simultaneous throwing of 2 coins and a die is equal to
22 6 = 24.
Example:
1. In how many ways can the letters of the word EDUCATION be arranged?
2. In how many ways can the letters of the word STATISTICS be arranged?
3. In how many ways can 20 students be allotted to 4 tutorial groups of 4, 5, 5 and 6 students
respectively?
4. In how many ways 10 members of a committee can be seated at a round table if (a) they can
sit anywhere (b) president and secretary must not sit next to each other?
Solution:
1. The given word EDUCATION has 9 letters. Therefore, number of permutations of 9 letters
is 9! = 3,62,880.
2. The word STATISTICS has 10 letters in which there are 3S’s, 3T’s, 2I’s, 1A and 1C. Thus, the
required number of permutations = 50,400.
3. Required number of permutations = 9,77,72,87,522
4. (a) Number of permutations when they can sit anywhere = (10-1)!= 9! = 3,62,880.
(b) We first find the number of permutations when president and secretary must sit
together. For this we consider president and secretary as one person. Thus, the
number of permutations of 9 persons at round table = 8! = 40,320.
The number of permutations when president and secretary must not sit together = 3,62,880 –
40,320 = 3,22,560.
12.3.3 Combination
When no attention is given to the order of arrangement of the selected objects, we get a
combination. We know that the number of permutations of n objects taking r at a time is n Pr .
Since r objects can be arranged in r! ways, therefore, there are r! permutations corresponding to
one combination. Thus, the number of combinations of n objects taking r at a time, denoted by
n
n n n Pr n!
Cr , can be obtained by dividing Pr by r!, i.e., Cr r! r! n r !
Note:
n n n
1. Since Cr Cn r , therefore, Cr is also equal to the combinations of n objects taking
(n - r) at a time.
2. The total number of combinations of n distinct objects taking 1, 2, ...... n respectively, at a
time is n C1 n
C2 ...... n
Cn 2n 1 .

Notes
Tasks A committee of 8 teachers is to be formed out of 6 science, 8 arts teachers

and a physical instructor. In how many ways the committee can be formed if
1. Any teacher can be included in the committee.
2. There should be 3 science and 4 arts teachers on the committee such that (i) any
science teacher and any arts teacher can be included, (ii) one particular science teacher
must be on the committee, (iii) three particular arts teachers must not be on the
committee?
12.3.4 Ordered Partitions
1. Ordered Partitions (distinguishable objects)

(a) The total number of ways of putting n distinct objects into r compartments which
are marked as 1, 2, ...... r is equal to rn.
Since first object can be put in any of the r compartments in r ways, second can be put
in any of the r compartments in r ways and so on.
(b) The number of ways in which n objects can be put into r compartments such that the
first compartment contains n1 objects, second contains n2 objects and so on the rth
compartment contains n r objects, where n 1 + n 2 + ...... + n r = n, is given by
n!
n1 ! n2 ! ...... nr ! .
To illustrate this, let r = 3. Then n1 objects in the first compartment can be put in
n
Cn1 ways. Out of the remaining n - n1 objects, n2 objects can be put in the second
n - n1
compartment in Cn2 ways. Finally the remaining n - n1 - n2 = n3 objects can be put
in the third compartment in one way. Thus, the required number of ways is
n n n1 n!
Cn1 Cn2 .
n1 !n2 !n3 !
2. Ordered Partitions (identical objects)
(a) The total number of ways of putting n identical objects into r compartments marked
as 1, 2, ...... r, is n +r - 1Cr - 1 , where each compartment may have none or any number
of objects.
We can think of n objects being placed in a row and partitioned by the (r - 1) vertical
lines into r compartments. This is equivalent to permutations of (n + r - 1) objects out
of which n are of one type and (r - 1) of another type. The required number of
n r 1! n r 1 n r 1
permutations are , which is equal to C n or Cr 1 .
n! r 1 !
(b) The total number of ways of putting n identical objects into r compartments is
n r r 1 n 1
Cr 1 or C r 1 , where each compartment must have at least one object.
In order that each compartment must have at least one object, we first put one object
in each of the r compartments. Then the remaining (n - r) objects can be placed as in
(a) above.

Notes (c) The formula, given in (b) above, can be generalised. If each compartment is supposed
n kr r 1
to have at least k objects, the total number of ways is Cr 1 , where k = 0, 1, 2,
.... etc. such that k n.

r
Example: 4 couples occupy eight seats in a row at random. What is the probability that
all the ladies are sitting next to each other?
Solution:
Eight persons can be seated in a row in 8! ways.
We can treat 4 ladies as one person. Then, five persons can be seated in a row in 5! ways. Further,
4 ladies can be seated among themselves in 4! ways.
5!4! 1
The required probability
8! 14
Example: 12 persons are seated at random (1) in a row, (2) in a ring. Find the probabilities
that three particular persons are sitting together.
Solution:
10!3! 1
1. The required probability
12! 22
9!3! 3
2. The required probability
11! 55
Example: 5 red and 2 black balls, each of different sizes, are randomly laid down in a
row. Find the probability that
1. the two end balls are black,
2. there are three red balls between two black balls and
3. the two black balls are placed side by side.
Solution:
The seven balls can be placed in a row in 7! ways.
1. The black can be placed at the ends in 2! ways and, in-between them, 5 red balls can be
placed in 5! ways.
2!5! 1
The required probability
7! 21
2. We can treat BRRRB as one ball. Therefore, this ball along with the remaining two balls
can be arranged in 3! ways. The sequence BRRRB can be arranged in 2! 3! ways and the three
red balls of the sequence can be obtained from 5 balls in ways.
3!2!3! 5 1
The required probability C3
7! 7

3. The 2 black balls can be treated as one and, therefore, this ball along with 5 red balls can be Notes
arranged in 6! ways. Further, 2 black ball can be arranged in 2! ways.
The required probability = 6!2! = 2

7! 7
12.3.5 Statistical or Empirical Definition of Probability
The scope of the classical definition was found to be very limited as it failed to determine the
probabilities of certain events in the following circumstances:
1. When n, the exhaustive outcomes of a random experiment is infinite.
2. When actual value of n is not known.
3. When various outcomes of a random experiment are not equally likely.
In addition to the above this definition doesn’t lead to any mathematical treatment of probability.
In view of the above shortcomings of the classical definition, an attempt was made to establish
a correspondence between relative frequency and the probability of an event when the total
number of trials become sufficiently large.
Definition (R. Von Mises)
If an experiment is repeated n times, under essentially the identical conditions and, if, out
of these trials, an event A occurs m times, then the probability that A occurs is given by
P(A) = , provided the limit exists.
This definition of probability is also termed as the empirical definition because the probability
of an event is obtained by actual experimentation.
m
Although, it is seldom possible to obtain the limit of the relative frequency, the ratio can be
n
regarded as a good approximation of the probability of an event for large values of n.
This definition also suffers from the following shortcomings:
1. The conditions of the experiment may not remain identical, particularly when the number
of trials is sufficiently large.
m
2. The relative frequency, , may not attain a unique value no matter how large is the total
n
number of trials.
3. It may not be possible to repeat an experiment a large number of times.
4. Like the classical definition, this definition doesn't lead to any mathematical treatment of
probability.
12.3.6 Axiomatic or Modern Approach to Probability
This approach was introduced by the Russian mathematician, A. Kolmogorov in 1930s. In his
book, ‘Foundations of Probability’ published in 1933, he introduced probability as a function of
the outcomes of an experiment, under certain restrictions. These restrictions are known as
Postulates or Axioms of probability theory. Before discussing the above approach to probability,
we shall explain certain concepts that are necessary for its understanding.

Notes Sample Space
It is the set of all possible outcomes of a random experiment. Each element of the set is called a
sample point or a simple event or an elementary event. The sample space of a random experiment
is denoted by S and its element are denoted by ei, where i = 1, 2, ...... n. Thus, a sample space
having n elements can be written as:
S = {e1, e2, ......, en}.
If a random experiment consists of rolling a six faced die, the corresponding sample space
consists of 6 elementary events. Thus, S = {1, 2, 3, 4, 5, 6}.
Similarly, in the toss of a coin S = {H, T}.
The elements of S can either be single elements or ordered pairs. For example, if two coins are
tossed, each element of the sample space would consist of the set of ordered pairs, as shown
below :
S = {(H, H), (H, T), (T, H), (T, T)}
Finite and Infinite Sample Space
A sample space consisting of finite number of elements is called a finite sample space, while if
the number of elements is infinite, it is called an infinite sample space. The sample spaces
discussed so far are examples of finite sample spaces. As an example of infinite sample space,
consider repeated toss of a coin till a head appears. Various elements of the sample space would
be:
S = {(H), (T, H), (T, T, H), ...... }.
Discrete and Continuous Sample Space
A discrete sample space consists of finite or countably infinite number of elements. The sample
spaces, discussed so far, are some examples of discrete sample spaces. Contrary to this, a continuous
sample space consists of an uncountable number of elements. This type of sample space is
obtained when the result of an experiment is a measurement on continuous scale like
measurements of weight, height, area, volume, time, etc.
Event
An event is any subset of a sample space. In the experiment of roll of a die, the sample space is
S = {1, 2, 3, 4, 5, 6}. It is possible to define various events on this sample space, as shown below:
Let A be the event that an odd number appears on the die. Then A = {1, 3, 5} is a subset of S.
Further, let B be the event of getting a number greater than 4. Then B = {5, 6} is another subset of
S. Similarly, if C denotes an event of getting a number 3 on the die, then C = {3}.
It should be noted here that the events A and B are composite while C is a simple or elementary
event.
Occurrence of an Event
An event is said to have occurred whenever the outcome of the experiment is an element of its
set. For example, if we throw a die and obtain 5, then both the events A and B, defined above, are
said to have occurred.

It should be noted here that the sample space is certain to occur since the outcome of the Notes
experiment must always be one of its elements.
Definition of Probability (Modern Approach)
Let S be a sample space of an experiment and A be any event of this sample space. The probability
of A, denoted by P(A), is defined as a real value set function which associates a real value
corresponding to a subset A of the sample space S. In order that P(A) denotes a probability
function, the following rules, popularly known as axioms or postulates of probability, must be
satisfied.
Axiom I : For any event A in sample space S, we have 0 P(A) 1.
Axiom II : P(S) = 1.
Axiom III : If A1, A2, ...... Ak are k mutually exclusive events (i.e., Ai  A j , where denotes
i j
a null set) of the sample space S, then
k
P A1  A2 ......  Ak P Ai
i 1
The first axiom implies that the probability of an event is a non-negative number less than or
equal to unity. The second axiom implies that the probability of an event that is certain to occur
must be equal to unity. Axiom III gives a basic rule of addition of probabilities when events are
mutually exclusive.
The above axioms provide a set of basic rules that can be used to find the probability of any
event of a sample space.
Probability of an Event
Let there be a sample space consisting of n elements, i.e., S = {e1, e2, ...... en}. Since the elementary
n
events e1, e2, ...... en are mutually exclusive, we have, according to axiom III, P S P ei .
i 1
Similarly, if A = {e1, e2, ...... em} is any subset of S consisting of m elements, where m n, then
m
P A P ei . Thus, the probability of a sample space or an event is equal to the sum of
i 1
probabilities of its elementary events.
It is obvious from the above that the probability of an event can be determined if the probabilities
of elementary events, belonging to it, are known.
The Assignment of Probabilities to various Elementary Events
The assignment of probabilities to various elementary events of a sample space can be done in
any one of the following three ways:
1. Using Classical Definition: We know that various elementary events of a random
experiment, under the classical definition, are equally likely and, therefore, can be assigned
equal probabilities. Thus, if there are n elementary events in the sample space of an

Notes n
experiment and in view of the fact that P S P ei 1 (from axiom II), we can assign a
i 1
1
probability equal to to every elementary event or, using symbols, we can write
n
1
P ei for i = 1, 2, .... n.
n
Further, if there are m elementary events in an event A, we have,
1 1 1 m n A , i.e., number of elements in A

P A ...... m times
n n n n n S , i.e., number of elements in S
We note that the above expression is similar to the formula obtained under classical
definition.
2. Using Statistical Definition: Using this definition, the assignment of probabilities to

various elementary events of a sample space can be done by repeating an experiment a
large number of times or by using the past records.
3. Subjective Assignment: The assignment of probabilities on the basis of the statistical and
the classical definitions is objective. Contrary to this, it is also possible to have subjective
assignment of probabilities. Under the subjective assignment, the probabilities to various
elementary events are assigned on the basis of the expectations or the degree of belief of
the statistician. These probabilities, also known as personal probabilities, are very useful
in the analysis of various business and economic problems where it is neither possible to
repeat the experiment nor the outcomes are equally likely.
It is obvious from the above that the Modern Definition of probability is a general one
which includes the classical and the statistical definitions as its particular cases. Besides
this, it provides a set of mathematical rules that are useful for further mathematical
treatment of the subject of probability.
12.3.7 Theorems on Probability
Theorem 1:
P 0 , where is a null set.
Theorem 2:
P A 1 P A , where A is compliment of A.
Figure 12.2: Venn Diagram

Theorem 3: Notes
For any two events A and B in a sample space S
P AB P B P A B
Theorem 4: (Addition of Probabilities)
P A B P A P B P A B
Example: What is the probability of drawing a black card or a king from a well-shuffled
pack of playing cards?
Solution:
There are 52 cards in a pack, n(S) = 52.
Let A be the event that the drawn card is black and B be the event that it is a king. We have to find.
P A B
Since there are 26 black cards, 4 kings and two black kings in a pack, we have n(A) = 26, n(B) = 4
26 4 2 7
and  B = 2 Thus, P A  B
52 13
Alternative Method
The given information can be written in the form of the following table:
B B Total
A 2 24 26
A 2 24 26
Total 4 48 52
From the above, we can write
24 7
P A B 1 P AB 1
52 13
Theorem 5: (Multiplication or Compound Probability Theorem)
A compound event is the result of the simultaneous occurrence of two or more events.
For convenience, we assume that there are two events, however, the results can be easily
generalised. The probability of the compound event would depend upon whether the events are
independent or not. Thus, we shall discuss two theorems: (a) Conditional Probability Theorem,
and (b) Multiplicative Theorem for Independent Events.
1. Conditional Probability Theorem: For any two events A and B in a sample space S, the
probability of their simultaneous occurrence, is given by
P A B P A P B/ A
or equivalently P B P A/B
Here, P(B/A) is the conditional probability of B given that A has already occurred. Similar
interpretation can be given to the term P(A/B).

