AP ECON 2500 Session 4

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AP ECON 2500 Session 4 Instructor: Dr. David K.

Lee
Department of Economics York University
Topic 4 Random Variables and Probability Distributions
Reading: Chapter 4
Review Session 3:
#3.3
A: {either 1, 2 or 3 occurs}, B: {either 1, 3 or 5 occurs},
C: {4 does not occur}
a. P(A)=?
b. P(A and B) =?
c. P(C) =? Etc..

#3.5: Compute the number of ways you can select n elements from N elements
a. n = 2, N = 5, b. n = 3, N = 6, c. n = 5, N = 20

#3.14 A marketing research with mobile phone and SNS


Users classified by gender (male or female) and by the social media (Facebook, Twitter, or YouTube).
10 males and 10 females were sampled for each of the three social medias – a total of 60 mobile
users
a. Use a tree diagram
b. Prob of a selected user being a female and Twitter user.
c. Prob of a selected user being a YouTube user.
#3.16 Who prepares your tax return?

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#3.33. P(E1) = P(E2) = P(E3) =1/5, P(E4)=P(E5)=1/20, P(E6) = 1/10, P(E7) = 1/5
P(A) =?
P(B) = ?
P(A ∪ B) = ?
P(A ∩ B) =?
P(AC) = ?
P(BC) = ?
P(A ∪ AC)=?
P(AC ∩ B ) =?

#3.35

#3.54 A, B, C are mutually exclusive: P(A) = 0.30, P(B) = 0.55, P(C) = 0.15
a. P(A U B), b. P(A∩B), c. P(A/B) d. P(B U C)

#3.62

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Section 4.4 Other Discrete Distributions: Poisson and Hypergeometric
Hypergeometric Random Variable:
1. The experiment consists of randomly drawing n elements without replacement from a set of N
elements, r of which are S’s (for success) and (N – r) of which are F’s (for failure).
2. The hypergeometric random variable x is the number of S’s in the draw of n elements.
Hypergeometric Probability Distribution Function
𝑟 )(𝑁−𝑟)
(𝑥 N= the population size,
𝑛−𝑥
p(x) = n= the number of draws,
(𝑁
𝑛) r= the number of success in the population,
𝑛𝑟 2 𝑟(𝑁 − 𝑟)𝑛(𝑁 − 𝑛) x= the number of observed success
μ= ,𝜎 =
𝑁 𝑁 2 (𝑁 − 1)

Example:
A candy dish contains 30 jelly beans and 20 gumdrops. Ten candies are picked at random. What is
the probability that 5 of the 10 are gumdrops?
30 20
( )( )
p(5) = 5 5 = 0.215, μ = 10 × 20 = 4, 𝜎 2 = 10 × 30 × 10 × 40 = 0.9796
50 50 502 × 49
( )
10

Example 4.15: 6 male and 4 female applicants, and select 3, and x be the number of females who
are hired.
Prob of no female hired: The mean and std dev
4 6 3×4
( )( ) μ= = 1.2, 𝜎 2 = 0.56. 𝜎 = 075
10
p(0) = 0 3 = 0.1667
10
( )
3

Example: N=496 packets, 331 contain cocaine


Randomly selected 4, prob of 4 all contain cocaine: p = 331/496 = 0.67

4
p(x = 4) = ( ) 0.674 (1 − 0.67)0 = 0.202, or
4
331 165
( )( )
p(4) = 4 0 = 0.197
496
( )
4

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4.5 Probability Distributions for Continuous Random Variables
Continuous Probability Density Function
• The graphical form of the probability distribution for a continuous random variable x is a
smooth curve

• This curve, a function of x, is denoted by the symbol f(x) and is variously called a probability
density function (pdf), a frequency function, or a probability distribution.
• The areas under a probability distribution correspond to probabilities for x. The area A beneath
the curve between two points a and b is the probability that x assumes a value between a
and b.