Notes 2. Multiplicative Theorem for Independent Events: If A and B are independent, the probability
of their simultaneous occurrence is given by
P A B P A .P B .
Example: Two unbiased dice are tossed. Let w denote the number on the first die and r
denote the number on the second die. Let A be the event that w + r 4 and B be the event that
w+r 3 . Are A and B independent?
Solution:
The sample space of this experiment consists of 36 elements, i.e., n(S) = 36. Also, A = {(1, 1), (1, 2),
(1, 3), (2, 1), (2, 2), (3, 1)} and B = {(1, 1), (1, 2), (2, 1)}.
From the above, we can write
6 1 3 1
P A ,P B
36 6 36 12
3 1
Also A  B {(1,1),(1, 2),(2,1)} P A B
36 12
Since P A  B P A P B , A and B are not independent.
Attributes
Notes
An attribute is a qualitative characteristics. One can only feel the presence or absence of
this characteristic while observing individuals or items under consideration. For example,
honesty, marriage, colour, beauty, etc., are attributes. It is, however, possible to classify
various individuals or items into two or more categories according to an attribute.
Self Assessment
12. .................................... techniques are often helpful in the enumeration of total number of
outcomes of a random experiment and the number of cases favourable to the occurrence of
an event.
(a) Counting (b) Discounting
(c) Estimation (d) Investigation
13. If the first operation can be performed in any one of the m ways and then a second
operation can be performed in any one of the n ways, then both can be performed together
in any one of the .......................... ways.
(a) m+n (b) m-n
(c) m×n (d) none

14. A ................................. is an arrangement of a given set of objects in a definite order. Notes

(a) Permutation (b) Combination
(c) Arrangement (d) System
15. When no attention is given to the order of arrangement of the selected objects, we get a
.......................................
(a) Permutation (b) Combination
(c) Arrangement (d) System
16. A ................................ is the result of the simultaneous occurrence of two or more events.
(a) Event (b) Simple event
(c) Complex event (d) compound event
Case Study Independent Events
S
uppose a company hires both MBAs and non-MBAs for the same kind of managerial
task. After a period of employment some of each category are promoted and some
are not. Table below gives the proportion of company’s managers among the said
classes:
Academic Qualification
Promotional MBA Non - MBA
Status Total
(A) (A)
Promoted (B) 0.42 0.18 0.60

Not Promoted(B) 0.28 0.12 0.40
Total 0.70 0.30 100
.
Question
Calculate P(A/B) and P(B/A) and find out whether A and B are independent events.
12.4 Summary
1. (a) The number of permutations of n objects taking n at a time are n!
n n!
(b) The number of permutations of n objects taking r at a time, are Pr
n r !
(c) The number of permutations of n objects in a circular order are (n - 1)!
(d) The number of permutations of n objects out of which n1 are alike, n2 are alike, ......
n!
nk are alike, are
n1 !n2 ! ... nk !
n n!
(e) The number of combinations of n objects taking r at a time are Cr
r! n r !
2. (a) The probability of occurrence of at least one of the two events A and B is given by:
P A B P A P B P A B 1 P AB .
(b) The probability of occurrence of exactly one of the events A or B is given by:
P A B P A  B or P A  B P A B

Notes 3. (a) The probability of simultaneous occurrence of the two events A and B is given by:
P A  B P A .P B / A or P B .P A / B
(b) If A and B are independent P A  B P A .P B .
12.5 Keywords
Combination: When no attention is given to the order of arrangement of the selected objects, we
get a combination.
Counting techniques or combinatorial methods: These are often helpful in the enumeration of
total number of outcomes of a random experiment and the number of cases favourable to the
occurrence of an event.
Equally likely outcomes: The outcomes of random experiment are said to be equally likely or
equally probable if the occurrence of none of them is expected in preference to others.
Expected Monetary Value: When a random variable is expressed in monetary units, its expected
value is often termed as expected monetary value and symbolized by EMV.
Expected Value: Expected value of a constant is the constant itself, i.e., E(b) = b, where b is a
constant.
Mutually exclusive outcomes: Two or more outcomes of an experiment are said to be mutually
exclusive if the occurrence of one of them precludes the occurrence of all others in the same trial
i.e. they cannot occur jointly.
Permutation: A permutation is an arrangement of a given set of objects in a definite order. Thus

composition and order both are important in a permutation
Priori’ definition of probability: If n is the number of equally likely, mutually exclusive and
exhaustive outcomes of a random experiment out of which m outcomes are favourable to the
occurrence of an event A, then the probability that A occurs, denoted by P(A).
Random phenomenon: A phenomenon or an experiment which can result into more than one
possible outcome, is called a random phenomenon or random experiment or statistical
experiment.
1. Define the term ‘probability’ by (a) The Classical Approach, (b) The Statistical Approach.
What are the main limitations of these approaches?
2. Discuss the axiomatic approach to probability. In what way it is an improvement over

classical and statistical approaches?
3. Explain the meaning of conditional probability. State and prove the multiplication rule of
probability of two events when (a) they are not independent, (b) they are independent.
4. Explain the concept of independence and mutually exclusiveness of two events A and B. If
A and B are
5. Explain the meaning of a statistical experiment and corresponding sample space. Write
down the sample space of an experiment of simultaneous toss of two coins and a die.
6. What is the probability of getting exactly two heads in three throws of an unbiased coin?
7. What is the probability of getting a sum of 2 or 8 or 12 in single throw of two unbiased

dice?

8. Two cards are drawn at random from a pack of 52 cards. What is the probability that the Notes
first is a king and second is a queen?
9. What is the probability of successive drawing of an ace, a king, a queen and a jack from a
pack of 52 well shuffled cards? The drawn cards are not replaced.
10. 5 unbiased coins with faces marked as 2 and 3 are tossed. Find the probability of getting a
sum of 12.
11. If 15 chocolates are distributed at random among 5 children, what is the probability that a
particular child receives 8 chocolates?
12. A and B stand in a ring with 10 other persons. If arrangement of 12 persons is at random,
find the chance that there are exactly three persons between A and B.
13. Two different digits are chosen at random from the set 1, 2, 3, 4, 5, 6, 7, 8. Find the
probability that sum of two digits exceeds 13.
14. 5-letter words are formed from the letters of the word ORDINATES. What is the probability
that the word so formed consists of 2 vowels and 3 consonants?
15. Maximum number of different committees are formed out of 100 teachers, including
principal, of a college such that each committee consists of the same number of members.
What is the probability that principal is a member of any committee?
16. If n persons are seated around a round table, find the probability that in no two ways a
man has the same neighbours.
17. 6 teachers, of whom 2 are from science, 2 from arts and 2 from commerce, are seated in a
row. What is the probability that the teachers of the same discipline are sitting together?
18. A problem in economics is given to 3 students whose chances of solving it are and
respectively. What is the probability that the problem will be solved?
19. What is the chance that a non-leap year selected at random will contain 53 Sundays?
20. Two men M1 and M2 and three women W1, W2 and W3, in a big industrial firm, are trying
for promotion to a single post which falls vacant. Those of the same sex have equal
probabilities of getting promotion but each man is twice as likely to get the promotion as
any women.
(a) Find the probability that a woman gets the promotion.
(b) If M2 and W2 are husband and wife, find the probability that one of them gets the
promotion.
1. True 2. True
3. True 4. True
5. False 6. True
7. True 8. True
9. constant itself 10. expected monetary value
11. E(X) + E(Y). 12. (a)
13. (c) 14. (a)
15. (b) 16. (d)

Notes 12.7 Further Readings
Books Balwani Nitin Quantitative Techniques, First Edition: 2002, Excel Books, New Delhi.
Online links http://en.wikipedia.org/wiki/Probability

http://www.cut-the-knot.org/probability.shtml
http://www.probability.net/
http://www.tutors4you.com/probabilitytutorial.htm

Unit 13: Binomial Probability Distribution
Unit 13: Binomial Probability Distribution Notes
CONTENTS
Objectives
Introduction
13.1 Concept of Probablity Distribution
13.1.1 Probability Distribution of a Random Variable
13.1.2 Discrete and Continuous Probability Distributions
13.2 The Binomial Probability Distribution
13.2.1 Probability Function or Probability Mass Function
13.2.2 Summary Measures of Binomial Distribution
13.3 Fitting of Binomial Distribution
13.3.1 Features of Binomial Distribution
13.3.2 Uses of Binomial Distribution
13.4 Summary
13.5 Keywords
Objectives
Brief about theoretical probability distribution
Categorize theoretical probability distribution
Define the term binomial probability distribution

Explain the various features of binomial probability distribution
Discuss the uses and measures of binomial probability distribution
Introduction
The study of a population can be done either by constructing an observed (or empirical) frequency
distribution, often based on a sample from it, or by using a theoretical distribution. We have
already studied the construction of an observed frequency distribution and its various summary
measures. Now we shall learn a more scientific way to study a population through the use of
theoretical probability distribution of a random variable. It may be mentioned that a theoretical
probability distribution gives us a law according to which different values of the random
variable are distributed with specified probabilities. It is possible to formulate such laws either
on the basis of given conditions (a priori considerations) or on the basis of the results (a posteriori
inferences) of an experiment.
If a random variable satisfies the conditions of a theoretical probability distribution, then this
distribution can be fitted to the observed data.

Notes The knowledge of the theoretical probability distribution is of great use in the understanding
and analysis of a large number of business and economic situations. For example, with the use
of probability distribution, it is possible to test a hypothesis about a population, to take decision
in the face of uncertainty, to make forecast, etc.
Theoretical probability distributions can be divided into two broad categories, viz. discrete and
continuous probability distributions, depending upon whether the random variable is discrete
or continuous. Although, there are a large number of distributions in each category, we shall
discuss only some of them having important business and economic applications.
Did u know? In order to discuss the applications of probability to practical situations, it is

necessary to associate some numerical characteristics with each possible outcome of the
random experiment. This numerical characteristic is termed as random variable.
13.1 Concept of Probablity Distribution
A probability distribution is a rule that assigns a probability to every possible outcome of an

experiment.
In order to discuss the applications of probability to practical situations, it is necessary to
associate some numerical characteristics with each possible outcome of the random experiment.
This numerical characteristic is termed as random variable. Or we can say, An event whose
numerical value is determined by the outcome of an experiment is called a variate or often a
random variable.
Example: Three coins are tossed simultaneously. Write down the sample space of the
random experiment. What are the possible values of the random variable X, if it denotes the
number of heads obtained?
Solution:
The sample space of the experiment can be written as:
S = {(H,H,H), (H,H,T), (H,T,H), (T,H,H), (H,T,T), (T,H,T), (T,T,H), (T,T,T)}
We note that the first element of the sample space denotes 3 heads, therefore, the corresponding
value of the random variable will be 3. Similarly, the value of the random variable corresponding
to each of the second, third and fourth element will be 2 and it will be 1 for each of the fifth, sixth
and seventh element and 0 for the last element. Thus, the random variable X, defined above can
take four possible values, i.e., 0, 1, 2 and 3.
It may be pointed out here that it is possible to define another random variable on the above
sample space.
13.1.1 Probability Distribution of a Random Variable
Given any random variable, corresponding to a sample space, it is possible to associate

probabilities to each of its possible values. For example, in the toss of 3 coins, assuming that they
are unbiased, the probabilities of various values of the random variable X, defined in example
above, can be written as:
1 3 3 1
P X 0 ,P X 1 ,P X 2 and P X 3 .
8 8 8 8