4.6 The Normal Distribution


Importance of Normal Distribution
1. Describes many random processes or continuous phenomena
2. Can be used to approximate discrete probability distributions
• Example: binomial
3. Basis for classical statistical inference

Normal Distribution
1. Bell-shaped’ & symmetrical
2. Mean, median, and mode are
equal

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The Normal Distribution Density Function
2
1  (X−μ) 
1 −  
 
f(X) = e 2
2π

Where e = the mathematical constant approximated by 2.71828


π = the mathematical constant approximated by 3.14159
μ = the population mean
σ = the population standard deviation
X = any value of the continuous variable
• The mean and standard deviation of the actual distribution represented by the density curve
are denoted by µ (“mu”) and σ (“sigma”), respectively.
• A Normal distribution is described by a Normal density curve. Any particular Normal
distribution is completely specified by two numbers: its mean µ and standard deviation σ.
• The mean of a Normal distribution is the center of the symmetric Normal curve.
• The standard deviation is the distance from the center to the change-of-curvature points on
either side.
• We abbreviate the Normal distribution with mean µ and standard deviation σ as N(µ,σ).

Effect of Varying Parameters (μ & σ)

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The 68-95-99.7 Rule
• In the Normal distribution with mean µ and standard deviation σ:
▪ Approximately 68% of the observations fall within σ of µ.
▪ Approximately 95% of the observations fall within 2σ of µ.
▪ Approximately 99.7% of the observations fall within 3σ of µ.

Example:
• The distribution of Iowa Test of Basic Skills (ITBS) vocabulary scores for 7th-grade students in
Gary, Indiana, is close to Normal. Suppose the distribution is N(6.84, 1.55).
• Sketch the Normal density curve for this distribution.
• What percent of ITBS vocabulary scores are less than 3.74?
• What percent of the scores are between 5.29 and 9.94?

The Standardized Normal


• The standard normal distribution is a normal distribution with µ = 0 and  = 1.
• A random variable with a standard normal distribution, denoted by the symbol z, is called a
standard normal random variable.

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Practice: The Standard Normal Table:
• P(0 < z < 1.96) = 0.4750
• P(–1.26 ≤ z ≤1.26) =0.7924
• P(z > 1.26) =0.1038
• P(–2.78≤ z≤ –2.00) = 0.0201
• P(z > –2.13) = .4834 + .5000 = .9834

Converting a Normal Distribution to a Standard Normal Distribution


• If x is a normal random variable with mean μ and standard deviation , then the random
variable z, defined by the formula
𝑥−𝜇
z=
𝜎
• has a standard normal distribution. The value z describes the number of standard deviations
between x and µ.
Normal distribution with mean of μ and the Standard Normal distribution with the mean of 1
standard deviation of σ and the standard deviation of 1

Finding a Probability Corresponding to a Normal Random Variable


• Sketch normal distribution, indicate mean, and shade the area corresponding to the
probability you want.
• Convert the boundaries of the shaded area from x values to standard normal random variable
z and show the z values under corresponding x values.
𝑥−𝜇
z=
𝜎
• Use Table to find the areas corresponding to the z values. Use symmetry when necessary.

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The Standard Normal Table: Practice how to read the table.

Practice: Non-standard Normal μ = 5, σ = 10: P(3.8 < x < 6.2)


𝑥−𝜇 6.2 − 5
z= = = 0.12
𝜎 10

𝑥−𝜇 3.8 − 5
z= = = −0.12
𝜎 10

So P(3.8 < x < 6.2) = p(-0.12<z<0.12) = 0.0478+0.0478= 0.0956

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Practice: Non-standard Normal μ = 5, σ = 10: P(2.9 < x< 7.1)= P(-0.21<z<0.21) = 0.1664
Practice: Non-standard Normal μ = 5, σ = 10: P(x > 8) = 0.3821
Practice: Non-standard Normal μ = 5, σ = 10: P(7.1 < X < 8) = 0.347

Example:
the weights of adults X~N(170, 25), or μ = 170 and σ=25. If you pick one adult, what is the probability
that the person:
• weighs from 150 to 190 Ibs?
• Weighs less than 140?
• Weighs at least 160?
• What is the maximum weight of the lightest 15% of the adult population?
• What is the minimum weight to be in the heaviest 30% of the adult populations?
Solutions:
P(150≤X≤190) = 0.5763;
P(X< ? ) = 0.15