The set of all possible values of the random variable X along with their respective probabilities Notes
is termed as Probability Distribution of X. The probability distribution of X, defined in example
above, can be written in a tabular form as given below:
X : 0 1 2 3 Total
1 3 3 1
p X : 1
8 8 8 8
Note that the total probability is equal to unity.
In general, the set of n possible values of a random variable X, i.e., {X1, X2, ...... Xn} along with
n
their respective probabilities p(X1), p(X2), ...... p(Xn), where p Xi 1 , is called a probability
i 1
distribution of X. The expression p(X) is called the probability function of X.
13.1.2 Discrete and Continuous Probability Distributions
Like any other variable, a random variable X can be discrete or continuous. If X can take only
finite or countably infinite set of values, it is termed as a discrete random variable. On the other
hand, if X can take an uncountable set of infinite values, it is called a continuous random
variable.
The random variable defined in previous example is a discrete random variable. However, if X
denotes the measurement of heights of persons or the time interval of arrival of a specified
number of calls at a telephone desk, etc., it would be termed as a continuous random variable.
The distribution of a discrete random variable is called the Discrete Probability Distribution
and the corresponding probability function p(X) is called a Probability Mass Function. In order
that any discrete function p(X) may serve as probability function of a discrete random variable
X, the following conditions must be satisfied:
1. p(Xi) 0 i = 1, 2, ...... n and
n
2. p Xi 1
i 1
In a similar way, the distribution of a continuous random variable is called a Continuous
Probability Distribution and the corresponding probability function p(X) is termed as the
Probability Density Function. The conditions for any function of a continuous variable to serve
as a probability density function are:
1. p(X) 0 real values of X, and
2. p X dX 1
Remarks:
1. When X is a continuous random variable, there are an infinite number of points in the
sample space and thus, the probability that X takes a particular value is always defined to
be zero even though the event is not regarded as impossible. Hence, we always measure
the probability of a continuous random variable lying in an interval.
2. The concept of a probability distribution is not new. In fact it is another way of representing
a frequency distribution. Using statistical definition, we can treat the relative frequencies
of various values of the random variable as the probabilities.

Notes
Example: Two unbiased die are thrown. Let the random variable X denote the sum of
points obtained. Construct the probability distribution of X.
Solution:
The possible values of the random variable are:
2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12
The probabilities of various values of X are shown in the following table:

Probability Distribution of X
X 2 3 4 5 6 7 8 9 10 11 12 Total
1 2 3 4 5 6 5 4 3 2 1
p X 1
36 36 36 36 36 36 36 36 36 36 36
Example: Three marbles are drawn at random from a bag containing 4 red and 2 white
marbles. If the random variable X denotes the number of red marbles drawn, construct the
probability distribution of X.
Solution:
The given random variable can take 3 possible values, i.e., 1, 2 and 3. Thus, we can compute the
probabilities of various values of the random variable as given below:
4 2
C1 C2 4
P(X = 1, i.e., 1R and 2 W marbles are drawn) 6
C3 20
4 2
C2 C1 12
P(X = 2, i.e., 2R and 1W marbles are drawn) 6
C3 20
4
C3 4
P(X = 3, i.e., 3R marbles are drawn) 6
C3 20
Note: In the event of white balls being greater than 2, the possible values of the random variable would
have been 0, 1, 2 and 3.
13.2 The Binomial Probability Distribution
If the assumptions of the Bernoulli process are satisfied and if the probability of a success on one
trial is p, then the probability distribution of the number of successes, r, in n trials, is a binomial
distribution, and is given by the formula:
Performing computations using the above equation can be tedious if the number of trials is
large.
Binomial distribution is a theoretical probability distribution which was given by James
Bernoulli. This distribution is applicable to situations with the following characteristics:
1. An experiment consists of a finite number of repeated trials.
2. Each trial has only two possible, mutually exclusive, outcomes which are termed as a
‘success’ or a ‘failure’.

3. The probability of a success, denoted by p, is known and remains constant from trial to Notes
trial. The probability of a failure, denoted by q, is equal to 1 – p.
4. The sequence of trials under the above assumptions is also termed as Bernoulli Trials
!
Caution Different trials are independent, i.e., outcome of any trial or sequence of trials has
no effect on the outcome of the subsequent trials.
13.2.1 Probability Function or Probability Mass Function
Let n be the total number of repeated trials, p be the probability of a success in a trial and q be the
probability of its failure so that q = 1 – p.
Let r be a random variable which denotes the number of successes in n trials. The
possible values of r are 0, 1, 2, ...... n. We are interested in finding the probability of r successes
out of n trials, i.e., P(r).
To find this probability, we assume that the first r trials are successes and remaining n – r trials
are failures. Since different trials are assumed to be independent, the probability of this sequence
is
p. p. .... p q. q. .... q
   i.e. prqn-r.
r times n r times
Since out of n trials any r trials can be success, the number of sequences showing any r trials as
success and remaining (n – r) trials as failure is n Cr , where the probability of r successes in each
trial is prqn-r. Hence, the required probability is , P ( r ) = n Cr p r q n - r where r = 0, 1, 2, ...... n.
Writing this distribution in a tabular form, we have:
0 1 2 
0 1 2 2 0
( ) 0 1 2  1
It should be noted here that the probabilities obtained for various values of r are the terms in the
binomial expansion of (q + p)n and thus, the distribution is termed as Binomial Distribution.
n r n- r
P ( r ) = Cr p q is termed as the probability function or probability mass function (p.m.f.) of
the distribution.
13.2.2 Summary Measures of Binomial Distribution
1. Mean: The mean of a binomial variate r, denoted by , is equal to E(r), i.e.,

n n
E (r ) rP(r ) r.n Cr p r q n r
(note that the term for r = 0 is 0)
r 0 r 1
n n
r.n ! n. n 1 !
. pr qn r
. pr qn r
r 1 r ! n r ! r 1 r 1!n r !
n n 1! n 1
np . p r 1q n r
np q p = np  q p 1
r 1 r 1! n r !
2. Variance: The variance of r, denoted by 2 , is given by
2 2 2
E r E r E r np E r2 2npr n 2 p 2

Notes
E r2 2npE r n2 p 2 E r2 2n 2 p 2 n2 p 2
E r2 n2 p 2 .... (1)
Thus, to find we first determine E(r2).

n
Now, E r2 r 2 .n Cr p r q n r
r r 1 r n
Cr p r q n r
r 1
n n n r r 1 n!
n
r r 1 Cr p r q n r
r.n Cr p r q n r
. pr qn r
np
r 2 r 1 r 2 r! n r !
n n n n 1. n 2 !
n!
. pr qn r
np . pr qn r
np
r 2 r 2 ! n r ! r 2 r 2 ! n r !
n n 2 !
n n 1 p2 . pr 2 qn r
np
r 2 r 2 ! n r !
n 2
n n 1 p2 q p np n n 1 p2 np
Substituting this value in equation (1), we get
2
n n 1 p2 np n 2 p 2 np 1 p npq
Or the standard deviation = npq

2
Remarks: npq mean q , which shows that since 0 < q <1.
3. The values of 3, 4, 1 and 2
Proceeding as above, we can obtain

3
3 E r np npq q p
4 2 2 2
4 E r np 3n p q npq 1 6 pq
2 2
2
3 n2 p 2q 2 q p q p
Also 1 3
2 n 3 p 3q 3 npq
The above result shows that the distribution is symmetrical when
1
p=q= , negatively skewed if q < p, and positively skewed if q > p
2
4 3n2 p 2 q 2 npq 1 6 pq 1 6 pq
2 2 2 2 2
3
2 n p q npq
The above result shows that the distribution is leptokurtic if 6pq < 1, platykurtic if
6pq > 1 and mesokurtic if 6pq = 1.
4. Mode: Mode is that value of the random variable for which probability is maximum.
If r is mode of a binomial distribution, we have
P(r – 1) P(r) P(r + 1)

Consider the inequality P(r) P(r + 1)

or n Cr p r q n r n
Cr 1 p r 1 q n r 1 Notes
n! n!
or r ! n pr qn r
p r 1q n r 1
r ! r 1! n r 1!
1 1
or .q . p or qr q np pr
n r r 1
Solving the above inequality for r, we get
r n 1 p 1 .... (1)
Similarly, on solving the inequality P(r - 1) P(r) for r, we can get
r n 1 p .... (2)
Combining inequalities (1) and (2), we get
n 1 p 1 r n 1 p
Case I. When (n + 1)p is not an integer
When (n + 1)p is not an integer, then (n + 1)p - 1 is also not an integer. Therefore, mode will
be an integer between (n + 1)p - 1 and (n + 1)p or mode will be an integral part of (n + 1)p.
Case II. When (n + 1)p is an integer
When (n + 1)p is an integer, the distribution will be bimodal and the two modal values
would be (n + 1)p - 1 and (n + 1)p.
Example: An unbiased die is tossed three times. Find the probability of obtaining (1) no
six, (2) one six, (3) at least one six, (4) two sixes and (5) three sixes.
Solution.
The three tosses of a die can be taken as three repeated trials which are independent. Let the
occurrence of six be termed as a success. Therefore, r will denote the number of six obtained.
1
Further, n = 3 and p .
6
1. Probability of obtaining no six, i.e.,

0 3
3 1 5 125
P r 0 C0 p 0q3 1.
6 6 216
2
3 1 5 25
2. P r 1 C1 p1q 2 3.
6 6 72
125 91
3. Probability of getting at least one six = 1 – P(r = 0) 1
216 216
2
3 1 5 5
4. P r 2 C2 p 2q1 3.
6 6 72
3
3 1 1
5. P r 3 C3 p 3q 0 3.
6 216

Notes
Example: Assuming that it is true that 2 in 10 industrial accidents are due to fatigue, find
the probability that:
1. Exactly 2 of 8 industrial accidents will be due to fatigue.
2. At least 2 of the 8 industrial accidents will be due to fatigue.

Solution:
Eight industrial accidents can be regarded as Bernoulli trials each with probability of success
2 1
p= =
10 5 . The random variable r denotes the number of accidents due to fatigue.
2 6
8 1 4
1. P r 2 C2 0.294
5 5
2. We have to find P(r 2). We can write
P(r 2) = 1 – P(0) – P(1), thus, we first find P(0) and P(1).
0 8
8 1 4
We have P 0 C0 0.168
5 5
1 7
8 1 4
and P1 C1 0.336
5 5
P(r 2) = 1- 0.168 - 0.336 = 0.496
Example: The proportion of male and female students in a class is found to be 1 : 2. What
is the probability that out of 4 students selected at random with replacement, 2 or more will be
females?
Solution:
Let the selection of a female student be termed as a success. Since the selection of a student is
made with replacement, the selection of 4 students can be taken as 4 repeated trials each with
2
probability of success p .
3
Thus, P(r 2) = P(r = 2) + P(r = 3) +P(r = 4)
2 2 3 4
4 2 1 4 2 1 4 2 8
C2 C3 C4
3 3 3 3 3 9
Note that P(r 2) can alternatively be found as 1 – P(0) – P(1)
Task The probability of a bomb hitting a target is 1/5. Two bombs are enough to destroy
a bridge. If six bombs are aimed at the bridge, find the probability that the bridge is
destroyed.
Example: An insurance salesman sells policies to 5 men all of identical age and good
health. According to the actuarial tables, the probability that a man of this particular age will be
alive 30 years hence is 2/3. Find the probability that 30 years hence (1) at least 1 man will be
alive, (2) at least 3 men will be alive.

Solution: Notes
Let the event that a man will be alive 30 years hence be termed as a success. Therefore, n = 5 and
2
p
3
0 5
5 2 1 242
1. P(r 1) = 1 - P(r = 0) 1 C0
3 3 243
2. P(r 3) = P(r = 3) + P(r = 4) +P(r = 5)
3 2 4 1 5
5 2 1 5 2 1 5 2 64
C3 C4 C5
3 3 3 3 3 81
Example: Ten percent of items produced on a machine are usually found to be defective.
What is the probability that in a random sample of 12 items (1) none, (2) one, (3) two, (4) at the
most two, (5) at least two items are found to be defective?
Solution:
Let the event that an item is found to be defective be termed as a success. Thus, we are given n =
12 and p = 0.1.
12 0 12
1. P r 0 C0 0.1 0.9 0.2824
12 1 11
2. P r 1 C1 0.1 0.9 0.3766
12 2 10
3. P r 2 C2 0.1 0.9 0.2301
4. P r 2 = P(r = 0) + P(r = 1) +P(r = 2)

= 0.2824 + 0.3766 + 0.2301 = 0.8891
5. P r 2 = 1 - P(0) - P(1) = 1 - 0.2824 - 0.3766 = 0.3410
Example: In a large group of students 80% have a recommended statistics book. Three
students are selected at random. Find the probability distribution of the number of students
having the book. Also compute the mean and variance of the distribution.
Solution:
Let the event that ‘a student selected at random has the book’ be termed as a success. Since the
group of students is large, 3 trials, i.e., the selection of 3 students, can be regarded as independent
with probability of a success p = 0.8. Thus, the conditions of the given experiment satisfies the
conditions of binomial distribution.
3 r 3 r
The probability mass function P r Cr 0.8 0.2
where r = 0, 1, 2 and 3
The mean is np = 3 0.8 = 2.4 and Variance is npq = 2.4 0.2 = 0.48
Example:
1. The mean and variance of a discrete random variable X are 6 and 2 respectively. Assuming
X to be a binomial variate, find P(5 X 7) .

Notes 2. In a binomial distribution consisting of 5 independent trials, the probability of 1 and 2

successes are 0.4096 and 0.2048 respectively. Calculate the mean, variance and mode of the
distribution.
Solution:
1. It is given that np = 6 and npq = 2
npq 2 1 1 2 3
q p 1 and n 6 9
np 6 3 so that 3 3 2
Now P(5 X 7) = P(X = 5) + P(X = 6) +P(X = 7)
5 4 6 3 7 2
9 2 1 9 2 1 9 2 1
C5 C6 C7
3 3 3 3 3 3
25 9 9 9 25
9
C5 C6 2 C7 4 438
3 39
2. Let p be the probability of a success. It is given that
5 4 3
C1 p 1 p 0.4096 and 5C2 p 2 1 p 0.2048
Using these conditions, we can write
4
5p 1 p 0.4096 1 p 1
3
2 or 4 . This gives p
2 0.2048 p 5
10 p 1 p
1 4
Thus, mean is np 5 1 and npq 1 0.8
5 5
1
Since (n +1)p, i.e 6 is not an integer, mode is its integral part, i.e., = 1.
5
Example: 5 unbiased coins are tossed simultaneously and the occurrence of a head is
termed as a success. Write down various probabilities for the occurrence of 0, 1, 2, 3, 4, 5 successes.
Find mean, variance and mode of the distribution.
Solution.
1
Here n = 5 and p q .
2
5
5 1
The probability mass function is P r Cr , r = 0, 1, 2, 3, 4, 5.
2
The probabilities of various values of r are tabulated below:
r 0 1 2 3 4 5 Total
1 5 10 10 5 1
P r 1
32 32 32 32 32 32
1 1
Mean = np 5 2.5 and variance 2.5 1.25
2 2
1
Since (n +1)p = 6 3 is an integer, the distribution is bimodal and the two modes are
2
2 and 3.

Notes
Pascal Distribution
Notes
In binomial distribution, we derived the probability mass function of the number of

successes in n (fixed) Bernoulli trials. We can also derive the probability mass function of
the number of Bernoulli trials needed to get r (fixed) successes. This distribution is known
as Pascal distribution. Here r and p become parameters while n becomes a random variable.
We may note that r successes can be obtained in r or more trials i.e. possible values of the
random variable are r, (r + 1), (r + 2), ...... etc. Further, if n trials are required to get r
successes, the nth trial must be a success. Thus, we can write the probability mass function
of Pascal distribution as follows:
Probability of r 1 successes Probability of a success

P n
out of n 1 trials in nth trial
n 1
Cr 1p r 1q n r
p n 1
Cr 1p r q n r
where n = r, (r + 1), (r + 2), ... etc.
r rq
It can be shown that the mean and variance of Pascal distribution are p and p 2 respectively.
This distribution is also known as Negative Binomial Distribution because various values
of P(n) are given by the terms of the binomial expansion of pr(1 - q)- r.
Self Assessment
1. The study of a population can be done either by constructing an observed (or empirical)
frequency distribution, often based on a sample from it, or by using a theoretical
distribution.
2. It is not possible to formulate various laws either on the basis of given conditions (a priori
considerations) or on the basis of the results (a posteriori inferences) of an experiment.
3. If a random variable satisfies the conditions of a theoretical probability distribution, then
this distribution can be fitted to the observed data.
4. The knowledge of the theoretical probability distribution is of no use in the understanding

and analysis of a large number of business and economic situations.
5. It is possible to test a hypothesis about a population, to take decision in the face of

uncertainty, to make forecast, etc.
6. Theoretical probability distributions can be divided into two broad categories, viz. discrete
and continuous probability distributions.
7. Binomial distribution is a theoretical probability distribution which was given by James

Bernoulli.
8. In Binomial distribution, an experiment consists of a finite number of repeated trials.
9. Each trial has only two possible, mutually exclusive, outcomes which are termed as a

Notes 10. Theoretical probability distribution gives us a law according to which different values of
the random variable are distributed with non-specified probabilities.
13.3 Fitting of Binomial Distribution
The fitting of a distribution to given data implies the determination of expected (or theoretical)
frequencies for different values of the random variable on the basis of this data.
The purpose of fitting a distribution is to examine whether the observed frequency distribution
can be regarded as a sample from a population with a known probability distribution.
To fit a binomial distribution to the given data, we find its mean. Given the value of n, we can
compute the value of p and, using n and p, the probabilities of various values of the random
variable. These probabilities are multiplied by total frequency to give the required expected
frequencies. In certain cases, the value of p may be determined by the given conditions of the
experiment.
Example: The following data give the number of seeds germinating (X) out of 10 on
damp filter for 80 sets of seed. Fit a binomial distribution to the data.
X : 0 1 2 3 4 5 6 7 8 9 10
f : 6 20 28 12 8 6 0 0 0 0 0
Solution:
Here the random variable X denotes the number of seeds germinating out of a set of 10 seeds.
The total number of trials n = 10.
0 6 1 20 2 28 3 12 4 8 5 6 174
The mean of the given data X 2.175
80 80
2.175
Since mean of a binomial distribution is np, np = 2.175. Thus, we get p 0.22 (approx.)
10
Further, q = 1 - 0.22 = 0.78.
10 X 10 X
Using these values, we can compute P X C X 0.22 0.78 and then expected frequency
[= N × P(X)] for X = 0, 1, 2, ...... 10. The calculated probabilities and the respective expected
frequencies are shown in the following table:
Approximated Approximated
X P X N P X X P X N P X
Frequency Frequency
0 0.0834 6.67 6 6 0.0088 0.71 1
1 0.2351 18.81 19 7 0.0014 0.11 0
2 0.2984 23.87 24 8 0.0001 0.01 0
3 0.2244 17.96 18 9 0.0000 0.00 0
4 0.1108 8.86 9 10 0.0000 0.00 0
5 0.0375 3.00 3 Total 1.0000 80
13.3.1 Features of Binomial Distribution
1. It is a discrete probability distribution.
2. It depends upon two parameters n and p. It may be pointed out that a distribution is
known if the values of its parameters are known.

3. The total number of possible values of the random variable are n + 1. The successive Notes
n n n n n n
binomial coefficients are C0 , C1 , C2 , .... Cn Further, since Cr = Cn- r , these
coefficients are symmetric.
The values of these coefficients, for various values of n, can be obtained directly by using
Pascal’s triangle.
Pascal’s Triangle
We can note that it is very easy to write this triangle. In the first row, both the coefficients
will be unity because 1C0 = 1C1 . To write the second row, we write 1 in the beginning
and the end and the value of the middle coefficients is obtained by adding the coefficients
of the first row. Other rows of the Pascal’s triangle can be written in a similar way.
4. (a) The shape and location of binomial distribution changes as the value of p changes
for a given value of n. It can be shown that for a given value of n, if p is increased
gradually in the interval (0, 0.5), the distribution changes from a positively skewed
to a symmetrical shape. When p = 0.5, the distribution is perfectly symmetrical.
Further, for larger values of p the distribution tends to become more and more
negatively skewed.
(b) For a given value of p, which is neither too small nor too large, the distribution
becomes more and more symmetrical as n becomes larger and larger.
13.3.2 Uses of Binomial Distribution
Binomial distribution is often used in various decision making situations in business. Acceptance
sampling plan, a technique of quality control, is based on this distribution. With the use of
sampling plan, it is possible to accept or reject a lot of items either at the stage of its manufacture
or at the stage of its purchase.
Decision Analysis
Notes
Decision making is needed whenever an individual or an organization (private or public)

is faced with a situation of selecting an optimal (or best in view of certain objectives)
course of action from among several available alternatives. For example, an individual
may have to decide whether to build a house or to purchase a flat or live in a rented
accommodation; whether to join a service or to start own business; which company’s car
should be purchased, etc. Similarly, a business firm may have to decide the type of technique
to be used in production, what is the most appropriate method of advertising its product,
etc.
The decision analysis provides certain criteria for the selection of a course of action such
that the objective of the decision maker is satisfied. The course of action selected on the
basis of such criteria is termed as the optimal course of action.

Fill in the blanks:
11. The ............................. to given data implies the determination of expected (or theoretical)
frequencies for different values of the random variable on the basis of data.
12. The purpose of fitting a distribution is to examine whether the observed frequency
distribution can be regarded as a ................................. from a population with a known
probability distribution.
13. To fit a binomial distribution to the given data, we find its ...............................
14. A distribution is known if the values of its .............................. are known.

15. Binomial distribution is often used in various ................................... situations in business.
(a) Analytic (b) Decision tree
(c) Decision free (d) Decision-making
16. Acceptance sampling plan, a technique of quality control, is based on ............................
(a) Sampling (b) Binomial distribution
(c) Poisson distribution (d) Normal distribution
17. The values of different coefficients, for different values of n, can be obtained directly by
using ..............................
(a) Triangle (b) Hero triangle
(c) Pascal Triangle (d) None
Case Study Efficiency of Machine
F
rom past experience it is known that a machine is set up correctly on 90% of occasions.
If the machine is set up correctly then 95% of good parts are expected but if the
machine is not set up correctly then the probability of a good part is only 30%.
On a particular day the machine is set up and the first component produced and found to
be good. What is the probability that the machine is set up correctly?
13.4 Summary
The study of a population can be done either by constructing an observed (or empirical)
frequency distribution, often based on a sample from it, or by using a theoretical
distribution.
A theoretical probability distribution gives us a law according to which different values

of the random variable are distributed with specified probabilities.
It is possible to formulate such laws either on the basis of given conditions (a priori
considerations) or on the basis of the results (a posteriori inferences) of an experiment.

If a random variable satisfies the conditions of a theoretical probability distribution, then Notes
this distribution can be fitted to the observed data.
The knowledge of the theoretical probability distribution is of great use in the

understanding and analysis of a large number of business and economic situations.
Binomial distribution is a theoretical probability distribution which was given by James

Bernoulli.
An experiment consists of a finite number of repeated trials.
Each trial has only two possible, mutually exclusive, outcomes which are termed as a
The probability of a success, denoted by p, is known and remains constant from trial to
trial. The probability of a failure, denoted by q, is equal to 1 – p.
Different trials are independent, i.e., outcome of any trial or sequence of trials has no effect
on the outcome of the subsequent trials.
The sequence of trials under the various above stated assumptions is also termed as
Bernoulli Trials.
The purpose of fitting a distribution is to examine whether the observed frequency

distribution can be regarded as a sample from a population with a known probability
distribution.
To fit a binomial distribution to the given data, we find its mean.
For a given value of p, which is neither too small nor too large, the distribution becomes
more and more symmetrical as n becomes larger and larger.
Binomial distribution is often used in various decision making situations in business.
Acceptance sampling plan, a technique of quality control, is based on this distribution.
13.5 Keywords
Binomial distribution: Binomial distribution is a theoretical probability distribution which

was given by James Bernoulli.
Experiment: An experiment consists of a finite number of repeated trials
Fitting of a binomial distribution: The fitting of a distribution to given data implies the
determination of expected (or theoretical) frequencies for different values of the random variable
on the basis of this data.
Posteriori inferences: These are the basis of results.
Priori considerations: These are the basis of given conditions.
Theoretical probability distribution: A theoretical probability distribution gives us a law

according to which different values of the random variable are distributed with specified
probabilities.
1. What do you understand by a theoretical probability distribution? How it is useful in

business decision-making?