σ=25

15%
0.15
? μ=170

Z= (?-170)/25 =-1.036 (from table) ➔ ? = 25*(-1.036) + 170 = 144.1

Example:
• According to the Health and Nutrition Examination Study of 1976–1980, the heights (in inches)
of adult men aged 18–24 are N(70, 2.8).
• If exactly 10% of men aged 18–24 are shorter than a particular man, how tall is he?
• Z = –1.28

x = 70 + z(2.8) = 70 + [(–1.28 ) X (2.8)] = 70 + (–3.58) = 66.42

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Example:
You work in Quality Control for GE. Light bulb life has a normal distribution with
μ = 2000 hours and σ = 200 hours. What’s the probability that a bulb will last
A. between 2000 and 2400 hours?
B. less than 1470 hours?
0.4772 and 0.004

Example 4.16 p(-1.33 < z < 1.33) = 0.8164


Example 4.17
a. p(z > 1.64) =
b. p(z < 0.67) =
c. p(|𝑧| > 1.96) =
Example 4.18
The length of time between charges of a cellular phone: mean is 10 hours and a standard deviation
of 1.5 hours. Find the probability that the cell phone will last between 8 and 12 hours. 0.8176

Example 4.19: A new model of auto mileage: mean of 27 and the standard deviation of 3
You purchased one and it does get less than 20 ➔ 0.01

Example 4.21
A daily production of paint, mean of 100,000 gallons and a standard deviation of 10,000.
Management provides incentives if the daily production exceeds the 90th percentile. What level of
production is for incentive? 112,800

Normal Approximation of Binomial Distribution


• If n is large, and p is not too close to 0 or 1, the binomial distribution can be approximated by

the normal distribution N(µ= np,  = np(1 − p)).


2

• Practically, the Normal approximation can be used when both np ≥10 and n(1 − p) ≥10.
 X approximately N (µ = np, σ2 = np(1 − p))
1. Useful because not all binomial tables exist
2. Requires large sample size
3. Gives approximate probability only
4. Need correction for continuity
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Example: Color blindness
• The frequency of color blindness (dyschromatopsia) in the Caucasian American male
population is about 8%.
• We take a random sample of size 125 from this population. What is the probability that six
individuals or fewer in the sample are color blind?
 Sampling distribution of the count X: B(n = 125, p = 0.08) → np = 10
P(X ≤ 6) = BINOMDIST(6, 125, .08, 1) = 0.1198 or about 12%
 Normal approximation for the count X: N(np = 125 × 0.08 = 10, √𝑛𝑝𝑞 =

√125 × 0.08 × (1 − 0.08) = 3.0331)


P(X ≤ 6) = NORMDIST(6, 10, 3.0331) = 0.0936 or 9%
Or z = (x − µ)/σ = (6 −10)/3.033 = −1.32 → P(X ≤ 6) = 0.0934 from Table
• The normal approximation is reasonable, though not perfect. Here p = 0.08 is not close to 0.5
when the normal approximation is at its best.
• A sample size of 125 is the smallest sample size that can allow use of the normal approximation
(np = 10 and n(1 − p) = 115).
 Sampling distribution of the count X: B(n = 125, p = 0.08) → np = 10
P(X ≤ 6.5) = P(X ≤ 6) = BINOMDIST(6, 125, .08, 1) = 0.1198
P(X < 6) = P(X ≤ 5) = BINOMDIST(5, 125, .08, 1) = 0.0595
 Normal approximation for the count X: N(np =10, √𝑛𝑝𝑞 = 3.033)
P(X ≤ 6.5) = NORMDIST(6.5, 10, 3.033, 1) = 0.1243
P(X ≤ 6) = NORMDIST(6, 10, 3.033, 1) = 0.0936 ≠ P(X ≤ 6.5)
P(X < 6) = P(X ≤ 6) = NORMDIST(6, 10, 3.033, 1) = 0.0936
• The continuity correction provides a more accurate estimate:
Binomial P(X ≤ 6) = 0.1198 → this is the exact probability
Normal P(X ≤ 6) = 0.0936, while P(X ≤ 6.5) = 0.1243 → estimates