Notes 2. Define a binomial distribution. State the conditions under which binomial probability
model is appropriate.
3. What are the parameters of a binomial distribution? Obtain expressions for mean and
variance of the binomial variate in terms of these parameters.
4. Assume that the probability that a bomb dropped from an aeroplane will strike a target is
1/5. If six bombs are dropped, find the probability that (i) exactly two will strike the
target, (ii) at least two will strike the target.
5. An unbiased coin is tossed 5 times. Find the probability of getting (i) two heads, (ii) at least
two heads.
6. An experiment succeeds twice as many times as it fails. Find the probability that in 6 trials
there will be (i) no successes, (ii) at least 5 successes, (iii) at the most 5 successes.
7. In an army battalion 60% of the soldiers are known to be married and remaining unmarried.
If p(r) denotes the probability of getting r married soldiers from 5 soldiers, calculate p(0),
p(1), p(2), p(3), p(4) and p(5). If there are 500 rows each consisting of 5 soldiers, approximately
how many rows are expected to contain (i) all married soldiers, (ii) all unmarried soldiers?
8. A company has appointed 10 new secretaries out of which 7 are trained. If a particular
executive is to get three secretaries, selected at random, what is the chance that at least one
of them will be untrained?
9. The overall pass rate in a university examination is 70%. Four candidates take up such
examination. What is the probability that (i) at least one of them will pass (ii) at the most
3 will pass (iii) all of them will pass, the examination?
10. 20% of bolts produced by a machine are defective. Deduce the probability distribution of
the number of defectives in a sample of 5 bolts.
11. 25% employees of a firm are females. If 8 employees are chosen at random, find the
probability that (i) 5 of them are males (ii) more than 4 are males (iii) less than 3 are
females.
12. Suppose that the probability is that a car stolen in Delhi will be recovered. Find the
probability that at least one out of 20 cars stolen in the city on a particular day will be
recovered.
13. A sales man makes a sale on the average to 40 percent of the customer he contacts.
If 4 customers are contacted today, what is the probability that he makes sales to exactly
two? What assumption is required for your answer?
14. In a binomial distribution consisting of 5 independent trials, the probabilities of 1 and 2

successes are 0.4096 and 0.2048 respectively. Determine the distribution and write down
the probability of at least three successes.
15. In a binomial distribution with 6 independent trials, the probabilities of 3 and 4 successes
are found to be 0.1933 and 0.0644 respectively. Find the parameters ‘ p’ and ‘q’ of the
distribution.
16. The probability that a teacher will given an unannounced test during any class meeting is
1/5. If a student is absent twice. What is the probability that he will miss at least one test?
17. Components are placed into bins containing 100. After inspection of a large number of
bins the average number of defective parts was found to be 10 with a standard deviation
of 3.

Assuming that the same production conditions continue, except that bins containing 300 Notes
were used:
(a) What would be the average number of defective components per larger bin?
(b) What would be the standard deviation of the number of defectives per larger bin?
(c) How many components must each bin hold so that the standard deviation of the
number of defective components is equal to 1% of the total number of components
in the bin?
1. True 2. False
3. True 4. False
5. True 6. True
7. True 8. True
9. True 10. False
11. fitting of a distribution 12. sample
13. mean 14. parameters
15. (d) 16. (b)
17. (c)
Online links http://en.wikipedia.org/wiki/Binomial_distribution

http://stattrek.com/lesson2/binomial.aspx
http://www.stat.yale.edu/Courses/1997-98/101/binom.htm
http://www.investopedia.com/terms/b/binomialdistribution.asp
http://www.mathsrevision.net/alevel/pages.php?page=72

Notes Unit 14: Poisson Probability Distribution
CONTENTS
Objectives
Introduction
14.1 Poisson Distribution
14.1.1 Probability Mass Function
14.1.2 Summary Measures of Poisson Distribution
14.1.3 Poisson Approximation to Binomial
14.1.4 Fitting of a Poisson Distribution
14.2 Features and Uses of Poisson Distribution
14.3 Summary
14.4 Keywords
Objectives
Define the term Poisson distribution
Discuss Poisson process in brief
Describe probability mass function
Focus on various measures of poisson distribution

Analyze Poisson approximation to binomial
Tell the uses of Poisson Probability Distribution
Introduction
Poisson distribution was a limiting case of binomial distribution, when the number of trials n
tends to become very large and the probability of success in a trial p tends to become very small
such that their product np remains a constant
Did u know? Poisson distribution was derived by a noted mathematician, Simon D. Poisson,
in 1837.

Unit 14: Poisson Probability Distribution
14.1 Poisson Distribution Notes
This distribution is used as a model to describe the probability distribution of a random variable
defined over a unit of time, length or space. For example, the number of telephone calls received
per hour at a telephone exchange, the number of accidents in a city per week, the number of
defects per meter of cloth, the number of insurance claims per year, the number breakdowns of
machines at a factory per day, the number of arrivals of customers at a shop per hour, the
number of typing errors per page etc.
Notes Poisson Process

Let us assume that on an average 3 telephone calls are received per 10 minutes at a
telephone exchange desk and we want to find the probability of receiving a telephone call
in the next 10 minutes. In an effort to apply binomial distribution, we can divide the
interval of 10 minutes into 10 intervals of 1 minute each so that the probability of receiving
a telephone call (i.e., a success) in each minute (i.e., trial) becomes 3/10 ( note that
p = m/n, where m denotes mean). Thus, there are 10 trials which are independent, each
with probability of success = 3/10. However, the main difficulty with this formulation is
that, strictly speaking, these trials are not Bernoulli trials. One essential requirement of
such trials, that each trial must result into one of the two possible outcomes, is violated
here. In the above example, a trial, i.e. an interval of one minute, may result into 0, 1, 2, ......
successes depending upon whether the exchange desk receives none, one, two, ...... telephone
calls respectively.
One possible way out is to divide the time interval of 10 minutes into a large number of
small intervals so that the probability of receiving two or more telephone calls in an
interval becomes almost zero. This is illustrated by the following table which shows that
the probabilities of receiving two calls decreases sharply as the number of intervals are
increased, keeping the average number of calls, 3 calls in 10 minutes in our example, as
constant.
Using symbols, we may note that as n increases then p automatically declines in such a
way that the mean m (= np) is always equal to a constant. Such a process is termed as a
Poisson Process. The chief characteristics of Poisson process can be summarised as given
below:
1. The number of occurrences in an interval is independent of the number of occurrences

in another interval.
2. The expected number of occurrences in an interval is constant.
3. It is possible to identify a small interval so that the occurrence of more than one
event, in any interval of this size, becomes extremely unlikely.
14.1.1 Probability Mass Function
The probability mass function (p.m.f.) of Poisson distribution can be derived as a limit of p.m.f.
of binomial distribution when such that m (= np) remains constant. Thus, we can write
r n r r n r
n m m n! m m
P r lim Cr 1 lim 1
n n n n r! n r ! n n

Notes n r
mr lim 1 m
. n n 1 n 2 .... n r 1 . r . 1
r! n n n
n
n 1 2 r 1 m
1 1 .... 1 1
r lim n n n n n
=m . r
r! n m
1
n
n
mr m
lim 1 since each of the remaining terms will tend to unity as n
r! n
n
n m
r -m n
m .e lim m lim m m
m
since 1 1 e
r! n n n n
Thus, the probability mass function of Poisson distribution is

m
e .m r
P r , where r 0,1, 2, ......
r!
Here e is a constant with value = 2.71828... . Note that Poisson distribution is a discrete probability
distribution with single parameter m.
m
e .mr m m m2 m3
Total probability e 1 ....
r! 1! 2! 3!
r 0
m m
e .e 1
14.1.2 Summary Measures of Poisson Distribution
1. Mean: The mean of a Poisson variate r is defined as
m
e .m r m mr m m3 m4
E r r. e e m m2 ....
r! r 1! 2! 3!
r 0 r 1
m m2 m3 m m
me 1 m .... me e m
2! 3!
2. Variance: The variance of a Poisson variate is defined as

Var(r) = E(r - m)2 = E(r2) - m2
Now E r 2 r 2P r r r 1 r P r
r 0 r 0

Notes
m
e .mr m mr
r r 1 m e m
r! r 2!
r 2 r 2
m m4 m5
m e m2 m3 ....
2! 3!
m2 m3
m m 2e m
1 m .... m m2
2! 3!
Thus, Var(r) = m + m2 - m2 = m.
Also standard deviation m
3. The values of 1: It can be shown that 3 = m and 4= m + 3m2.
2
3 m2 1
1 3 3
2 m m
Since m is a positive quantity, therefore, 1 is always positive and hence the Poisson
distribution is always positively skewed. We note that 0 as m , therefore the
distribution tends to become more and more symmetrical for large values of m.
Further, This result shows that the distribution becomes normal for large values of m.
4. Mode: As in binomial distribution, a Poisson variate r will be mode if
P r 1 P r P r 1
The inequality P r 1 P r can be written as
m
e .m r 1 e m
.m r m
1 r m .... (1)
r 1! r! r
Similarly, the inequality P r P r 1 can be shown to imply that
r m-1 .... (2)
Combining (1) and (2), we can write m – 1 r m.

Case I. When m is not an integer
The integral part of m will be mode.
Case II. When m is an integer
The distribution is bimodal with values m and m – 1.
Example: The average number of customer arrivals per minute at a super bazaar is 2.
Find the probability that during one particular minute (1) exactly 3 customers will arrive, (2) at
the most two customers will arrive, (3) at least one customer will arrive.

Notes Solution:
It is given that m = 2. Let the number of arrivals per minute be denoted by the random
variable r. The required probability is given by
e 2 .23 0.13534 8
1. P r 3 0.18045
3! 6
2
e 2 .2r 2 4
2. P r 2 e 1 2 0.13534 5 0.6767.
r! 2
r 0
e 2 .20
3. P r 1 1 P r 0 1 1 0.13534 0.86464.
0!
Example: An executive makes, on an average, 5 telephone calls per hour at a cost which
may be taken as 2 per call. Determine the probability that in any hour the telephone calls’ cost
(i) exceeds 6, (ii) remains less than 10.
Solution:
The number of telephone calls per hour is a random variable with mean = 5. The required
probability is given by
3
e 5 .5r
1. P r 3 1 P r 3 1
r!
r 0
5 25 125 236
1 e 1 5 1 0.00678 0.7349.
2 6 6
4
e 5 .5r 5 25 125 625 1569
2. P r 4 e 1 5 0.00678 0.44324.
r! 2 6 24 24
r 0
Example: A company makes electric toys. The probability that an electric toy is defective
is 0.01. What is the probability that a shipment of 300 toys will contain exactly 5 defectives?
Solution:
Since n is large and p is small, Poisson distribution is applicable. The random variable is the
number of defective toys with mean m = np = 300 × 0.01 = 3. The required probability is given by
e 3.35 0.04979 243

P r 5 0.10082.
5! 120
Example: In a town, on an average 10 accidents occur in a span of 50 days. Assuming that

the number of accidents per day follow Poisson distribution, find the probability that there will
be three or more accidents in a day.

Solution: Notes
10
The random variable denotes the number accidents per day. Thus, we have m 0.2 . The
50
required probability is given by
2
0.2 0.2
P r 3 1 P r 2 1 e 1 0.2 1 0.8187 1.22 0.00119.
2!
Example: A car hire firm has two cars which it hire out every day. The number of
demands for a car on each day is distributed as a Poisson variate with mean 1.5. Calculate the
proportion of days on which neither car is used and the proportion of days on which some
demand is refused. [ e-1.5 = 0.2231]
Solution:
When both car are not used, r = 0
1.5
P r 0 e 0.2231 . Hence the proportion of days on which neither car is used is 22.31%.
Further, some demand is refused when more than 2 cars are demanded, i.e., r > 2
2 1.5 r 2
e 1.5 1.5
P r 2 1 P r 2 1 1 0.2231 1 1.5 0.1913.
r! 2!
r 0
Hence the proportion of days is 19.13%.
Example: A firm produces articles of which 0.1 percent are usually defective. It packs
them in cases each containing 500 articles. If a wholesaler purchases 100 such cases, how many
cases are expected to be free of defective items and how many are expected to contain one
defective item?
Solution:
The Poisson variate is number of defective items with mean
1
m 500 0.5.
1000
Probability that a case is free of defective items
0.5
P r 0 e 0.6065. Hence the number of cases having no defective items = 0.6065 × 100
= 60.65
Similarly, P r 1 0.5
e 0.5 0.6065 0.5 0.3033. Hence the number of cases having one
defective item are 30.33.
Example: A manager accepts the work submitted by his typist only when there is no
mistake in the work. The typist has to type on an average 20 letters per day of about 200 words
each. Find the chance of her making a mistake (1) if less than 1% of the letters submitted by her
are rejected; (2) if on 90% of days all the work submitted by her is accepted. [As the probability
of making a mistake is small, you may use Poisson distribution. Take e = 2.72].

Notes Solution:
Let p be the probability of making a mistake in typing a word.
1. Let the random variable r denote the number of mistakes per letter. Since 20 letters are
typed, r will follow Poisson distribution with mean = 20 × p.
Since less than 1% of the letters are rejected, it implies that the probability of making at
least one mistake is less than 0.01, i.e.,
P(r 1) 0.01 or 1 – P(r = 0) 0.01
1 – e-20p 0.01 or e-20p 0.99
Taking log of both sides
– 20p.log 2.72 log 0.99
20 0.4346 p 1.9956
0.0044
– 8.692p – 0.0044 or p 0.00051.
8.692
2. In this case r is a Poisson variate which denotes the number of mistakes per day. Since the
typist has to type 20 × 200 = 4000 words per day, the mean number of mistakes = 4000 p.
It is given that there is no mistake on 90% of the days, i.e.,
P(r = 0) = 0.90 or e-4000p = 0.90
Taking log of both sides, we have
– 4000p log 2.72 = log 0.90 or 4000 0.4346p 1.9542 0.0458
0.0458
p 0.000026.
4000 0.4346
Lot Acceptance using Poisson Distribution
Example: Videocon company purchases heaters from Amar Electronics. Recently a

shipment of 1000 heaters arrived out of which 60 were tested. The shipment will be accepted if
not more than two heaters are defective. What is the probability that the shipment will be
accepted? From past experience, it is known that 5% of the heaters made by Amar Electronics are
defective.
Solution:
5
Mean number of defective items in a sample of 60 = 60 × =3
100
2 e 3 .3 r
P(r 2)
r 0 r!
32
=e –3 1 3 = e–3.8.5 = 0.4232
2!

14.1.3 Poisson Approximation to Binomial Notes
When n, the number of trials become large, the computation of probabilities by using the
binomial probability mass function becomes a cumbersome task. Usually, when n 20 and
p 0.05 , Poisson distribution can be used as an approximation to binomial with parameter m
= np.
Example: Find the probability of 4 successes in 30 trials by using (1) binomial distribution
and (2) Poisson distribution. The probability of success in each trial is given to be 0.02.
Solution:
1. Here n = 30 and p = 0.02
30 4 26
P r 4 C4 0.02 0.98 27405 0.00000016 0.59 0.00259.
2. Here m = np = 30 × 0.02 = 0.6
0.6 4
e 0.6 0.5488 0.1296
P r 4 0.00296.
4! 24
14.1.4 Fitting of a Poisson Distribution
To fit a Poisson distribution to a given frequency distribution, we first compute its mean m.
Then the probabilities of various values of the random variable r are computed by using the
m
e .m r
probability mass function P r . These probabilities are then multiplied by N, the total
r!
frequency, to get expected frequencies.
Example: The following mistakes per page were observed in a book:
No. of mistakes per page : 0 1 2 3

Frequency : 211 90 19 5
Fit a Poisson distribution to find the theoretical frequencies.
Solution:
The mean of the given frequency distribution is
0 × 211 + 1× 90 + 2 × 19 + 3× 5 143
m= = = 0.44
211 + 90 + 19 + 5 325
Calculation of theoretical (or expected) frequencies
0.44 r
e0.44
We can write P r . Substituting r = 0, 1, 2 and 3, we get the probabilities for
r!
various values of r, as shown in the following table.

Notes Expected Frequencies Approximated

r P r N P r
to the nearest integer
0 0.6440 209.30 210
1 0.2834 92.10 92
2 0.0623 20.25 20
3 0.0091 2.96 3
Total 325
Did u know? Poisson distribution serves as a reasonably good approximation to binomial

distribution when n 20 and p 0.05 .
Task A manufacturer of pins knows that on an average 5% of his product is defective. He

sells pins in boxes of 100 and guarantees that not more than 4 pins will be defective. What
is the probability that the box will meet the guaranteed quality?
Self Assessment
1. Poisson distribution was derived by a noted mathematician, Simon D. Poisson, in 1857.
2. Poisson distribution is a limiting case of binomial distribution, when the number of trials
n tends to become very large and the probability of success in a trial p tends to become
very small such that their product np remains a constant.
3. Poisson distribution is used as a model to describe the probability distribution of a random

variable defined over a unit of time, length or space.
4. The number of telephone calls received per hour at a telephone exchange, the number of
accidents in a city per week, the number of defects per meter of cloth, the number of
insurance claims per year, the number breakdowns of machines at a factory per day, the
number of arrivals of customers at a shop per hour, the number of typing errors per page,
etc., all are examples of poisson distribution.
5. As n increases then p automatically increases in such a way that the mean m (= np) is
always equal to a constant .
6. The number of occurrences in an interval is dependent of the number of occurrences in

another interval.
7. The expected number of occurrences in an interval is constant.
8. It is possible to identify a small interval so that the occurrence of more than one event, in
any interval of this size, becomes extremely unlikely.
9. The probability mass function (p.m.f.) of Poisson distribution can be derived as a limit of
p.m.f. of binomial distribution when n such that m (= np) remains constant.

14.2 Features and Uses of Poisson Distribution Notes
Features
1. It is discrete probability distribution.

2. It has only one parameter m.
3. The range of the random variable is 0 r< .

4. The Poisson distribution is a positively skewed distribution. The skewness decreases as m
increases.
Uses
This distribution is applicable to situations where the number of trials is large and the probability
of a success in a trial is very small.
!
Caution When n, the number of trials become large, the computation of probabilities by
using the binomial probability mass function becomes a non cumbersome task.
Self Assessment
Fill in the blanks:

11. Poisson distribution is.................................. probability distribution.
12. Poisson distribution has ...................................
13. In Poisson distribution, range of the random variable is ...............................
14. The Poisson distribution is a ...................................distribution.
15. Poisson distribution is applicable to situations where the number of trials is ............................
and the probability of a success in a trial is .......................................
Case Study Poisson Distribution
C
ustomers arrive randomly at a service point at an average rate of 30 per hour.
Assuming a Poisson distribution calculate the probability that:
1. no customer arrives in any particular minute.

2. exactly one customer arrives in any particular minute.
3. two or more customers arrive in any particular minute.

4. three or fewer customers arrive in any particular minute.

Notes 14.3 Summary
This Poisson distribution was derived by a noted mathematician, Simon D. Poisson, in

1837.
This distribution was derived as a limiting case of binomial distribution,
When the number of trials n tends to become very large and the probability of success in
a trial p tends to become very small such that their product np remains a constant.
This distribution is used as a model to describe the probability distribution of a random

variable defined over a unit of time, length or space.
The number of telephone calls received per hour at a telephone exchange, the number of
accidents in a city per week, the number of defects per meter of cloth, the number of
insurance claims per year, the number breakdowns of machines at a factory per day, the
number of arrivals of customers at a shop per hour, the number of typing errors per page
etc. all are examples of poisson distribution
To fit a Poisson distribution to a given frequency distribution, we first compute its

mean m.
The range of the random variable is 0 r< .
The Poisson distribution is a positively skewed distribution. The skewness decreases as m

increases.
This distribution is applicable to situations where the number of trials is large and the
probability of a success in a trial is very small.
It serves as a reasonably good approximation to binomial distribution when n 20 and

p 0.05 .
14.4 Keywords
Poisson Approximation to Binomial: Poisson distribution can be used as an approximation to

binomial with parameter m = np.
Poisson Distribution: This is a a limiting case of binomial distribution, when the number of
trials n tends to become very large and the probability of success in a trial p tends to become
very small such that their product np remains a constant. This distribution is used as a model to
describe the probability distribution of a random variable defined over a unit of time, length or
space.
Poisson Process: Using symbols, we may note that as n increases then p automatically declines
in such a way that the mean m (= np) is always equal to a constant. Such a process is termed as a
Poisson Process.
Probability Mass Function: The probability mass function (p.m.f.) of Poisson distribution can
be derived as a limit of p.m.f. of binomial distribution when n such that m (= np) remains
constant.

1. What is a ‘Poisson Process’? Obtain probability mass function of Poisson variate as a

limiting form of the probability mass function of binomial variate.
2. Obtain mean and standard deviation of a Poisson random variate. Discuss some business
and economic situations where Poisson probability model is appropriate.
3. How will you use Poisson distribution as an approximation to binomial? Explain with the
help of an example.
4. State clearly the assumptions under which a binomial distribution tends to Poisson
distribution.
5. A manufacturer, who produces medicine bottles, finds that 0.1% of the bottles are defective.
The bottles are packed in boxes containing 500 bottles. A drug manufacturer buys 100
boxes from the producer of the bottles. Use Poisson distribution to find the number of
boxes containing (i) no defective bottles (ii) at least two defective bottles.
6. A factory turning out lenses, supplies them in packets of 1,000. The packet is considered by
the purchaser to be unacceptable if it contains 50 or more defective lenses. If a purchaser
selects 30 lenses at random from a packet and adopts the criterion of rejecting the packet if
it contains 3 or more defectives, what is the probability that the packet (i) will be accepted,
(ii) will not be accepted?
7. 800 employees of a company are covered under the medical group insurance scheme.
Under the terms of coverage, 40 employees are identified as belonging to ‘High Risk’
category. If 50 employees are selected at random, what is the probability that (i) none of
them is in the high risk category, (ii) at the most two are in the high risk category? (You
may use Poisson approximation to Binomial).
8. The following table gives the number of days in 50 day-period during which automobile
accidents occurred in a certain part of the city. Fit a Poisson distribution to the data.
No. of accidents : 0 1 2 3 4
No. of days : 19 18 8 4 1
9. Comment on the following statements:
(a) The mean of a Poisson variate is 4 and standard deviation is 3.
(b) The second raw moment of a Poisson distribution is 2. The probability P(X = 0)
= e-1.
(c) If for a Poisson variate X, P(X = 1) = P(X = 2), then E(X) = 2.
(d) If for a Poisson variate X, P(X = 0) = P(X = 1), then P(X > 0) = e-1.
10. A firm buys springs in very large quantities and from past records it is known that 0.2%
are defective. The inspection department sample the springs in batches of 500. It is required
to set a standard for the inspectors so that if more than the standard number of defectives
is found in a batch the consignment can be rejected with at least 90% confidence that the
supply is truly defective.
How many defectives per batch should be set as the standard?

Notes Answers: Self Assessment
1. False 2. True
3. True 4. True
5. False 6. False
7. True 8. True
9. True 10. False

11. discrete 12. only one parameter m
13. 0 r< 14. positively skewed
15. large, very small
New Delhi.
York.
2002.
Online links http://en.wikipedia.org/wiki/Poisson_distribution

http://hyperphysics.phy-astr.gsu.edu/hbase/math/poifcn.html

http://itl.nist.gov/div898/handbook/eda/section3/eda366j.htm Notes
http://www.childrensmercy.org/stats/definitions/poisson.htm
http://en.wikipedia.org/wiki/Poisson_distribution
http://www.intmath.com/counting-probability/13-poisson-probability-
distribution.php

Notes Unit 15: Normal Probability Distribution
CONTENTS
Objectives
Introduction
15.1 The Conditions of Normality
15.2 Probability Density Function
15.3 Properties of Normal Probability Curve
15.4 Probability of Normal Variate in an Interval
15.5 Normal Approximation to Binominal Distribution
15.6 Normal Approximation to Poisson Distribution
15.7 Summary
15.8 Keywords
Objectives
Tell about normal probability distribution
Discuss various conditions of normality
State the relevance of Probability Density Function
Explain shape and properties of normal distribution curve
Focus on Fitting a normal curve
Introduction
The normal probability distribution occupies a place of central importance in Modern Statistical
Theory. This distribution was first observed as the normal law of errors by the statisticians of
the eighteenth century. They found that each observation X involves an error term which is
affected by a large number of small but independent chance factors. This implies that an observed
value of X is the sum of its true value and the net effect of a large number of independent errors
which may be positive or negative each with equal probability. The observed distribution of
such a random variable was found to be in close conformity with a continuous curve, which was
termed as the normal curve of errors or simply the normal curve.
Did u know? Since Gauss used this curve to describe the theory of accidental errors of
measurements involved in the calculation of orbits of heavenly bodies, it is also called as
Gaussian curve.