Example 4.22
For a manufacturing product, defective rate is 6%, 200 were selected
a. Mean and standard deviation of defective
b. Prob of 20 or more defective
μ = 12, σ = 3.36, p(x ≥ 19.5) = 𝑝(𝑧 > 2.23) = 1 − 0.9871 = 0.0129

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4.7 Descriptive Methods for Assessing Normality
Determining Whether the Data Are from an Approximately Normal Distribution
1. Construct either a histogram or stem-and-leaf display for the data and note the shape of the
graph. If the data are approximately normal, the shape of the histogram or stem-and-leaf
display will be similar to the normal curve.
2. Compute the intervals 𝑥̅ ± s, 𝑥̅ ± 2𝑠, 𝑎𝑛𝑑 𝑥̅ ± 3𝑠 and determine the percentage of measurements
falling in each. If the data are approximately normal, the percentages will be approximately
equal to 68%, 95%, and 100%, respectively; from the Empirical Rule (68%, 95%, 99.7%).
3. Find the interquartile range, IQR, and standard deviation, s, for the sample, then calculate the
ratio IQR/s. If the data are approximately normal, then IQR/s ≈ 1.3.
4. Examine a normal probability plot for the data. If the data are approximately normal, the
points will fall (approximately) on a straight line.

Normal Probability Plot


A normal probability plot for a data set is a scatterplot with the ranked data values on one axis and
their corresponding expected z-scores from a standard normal distribution on the other axis. [Note:
Computation of the expected standard normal z-scores are beyond the scope of this text. Therefore,
we will rely on available statistical software packages to generate a normal probability plot.]
Example 4.23
Mileage rating for 100 cars: Determine if the data are showing an approximate normal distribution

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𝐼𝑄𝑅 2.75
𝑥̅ = 37, s = 2.4, = = 1.15
𝑠 2.4

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4.8 Other Continuous Distributions: Uniform and Exponential: This section is not included.
Uniform Distribution
• Continuous random variables that appear to have equally likely outcomes over their range of
possible values possess a uniform probability distribution.
• Suppose the random variable x can assume values only in an interval c ≤ x ≤ d. Then the
uniform frequency function has a rectangular shape.
The area = (base)(height)
1
= (d − c) × =1
(𝑑−𝑐)

Probability Distribution for a Uniform Random Variable x


1
Probability density function: f(x) = 𝑐≤𝑥≤𝑑
𝑑−𝑐

𝑐+𝑑 𝑑−𝑐
mean: μ = , 𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑑𝑒𝑣𝑖𝑎𝑡𝑖𝑛: 𝜎 =
2 √12
𝑏−𝑎
p(a < x < b) = , 𝑐≤𝑎≤𝑏≤𝑑
𝑑−𝑐

Uniform Distribution Example


You’re production manager of a soft drink bottling company. You believe that when a machine is
set to dispense 12 oz., it really dispenses between 11.5 and 12.5 oz. inclusive. Suppose the amount
dispensed has a uniform distribution. What is the probability that less than 11.8 oz. is dispensed?
P(11.5<x<11.8) = (11.8-11.5)/1 = 0.3

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Example 4.24
Thickness is uniform distribution with values between 150 and 200 millimeters. Any sheet less than 160
must be scrapped.
a. Mean and standard deviation
b. Graph
c. Calculate the prob of scrapped.
μ = 175, σ = 14.43, p(x < 160) = 0.2

Exponential Distribution
• The length of time between emergency arrivals at a hospital, the length of time between
breakdowns of manufacturing equipment, and the length of time between catastrophic
events (e.g., a stock market crash), are all continuous random phenomena that we might
want to describe probabilistically.
• The length of time or the distance between occurrences of random events like these can
often be described by the exponential probability distribution. For this reason, the exponential
distribution is sometimes called the waiting-time distribution.