Unit 15: Normal Probability Distribution
15.1 The Conditions of Normality Notes
In order that the distribution of a random variable X is normal, the factors affecting its observations
must satisfy the following conditions:
1. A large number of chance factors: The factors, affecting the observations of a random
variable, should be numerous and equally probable so that the occurrence or non-
occurrence of any one of them is not predictable.
2. Condition of homogeneity: The factors must be similar over the relevant population
although, their incidence may vary from observation to observation.
3. Condition of independence: The factors, affecting observations, must act independently of

each other.
4. Condition of symmetry: Various factors operate in such a way that the deviations of
observations above and below mean are balanced with regard to their magnitude as well
as their number.
15.2 Probability Density Function
If X is a continuous random variable, distributed normally with mean m and standard

2
1 X
1 2
deviation s, then its p.d.f. is given by p X .e Where – <X< .
2
Here p and e are absolute constants with values 3.14159.... and 2.71828.... respectively.
It may be noted here that this distribution is completely known if the values of mean m and
standard deviation are known. Thus, the distribution has two parameters, viz. mean and
standard deviation.
Shape of Normal Probability Curve

Notes
For given values of the parameters, m and s, the shape of the curve corresponding to
normal probability density function p(X) is as shown in Figure below.
It should be noted here that although we seldom encounter variables that have a range
from - to , as shown by the normal curve, nevertheless the curves generated by the
relative frequency histograms of various variables closely resembles the shape of normal
curve.
Normal Probability Curve

Notes 15.3 Properties of Normal Probability Curve
A normal probability curve or normal curve has the following properties:
1. It is a bell shaped symmetrical curve about the ordinate at X = . The ordinate is maximum
at X = .
2. It is unimodal curve and its tails extend infinitely in both directions, i.e., the curve is
asymptotic to X axis in both directions.
3. All the three measures of central tendency coincide, i.e.,

mean = median = mode
4. The total area under the curve gives the total probability of the random variable taking
values between – to . Mathematically, it can be shown that
2
1 X
1 2
P X p X dX e dX 1.
2
5. Since median = , the ordinate at X = divides the area under the normal curve into two
equal parts, i.e.,
p X dX p X dX 0.5
6. The value of p(X) is always non-negative for all values of X, i.e., the whole curve lies above
X axis.
7. The points of inflexion (the point at which curvature changes) of the curve are at
X= ± .
8. The quartiles are equidistant from median, i.e., Md – Q1 = Q3 – Md , by virtue of symmetry.
Also Q1 = – 0.6745 , Q3 = + 0.6745 , quartile deviation = 0.6745 and mean deviation
= 0.8s, approximately.
9. Since the distribution is symmetrical, all odd ordered central moments are zero.
10. The successive even ordered central moments are related according to the following
recurrence formula
2
2n
= (2n - 1) 2n - 2
for n = 1, 2, 3, ......
11. The value of moment coefficient of skewness 1
is zero.
4
4 3
12. The coefficient of kurtosis 2 2 4
3.
2
Note that the above expression makes use of property 10.
13. Additive or reproductive property
If X1, X2, ...... Xn are n independent normal variates with 1 , 2 ,  n means and variances
2 2 2
1, 2 ,  , respectively, then their linear combination a1X1 + a2X2 + ...... + anXn is
n n
also a normal variate with mean ai i and variance ai2 2

i .
i 1 i 1

Notes
In particular, if a1 = a2 = ...... = an = 1, we have X i is a normal variate with mean
2
i and variance i . Thus the sum of independent normal variates is also a normal
variate.
14. Area property: The area under the normal curve is distributed by its standard deviation in
the following manner:
Figure 15.1: Area under the Normal Curve
(a) The area between the ordinates at – and + is 0.6826. This implies that for
a normal distribution about 68% of the observations will lie between - and
+ .
(b) The area between the ordinates at – 2 and + 2 is 0.9544. This implies that for
a normal distribution about 95% of the observations will lie between
– 2 and + 2 .
(c) The area between the ordinates at – 3 and + 3 is 0.9974. This implies that for
a normal distribution about 99% of the observations will lie between – 3 m – 3s
and + 3 . This result shows that, practically, the range of the distribution is 6s
although, theoretically, the range is from – to .
Did u know? All the three measures of central tendency coincide, i.e., mean = median =
mode
Notes Kurtosis
This is another measure of the shape of a frequency curve. While skewness refers to the
extent of lack of symmetry, kurtosis refers to the extent to which a frequency curve is
peaked. Kurtosis is a Greek word which means bulginess. In statistics, the word is used for
a measure of the degree of peakedness of a frequency curve.
Karl Pearson, in 1905, introduced three types of curves depending upon the shape of their
peaks. These three shapes are known as Mesokurtic, Leptokurtic and Platykurtic.
A mesokurtic shaped curve is neither too much peaked nor too much flattened. This in fact
is the frequency curve of a normal distribution. A curve that is more peaked than a normal
curve is known as leptokurtic while a relatively flat topped curve is known as platykurtic.
Contd...

Notes The three types of curves are shown in the following figure.
Mesokurtic, Leptokurtic and Platykurtic Curves
15.4 Probability of Normal Variate in an Interval
Let X be a normal variate distributed with mean and standard deviation , also written in
abbreviated form as X ~ N( , ) The probability of X lying in the interval (X 1, X2) is given by
2
1 X
X2 1 2
P X1 X X2 e dX
X1 2
In terms of figure, this probability is equal to the area under the normal curve between the
ordinates at X = X1 and X = X2 respectively.
Note: It may be recalled that the probability that a continuous random variable takes a particular
value is defined to be zero even though the event is not impossible.
Figure 15.2
It is obvious from the above that, to find P(X1 X X2), we have to evaluate an integral which
might be cumbersome and time consuming task. Fortunately, an alternative procedure is available
X
for performing this task. To devise this procedure, we define a new variable z .
X 1
We note that E z E E X 0
X 1 1
and Var z Var 2
Var X 2
Var X 1.
Further, from the reproductive property, it follows that the distribution of z is also normal.

Thus, we conclude that if X is a normal variate with mean and standard deviation , then Notes
X
z is a normal variate with mean zero and standard deviation unity. Since the parameters
of the distribution of z are fixed, it is a known distribution and is termed as standard normal
distribution (s.n.d.). Further, z is termed as a standard normal variate (s.n.v.).
It is obvious from the above that the distribution of any normal variate X can always be
transformed into the distribution of standard normal variate z. This fact can be utilised to
evaluate the integral given above.
X1 X X2
We can write P X1 X X2 P
X1 X2
P z1 z z 2 , where z1 and z 2 .
In terms of figure, this probability is equal to the area under the standard normal curve between
the ordinates at z = z1 and z = z2. Since the distribution of z is fixed, the probabilities of z lying
in various intervals are tabulated. These tables can be used to write down the desired probability.
Example: Using the table of areas under the standard normal curve, find the following
probabilities :
1. P(0 z 1.3) 2. P( 1 z 0) 3. P( 1 z 2)
4. P( z 1.54) 5. P(|z| 2) 6. P(|z| 2)
Solution:
The required probability, in each question, is indicated by the shaded are of the corresponding
figure.
1. From the table, we can write P(0 z 1.3) = 0.4032.
Areas under the curve
(1) (2)
2. We can write P( 1 z 0) = P( z 1), because the distribution is symmetrical. From the

table, we can write P( 1 z 0) = P( z 1) = 0.3413.
3. We can write
P( 1 z 2) = P( 1 z 0) + P(0 z 2)
= P( z 1) + P(0 z 2) = 0.3413 + 0.4772 = 0.8185.

Notes Areas under the curve
(3) (4)
4. We can write
P(z 1.54) = 0.5000 P(0 z 1.54) = 0.5000 0.4382 = 0.0618.
5. P(|z| > 2) = P(z > 2) + P(z < 2) = 2P(z > 2) = 2[0.5000 P(0 z 2)]
=1 2P(0 z 2) = 1 2 × 0.4772 = 0.0456.
Areas under the curve
(5) (6)
6. P(|z| < 2) = P( 2 z 0) + P( z 2) = 2P( z 2) = 2 × 0.4772 = 0.9544.
Example: Determine the value or values of z in each of the following situations:

1. Area between 0 and z is 0.4495.
2. Area between to z is 0.1401.
3. Area between to z is 0.6103.
4. Area between 1.65 and z is 0.0173.
5. Area between 0.5 and z is 0.5376.
Solution:
1. On locating the value of z corresponding to an entry of area 0.4495 in the table of areas
under the normal curve, we have z = 1.64. We note that the same situation may correspond
to a negative value of z. Thus, z can be 1.64 or 1.64.
2. Since the area between to z < 0.5, z will be negative. Further, the area between z and
0 = 0.5000 0.1401 = 0.3599. On locating the value of z corresponding to this entry in the table,
we get z = 1.08.
3. Since the area between to z > 0.5000, z will be positive. Further, the area between 0 to
z = 0.6103 0.5000 = 0.1103. On locating the value of z corresponding to this entry in the
table, we get z = 0.28.

4. Since the area between 1.65 and z < the area between 1.65 and 0 (which, from table, is 0.4505), Notes
z is negative. Further z can be to the right or to the left of the value 1.65. Thus, when z lies
to the right of 1.65, its value, corresponds to an area (0.4505 0.0173) = 0.4332, is given by
z = 1.5 (from table). Further, when z lies to the left of 1.65, its value, corresponds to an area
(0.4505 + 0.0173) = 0.4678, is given by z = 1.85 (from table).
5. Since the area between 0.5 to z > area between 0.5 to 0 ( which, from table, is 0.1915), z is
positive. The value of z, located corresponding to an area (0.5376 0.1915) = 0.3461, is given
by 1.02.
Task If X is a random variate which is distributed normally with mean 60 and standard
deviation 5, find the probabilities of the following events:
(i) 60 X 70, (ii) 50 X 65, (iii) X > 45 , (iv) X 50.
Self Assessment
1. The normal probability distribution occupies a place of central importance in Ancient

Statistical Theory.
2. This distribution was first observed as the normal law of errors by the statisticians of the
eighteenth century.
3. An observed value of X is the sum of its true value and the net effect of a large number of
independent errors which may be positive or negative each with equal probability.
4. The observed distribution of a random variable was found to be in close conformity with
a continuous curve, which was termed as the normal curve of errors or simply the normal
curve.
5. Various factors operate in such a way that the deviations of observations above and below
mean are balanced with regard to their magnitude as well as their number.
6. p and e are absolute constants with values 3.14159.... and 2.71828.... respectively.
7. Normal probability distribution is a bell shaped symmetrical curve about the ordinate at
X.
8. Normal probability distribution is unimodal curve and its tails extend infinitely in both
directions.
9. In NPD, All the three measures of central tendency coincide, i.e.,
mean + median + mode=0
10. The total area under the curve gives the total probability of the random variable taking
values between - to .
11. In Normal distribution, since the distribution is symmetrical, all odd ordered central
moments are zero.
12. The value of p(X) is always non-negative for all values of X, i.e., the whole curve lies above
X axis.
13. The quartiles are equidistant from median, i.e., Md + Q 1 = Q3 – Md , by virtue of symmetry.
14. The value of moment coefficient of skewness is never zero.

Notes 15.5 Normal Approximation to Binominal Distribution

Normal distribution can be used as an approximation to binomial distribution when n is large
and neither p nor q is very small. If X denotes the number of successes with probability p of a
success in each of the n trials, then X will be distributed approximately normally with mean np
and standard deviation npq .
X np
Further, z ~ N 0,1 .
npq
It may be noted here that as X varies from 0 to n, the standard normal variate z would vary
from to because
lim np lim np
when X = 0, n n q
npq
lim n np lim nq lim nq

and when X = n, n n n p
npq npq
Correction for Continuity
Since the number of successes is a discrete variable, to use normal approximation, we have make
corrections for continuity. For example,
1 1
P(X1 X X2) is to be corrected as P X1 X X2 , while using normal approximation
2 2
to binomial since the gap between successive values of a binomial variate is unity. Similarly,
1 1
P(X1 < X < X2) is to be corrected as P X1 X X2 , since X1 < X does not include X1 and
2 2
X < X2 does not include X2.
Note: The normal approximation to binomial probability mass function is good when n 50 and neither
p nor q is less than 0.1.
Example: An unbiased die is tossed 600 times. Use normal approximation to binomial to
find the probability obtaining
1. more than 125 aces,
2. number of aces between 80 and 110,
3. exactly 150 aces.
Solution:
Let X denote the number of successes, i.e., the number of aces.
1 1 5
np 600 100 and npq 600 9.1
6 6 6
1. To make correction for continuity, we can write

P(X > 125) = P(X > 125 + 0.5)

Notes
125.5 100
Thus, P X 125.5 P z P z 2.80
9.1
0.5000 P 0 z 2.80 0.5000 0.4974 0.0026.
2. In a similar way, the probability of the number of aces between 80 and 110 is given by
79.5 100 110.5 100

P 79.5 X 110.5 P z
9.1 9.1
P 2.25 z 1.15 P 0 z 2.25 P 0 z 1.15
= 0.4878 + 0.3749 = 0.8627
19.5 20.5
3. P(X = 120) = P(119.5 X 120.5) = P z
9.1 9.1
= P(2.14 z 2.25) = P(0 z 2.25) P(0 z 2.14)

= 0.4878 0.4838 = 0.0040
Self Assessment
Fill in the blanks:
15. Normal distribution can be used as an approximation to binomial distribution when n is

large and ............................ p ........................ q is very small.
16. In Normal distribution, the standard normal variate z would vary from .............to ............
15.6 Normal Approximation to Poisson Distribution

Normal distribution can also be used to approximate a Poisson distribution when its parameter
m 10. If X is a Poisson variate with mean m, then, for m 10, the distribution of X can be
X- m
taken as approximately normal with mean m and standard deviation m so that z =
m
is a standard normal variate.
Example: A random variable X follows Poisson distribution with parameter 25. Use normal
approximation to Poisson distribution to find the probability that X is greater than or equal to 30.
Solution:
P(X 30) = P(X 29.5) (after making correction for continuity).
29.5 25
P z Pz 0.9
5
= 0.5000 P(0 z 0.9) = 0.5000 0.3159 = 0.1841
Fitting a Normal Curve
A normal curve is fitted to the observed data with the following objectives:
1. To provide a visual device to judge whether it is a good fit or not.
2. Use to estimate the characteristics of the population.