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Probability Distribution for an Exponential Random Variable x
𝑥
1
Probability density function: f(x) = 𝑒 −𝜃 (x > 0)
𝜃
Mean: μ = θ
Standard deviation σ = θ
Finding the Area to the Right of a Number a for an Exponential Distribution

Example 4.25
Suppose the length of time (in hours) between emergency arrivals at a certain hospital is modeled as
an exponential distribution with  = 2. What is the probability that more than 5 hours pass without an
emergency arrival?
Mean: μ = θ = 2, Standard Deviation: σ = θ = 2
Probability is the area A to the right of a = 5.
−𝑎⁄
A= 𝑒 𝜃 = 𝑒 −5/2 = 𝑒 −2.5 = 0.082085

Probability that more than 5 hours pass between


emergency arrivals is about .08.

Example 4.26
The length of life (x) of a magnetron tube has an exponential probability distribution with θ = 6.25.
a. The mean and standard deviation of x.
b. If a warranty period of 5 years, what percent is the replacement?
c. The prob between μ ± 2σ
6.25, 0.550671, 0.950213
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Review:
#4.11 A discrete random variable, x, P(x=22), P(20 or 24), P(x ≤ 23)

#4.12

#4.44: if x is a binomial distribution, find the following probability:


a. P(x = 2) 𝑓𝑜𝑟 𝑛 = 10, 𝑝 = 0.4 and μ, σ
b. P(x ≤ 5) 𝑓𝑜𝑟 𝑛 = 15, 𝑝 = 0.6 and μ, σ
c. P(x > 1) 𝑓𝑜𝑟 𝑛 = 5, 𝑝 = 0.1 and μ, σ

#4.47: A poll found that 20% of adults do not work at all while on summer vacation. In a random
sample of 10 adults
a. Find P(x=3)
b. Find the prob of 2 or fewer do not work.
c. Mean and variance

#4.62: Poisson with mean of 1.5


a. P(x ≤ 3), b. P(x < 3), c. P(x ≥ 3)
#4.63: Hypergeometric
a. N = 5, n=3, r=3, x=1, b. N=9, n=5, r=3, x=3
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#4.69: among 106 robots, 63 with legs only, 20 with wheels only, 8 with both legs and wheels, and 15
with neither legs nor wheels. You select 10 randomly from 106, and x with neither legs nor wheels.

15 106 − 15
( )( )
P(x = 2) = 2 10 − 2 = 0.280
106
( )
10
#4.70: The average number of bank failure = 52 per year, x be # bank failure
a. Mean and standard deviation: μ = λ = 52, σ = √𝜆 = 7.211
157−52
b. X = 157, z score = 7.211
= 14.56

c. P(x ≤ 8) = 0
#4.84-87
a. P(0 < z < 2) =? , 𝑏. 𝑃(0 < 𝑧 < 3) = ? , 𝑐. 𝑃(0 < 𝑧 < 0.8) = ? , P(−2 < z < 2)
#4.88-89
a. P(z > 𝑧0 ) = 0.05, 𝑏. 𝑃(𝑧 > 𝑧0 ) = 0.025, 𝑐. 𝑃(−𝑧0 < 𝑧 < 𝑧0 ) = 0.1664

#4.96: Binomial with 1000, and 0.5


a. P(x>500), b. P(490 ≤ x < 500)

#4.132: uniform with c=3, d=7


1 1
= (𝑐 ≤ 𝑥 ≤ 𝑑)
a. f(x) = {7−3 4
0 𝑜𝑡ℎ𝑒𝑟𝑤𝑖𝑠𝑒
3+7 7−3
b. μ = = 5, 𝜎 = = 1.155
2 √12
6.155−3.845
c. P(x ≤ μ ± σ) = 𝑃(3.845 ≤ 𝑥 ≤ 6.155) = = 0.5775
7−3

#4.135: Exponential, θ = 1
3
a. P(x > 1) = 𝑒 −1/1 = 0.3678, 𝑏. 𝑃(𝑥 ≤ 3) = 1 − 𝑝(𝑥 > 3) = 1 − 𝑒 −1 = 0.950213

#4.132 and 4.135 Not covered

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