Notes The fitting of a normal curve can be done by

(a) The Method of Ordinates or
(b) The Method of Areas.
(a) Method of Ordinates: In this method, the ordinate f(X) of the normal curve, for various
values of the random variate X are obtained by using the table of ordinates for a
standard normal variate.
2
1 X 1 2
1 1 z 1
We can write f X 2 2
e e z
2 2
1 2
X 1 z
where z and z e 2 .
2
The expected frequency corresponding to a particular value of X is given by

N
y N.f X z and therefore, the expected frequency of a class = y h, where h
is the class interval.
Example: Fit a normal curve to the following data :

Class Intervals : 10 - 20 20 - 30 30 - 40 40 - 50 50 - 60 60 - 70 70 - 80 Total
Frequency : 2 11 24 33 20 8 2 100
Solution:
First we compute mean and standard deviation of the given data.
Class Mid - values Frequency X - 45 2

d= fd fd
Intervals (X ) (f) 10
10 - 20 15 2 -3 - 6 18
20 - 30 25 11 -2 - 22 44
30 - 40 35 24 -1 - 24 24
40 - 50 45 33 0 0 0
50 - 60 55 20 1 20 20
60 - 70 65 8 2 16 32
70 - 80 75 2 3 6 18
Total 100 - 10 156
Note: If the class intervals are not continuous, they should first be made so.
10
45 10 44
100
2
156 10
and 10 10 155
. 12.4
100 100

Table for the fitting of Normal Curve Notes
Class Mid-values X z N
z y z fe *
Intervals (X) (from table)
10-20 15 2.34 0.0258 0.2081 2
20-30 25 1.53 0.1238 0.9984 10
30-40 35 0.73 0.3056 2.4645 25
40-50 45 0.08 0.3977 3.2073 32
50-60 55 0.89 0.2685 2.1653 22
60-70 65 1.69 0.0957 0.7718 8
70-80 75 2.50 0.0175 0.1411 1
(b) Method of Areas: Under this method, the probabilities or the areas of the random
variable lying in various intervals are determined. These probabilities are then
multiplied by N to get the expected frequencies. This procedure is explained below
for the data of the above example.
Class Lower Limit X 44 Area from Area under

z f e*
Intervals (X) 12.4 0 to z the class
10-20 10 2.74 0.4969 0.0231 2
20-30 20 1.94 0.4738 0.1030 10
30-40 30 1.13 0.3708 0.2453 25
40-50 40 0.32 0.1255 0.3099 31
50-60 50 0.48 0.1844 0.2171 22
60-70 60 1.29 0.4015 0.0806 8
70-80 70 2.10 0.4821 0.0160 2
80 2.90 0.4981
*Expected frequency approximated to the nearest integer.
Self Assessment

17. A normal curve is fitted to the observed data to provide a ........................to judge whether
it is a good fit or not
(a) Device (b) Visual device
(c) Equipment (d) Apparatus
18. A .................................... is fitted to estimate the characteristics of the population.
(a) Statistical curve (b) Binomial curve
(c) Normal curve (d) None
19. The fitting of a normal curve can be done by the .............................................
(a) Method of Ordinates (b) Method of Averages
(c) the Method of Abscissa (d) None
20. Under Method of Areas, the .................................... or the areas of the random variable lying
in various intervals are determined.
(a) Chances (b) Mean
(c) Probabilities (d) Coefficient

Notes
Case Study Rattle Publishing Company Limited
R
attle Publishing Company Limited are planning to introduce a new ABC text-
book. The company’s marketing department estimates that the prior distribution
for likely sales is normal with a mean of 10,000 books. In addition it has determined
that there is a probability of one half that the likely sales will lie between 8,000 and 12,000
books.
The text-book will sell for 10 per copy but the publishing company pays the author 10%
of revenue in royalties and the fixed costs of printing and marketing the book are calculated
to be 25,000. Using current printing facilities, the variable production costs are 4 per
book. However, the Rattle Publishing Company has the option of hiring a special machine
for 14,000 which will reduce the variable production costs to 2.50 per book.
Required:
1. Show that the standard deviation of likely sales is approximately = 3,000.
2. Using = 3,000 determine the probability that the company will at least break even
if:
(a) existing printing facilities are used,
(b) the special machine is hired
3. By comparing expected profits, decide whether or not the publishing company
should hire the special machine.
4. By using the normal distribution it can be shown that the following probability
distribution may be applied to book sales:
Sales (‘000) 0-5 5-8 8-10 10-12 12-15 15-20
Probability 0.05 0.20 0.25 0.25 0.20 0.05

By assuming that the actual sales can only take the midpoints of these classes, determine
the expected value of perfect information and interpret its value.
15.7 Summary
The normal probability distribution occupies a place of central importance in Modern

Statistical Theory. This distribution was first observed as the normal law of errors by the
statisticians of the eighteenth century.
Random variables observed in many phenomena related to economics, business and

other social as well as physical sciences are often found to be distributed normally.
Here and e are absolute constants with values 3.14159.... and 2.71828.... respectively.
This distribution is completely known if the values of mean and standard deviation
are known. Thus, the distribution has two parameters, viz. mean and standard deviation.
We seldom encounter variables that have a range from to , nevertheless the curves
generated by the relative frequency histograms of various variables closely resembles
the shape of normal curve.

It is a bell shaped symmetrical curve about the ordinate at X. Notes
The ordinate is maximum at X.
It is unimodal curve and its tails extend infinitely in both directions.
The curve is asymptotic to X-axis in both directions.
The value of p(X) is always non-negative for all values of X, i.e., the whole curve lies
above X-axis
Since the distribution is symmetrical, all odd ordered central moments are zero.
The area between the ordinates at and + is 0.6826. This implies that for a normal
distribution about 68% of the observations will lie between and + .
The area between the ordinates at 2 and +2 is 0.9544. This implies that for a
normal distribution about 95% of the observations will lie between 2 and +2 .
The area between the ordinates at 3 and +3 is 0.9974. This implies that for a
normal distribution about 99% of the observations will lie between 3 and + 3 .
This result shows that, practically, the range of the distribution is 6 although,
theoretically, the range is from to .
Normal distribution can be used as an approximation to binomial distribution when n is

large and neither p nor q is very small.
15.8 Keywords
Condition of homogeneity: The factors must be similar over the relevant population although,
their incidence may vary from observation to observation.
Condition of independence: The factors, affecting observations, must act independently of each
other.
Condition of symmetry: Various factors operate in such a way that the deviations of observations
above and below mean are balanced with regard to their magnitude as well as their number.
Fitting a Normal Curve: A normal curve is fitted to the observed data with the objectives (1) To
provide a visual device to judge whether it is a good fit or not. (2) Use to estimate the
characteristics of the population.
Method of Areas: Under this method, the probabilities or the areas of the random variable lying
in various intervals are determined. These probabilities are then multiplied by N to get the
expected frequencies.
Method of Ordinates: In this method, the ordinate f(X) of the normal curve, for various values of
the random variate X are obtained by using the table of ordinates for a standard normal variate.
Normal Approximation to Poisson Distribution: Normal distribution can also be used to
approximate a Poisson distribution when its parameter m 10 .
Normal Probability Distribution: The normal probability distribution occupies a place of central
importance in Modern Statistical Theory. This distribution was first observed as the normal law
of errors by the statisticians of the eighteenth century.

Notes 15.9 Review Questions
1. Under what conditions will a random variable follow a normal distribution? State some
important features of a normal probability curve.
2. What is a standard normal distribution? Discuss the importance of normal distribution in

statistical theory.
3. State clearly the assumptions under which a binomial distribution tends normal
distribution.
4. Find the probability that the value of an item drawn at random from a normal distribution
with mean 20 and standard deviation 10 will be between (i) 10 and 15, (ii) –5 and 10 and
(iii) 15 and 25.
5. In a particular examination an examinee can get marks ranging from 0 to 100. Last year,
1,00,000 students took this examination. The marks obtained by them followed a normal
distribution. What is the probability that the marks obtained by a student selected at
random would be exactly 63?
6. A collection of human skulls is divided into three classes according to the value of a
‘length breadth index’ x. Skulls with x < 75 are classified as ‘long’, those with 75 < x < 80 as
‘medium’ and those with x > 80 as ‘short’. The percentage of skulls in the three classes in
this collection are respectively 58, 38 and 4. Find, approximately, the mean and standard
deviation of x on the assumption that it is normally distributed.
7. In a large group of men, it is found that 5% are under 60 inches and 40% are between 60 and
65 inches in height. Assuming the distribution to be exactly normal, find the mean and
standard deviation of the height. The values of z for area equal to 0.45 and 0.05 between 0
to z are 1.645 and 0.125 respectively.
8. Packets of a certain washing powder are filled with an automatic machine with an average
weight of 5 kg. and a standard deviation of 50 gm. If the weights of packets are normally
distributed, find the percentage of packets having weight above 5.10 kg.
9. For a normal distribution with mean 3 and variance 16, find the value of y such that the
probability of the variate lying in the interval (3, y) is 0.4772.
10. The mean income of people working in an industrial city is approximated by a normal
distribution with a mean of 24,000 and a standard deviation of 3,000. What percentage
of the people in this city have income exceeding 28,500? In a random sample of 50
employed persons of this city, about how many can be expected to have income less than
19,500?
11. A batch of 5,000 electric lamps have a mean life of 1,000 hours and a standard deviation of
75 hours. Assume a Normal Distribution.
(a) How many lamps will fail before 900 hours?
(b) How many lamps will fail between 950 and 1,000 hours?
(c) What proportion of lamps will fail before 925 hours?
(d) Given the same mean life, what would the standard deviation have to be to ensure
that not more than 20% of lamps fail before 916 hours?

12. A firm buys springs in very large quantities and from past records it is known that 0.2% Notes
are defective. The inspection department sample the springs in batches of 500. It is required
to set a standard for the inspectors so that if more than the standard number of defectives
is found in a batch the consignment can be rejected with at least 90% confidence that the
supply is truly defective.
How many defectives per batch should be set as the standard?
13. Assume that your working hours X are distributed normally with m = 5 and s = 2. What is
the probability of your working 9 hours or more than 9 hours?
14. An assembly line contains 2,000 components each one of which has a limited life. Records
show that the life of the components is normally distributed with a mean of 900 hours and
a standard deviation of 80 hours.
(a) What proportion of components will fail before 1,000 hours?
(b) What proportion will fail before 750 hours?
(c) What proportion of components fail between 850 and 880 hours?
(d) Given that the standard deviation will remain at 80 hours what would the
average life have to be to ensure that not more than 10% of components fail before
900 hours?
1. False 2. True
3. True 4. True
5. True 6. True
7. True 8. True
9. False 10. True
11. True 12. True
13. False 14. False
15. neither, nor 16. – ,+
17. (b) 18. (c)
19. (a) 20. (c)

Notes
Online links http://www.mathsisfun.com/data/standard-normal-distribution.html

http://www.mathsisfun.com/data/standard-normal-distribution-table.html
http://stattrek.com/lesson2/normal.aspx
http://stat.wvu.edu/srs/modules/Normal/normal.html

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Quantitative Techniques-I

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Sr. No. Description

Unit 1: Statistics Notes

1.1 Meaning, Definition and Characteristics of Statistics

1.1.1 Statistics as a Scientific Method

1.1.2 Statistics as a Science or an Art

1.2 Importance of Statistics

1.3 Scope of Statistics

1.4 Limitations of Statistics

1.7 Review Questions

1.8 Further Readings

After studying this unit, you will be able to:

Discuss the importance of statistics

State the characteristics of statistics

Discuss Statistics as a Science or an Art

Describe the limitations and scope of statistics

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Notes 1.1 Meaning, Definition and Characteristics of Statistics

The main features of the above definition are:

(i) Statistics (or Data) implies numerical facts.

(ii) Numerical facts or figures are related to some enquiry or investigation.

2. “By statistics we mean quantitative data affected to a marked extent by multiplicity of

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When statistics are being obtained by measurement of units, it is necessary to maintain a

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1. “Statistics is the science of counting.” — A.L. Bowley

2. “Statistics may rightly be called the science of averages.” — A.L. Bowley

4. “Statistics is the science of estimates and probabilities.” — Boddington

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1.1.1 Statistics as a Scientific Method

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1.1.2 Statistics as a Science or an Art

Multiple Choice Questions

2. “Statistics is the science of estimates and probabilities”.

(a) Webster (b) Secrist

(a) Achenwall (b) Marshall

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1.2 Importance of Statistics Notes

2. Importance in economics: Statistics is an indispensable tool for a proper understanding of

Inductive method of generalisation, popularly used in economics, is also based on statistical

Realising the importance of statistics in economics, a separate branch of economics, known

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4. Importance in planning: Planning is indispensable for achieving faster rate of growth

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Notes Self Assessment

State whether the following statements are true or false:

4. It is very difficult to imagine a field of knowledge which can do without statistics

8. Statistics is a dispensable tool for a proper understanding of various economic problems.

Task Conduct a debate on following statements and interpret them.

1. ”Statistics can prove anything.”

2. “Statistics can prove nothing.”

1.3 Scope of Statistics

The following are the main functions of statistics: