UNIT-1

1. Mention the characteristics of Statistics.

Ans: - There are several characteristics of Statistics. It not only deals with a collection of data,
but it is also influenced by a variety of reasons. Statistics are numerically expressed,
approximated with varied degrees of accuracy, and gathered in a systematic manner for certain
objectives. Statistics must be organized in a systematic, logical sequence to allow for
comparative and analytical investigations. Listed below are a few-
1. Statistics deals with an aggregate of facts - Statistics doesn’t deal with individual facts. t
deals with aggregates or groups of data rather than individual facts. In other words, statistics
focuses on analyzing data in a collective manner to draw generalizations and make inferences
about the larger population.
2. Statistics gets affected to a great extent by multiplicity of causes - The statistics of a
crop's yield depend on a number of variables, including the soil's fertility, the amount of
rainfall, the quality of the seed used, and the type and amount of fertilizer applied.
3. Statistics are numerically expressed - Statistical analysis can only be used to numerical
data. Because of this, statements like "price decreases with increasing production" cannot be
referred to be statistics. The eye color of a person or the brand name of an automobile are
examples of qualitative data that cannot be referred to as statistics.
4. Statistics are enumerated or estimated with required degree of accuracy - Statistical
analysis can only be used to numerical data. Because of this, statements like "price decreases
with increasing production" cannot be referred to be statistics. The eye color of a person or the
brand name of an automobile are examples of qualitative data that cannot be referred to as
statistics.
5. Statistics are collected in a systematic manner - Facts should be gathered using organized
and scientific techniques; otherwise, they are likely to be incorrect and misleading.
6. Statistics are collected for a pre-determined purpose - For facts to be collected, there
must be a clear objective. Otherwise, data collecting could be indiscriminate, which could
result in incorrect diagnosis.
7. Statistics are placed in relation to each other - The information must be organized so that
a comparative and analytical investigation is possible. Statistics can thus refer to just linked
facts that are arranged in a logical sequence. Statistical analysis cannot be used to compare
disparate data sets.

2. Give the meaning of the word Statistics.

Ans: - The term "Statistics" refers to both a collection of numerical data (plural noun) and an
academic field of study (singular noun) that deals with the collection, analysis, interpretation,
presentation, and organization of data. Statistics involves various methods and techniques used
to summarize, describe, and draw inferences from data, enabling researchers, businesses, and
policymakers to make informed decisions and draw meaningful insights from the information.
In summary, "Statistics" can mean:
Numerical Data: As a plural noun, "Statistics" refers to a set of numerical facts or data points
that are collected and used for analysis or reference.
Academic Field: As a singular noun, "Statistics" refers to the academic discipline that
encompasses the theory, methods, and tools used to collect, analyze, and interpret data in order
to draw conclusions, make predictions, and understand patterns and relationships in various
fields.

Both interpretations are closely related, as the field of statistics revolves around the study and
manipulation of numerical data to gain knowledge and understanding about different
phenomena.
Statistics are defined in different ways by different people.
According to Seligman, “Statistics is a science which deals with the method of collecting,
classifying, presenting, comparing and interpreting the numerical data to throw light on
enquiry”
According to Horace Secrist, Statistics may be defined as “an aggregate of facts affected to a
marked extent by 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”1. This definition is both
comprehensive and exhaustive.
Prof. Boddington, on the other hand, defined Statistics as “The science of estimates and
probabilities”2. This definition is also not complete.
According to Croxton and Cowden, “Statistics is the science of collection, presentation,
analysis and interpretation of numerical data from logical analysis”

3. What are the limitations of Statistics?

Ans: - The following are a few limitations of statistics

1. Statistics does not deal with qualitative data: - Qualitative data describes properties or
characteristics that are used to identify things. Quantitative data describes data in terms of
quantity using the numerical figure accompanied by a measurement unit. Statistics deals only
with quantitative data. "It deals with numerical data, which can be expressed in terms of
quantitative measurements"
2. Statistics does not deal with individual facts- Statistical methods can be applied only to
aggregates of facts, because analysis and interpretation of data is highly difficult in the case of
individual facts
3. Statistical inferences (conclusions) are not exact - Statistical inferences are true only on
an average. They are probabilistic statements. For example, in case of a data, which consists of
the height of 200 male persons taken from a graduate school, the inferences so obtained may
not hold true for an individual male person in particular.
4. Statistics can be misused and misinterpreted - Lack of sufficient knowledge of statistical
science often leads to incorrect conclusions. Therefore, proper care must be taken while
selecting the collection method and also in choosing appropriate statistical models. Increasing
misuse of Statistics has led to increasing distrust in Statistics
5. Common men cannot handle Statistics properly - The field of Statistics is so vast that it
needs experience as well as skill to understand it effectively and apply the statistical concepts
and models.
Hence, only statisticians can handle statistics properly.

4. What are the functions of Statistics?

Statistics is used for various purposes. It is used to simplify mass data and to make comparisons
easier. It is also used to bring out trends and tendencies in the data, and the hidden relations
between variables. Mentioned are a few functions of statistics.
1. Statistics simplifies mass data
The use of statistical concepts helps in simplification of complex data. Using statistical
concepts, the managers can make decisions more easily. The statistical methods help in
reducing the complexity of the data and in the understanding of any huge mass of data.
2. Statistics brings out trends and tendencies in the data
After data is collected, it is easy to analyze the trend and tendencies in the data by using the
various concepts of Statistics.
3. Statistics brings out the hidden relations between variables
Statistical analysis helps in drawing inferences on the data. Statistical analysis brings out the
hidden relations between variables.
4. Decision making power becomes easier
With the proper application of Statistics and statistical software packages on the collected data,
managers can take effective decisions, which can increase the profits in a business.
5. Statistics makes comparison easier
Without using statistical methods and concepts, collection of data and comparison would be
difficult. Statistics helps us to compare data collected from various sources.

5. What is the importance of Statistics in modern business environment?

Due to advanced communication networks, rapid changes in consumer behaviour, varied

expectations of a variety of consumers and new market openings, modern managers have a
difficult time in making quick and appropriate decisions. Therefore, there is a need for them to
depend more upon quantitative techniques like mathematical models, statistics, operations
research and econometrics.
Accounting
Public accounting firms use statistical sampling procedures when conducting audits for their
clients.
Finance
Financial advisors use a variety of statistical information to guide their investment
recommendations.
Marketing
Electronic scanners at retail checkout counters are being used to collect data for a variety of
marketing research applications.
Production
Today’s emphasis is on quality. Quality is of utmost importance in production. A variety of
statistical quality control charts are used, to monitor the average output of a production process.
Economics
Economists are frequently asked to provide forecasts about the future of the economy. They
use a variety of statistical information in making such forecasts. For example, in forecasting
inflation index, economists use statistical information on indicators such as the producer index,
the unemployment rate and manufacturing capacity utilization.
 6. Explain any two applications of Statistics.
Statistical methods are applied to specific problems in various fields such as Biology, Medicine,
Agriculture, Commerce, Business, Economics, Industry, Insurance, Sociology and Psychology.
1) Used in Accounting – A large domain of Public Accounting firms use statistical sampling
techniques to conduct various audits in their companies. These statistical audits help them to
account their finances and regulate their profits and losses.

2) Used in Finance – Financial organizations and advisors use statistics to guide their
investment recommendations to their investors. They use various statistical strategies and help
the investors decide which portfolios are investable in share market.
3) Used in Marketing- Marketing Firms and industry experts rely heavily on statistics for
various marketing agendas and strategies. They use different techniques to increase sales and
remuneration of their products.
4) Used in Economics- Economists are frequently reached out to provide forecasts about the
future of the economy while using variety of statistical information and indicators. To prove or
disapprove any theory of economics or formulate any new policies, statistics is used.
5) Used in Production – Variety of statistical parameters are used to monitor the quality and the
quantity of products in production houses and departments.

UNIT- 2

1. What is statistical survey?

A Statistical Survey is a scientific process of collection and analysis of numerical data.
Statistical surveys are used to collect information about units in a population and it involves
asking questions to individuals. Surveys of human populations are common in government,
health, social science and marketing sectors.
Statistical surveys involve two stages namely – Planning and Execution.
a) Planning of a survey- The relevance and accuracy of data obtained in a survey depends upon
the care taken in planning of a survey. A properly planned investigation can lead to the best
results with least cost and time.
b) Execution of statistical survey - Controlled methods should be adopted at every stage of
carrying out the investigation to check the accuracy, coverage, methods of measurements,
analysis and interpretation.
The collected data should be edited, classified, tabulated and presented in the form of diagrams
and graphs. The data should be carefully and systematically analyzed and interpreted."
2. Enumerate the factors which should be kept in mind for proper planning.
The following factors should be kept in mind for proper planning
i) Purpose of the survey should be well defined
ii) Objectives/Aims of the investigation to be clear
iii) Scope of survey to be clearly explain
iv) Method of collection of data
v) Organization of Investigation (Enumerators)

3. What do you understand by the unit of measurement? Explain with examples.

Unit of measurement refers to the unit of the population on which measurements are made, For
example, the height of employees in an office. Here, Employees are individuals or units. Height
is the measurement made on them.

4. Distinguish between:
a) Primary and secondary data
Data collected for the first time by the investigator is primary data. Data collected by some
other persons but used by the investigator for his/her study is known as secondary data.
Meaning Primary data refers to the first- Secondary data means data collected by
hand data gathered by the someone else earlier.
researcher himself.
Data Real time data Past data
Process Very involved Quick and easy
Source Surveys, observations, Government publications, websites,
experiments, questionnaire, books, journal articles, internal records
personal interview, etc. etc.
Cost Expensive Economical
effectiveness
Specific Always specific to the May or may not be specific to the
researcher's needs. researcher's need.
Available in Crude form Refined form
Accuracy More Relatively less
and
Reliability

b) Direct and indirect investigation

Direct investigations are carried out directly by the investigator. Investigation conducted
through mail questionnaire is called indirect investigation.
 Meaning It is a method of collecting It is a method of collecting primary data
primary data through which the through which the investigator
investigator contacts the approaches third parties who are in
informant directly to collect data possession of required information about
by conducting an on-the-spot the subject of enquiry.
enquiry.
Coverage This method is appropriate for a This method can be used to cover a broad
limited area. range of investigations.
Originality In this method, the data collected In this method, the data collected lacks
is original in character as the data originality as the data is collected
is collected directly from the indirectly from the respondents.
source.
Accuracy The information collected under There is a risk of unreliable and
and this method is more reliable and inaccurate information because of the
Reliability accurate. indirect collection of data.
Cost This method is costlier. When compared with the direct personal
investigation method, this method is cost-
effective.

c) Questionnaire and schedule

Questionnaires contain simple questions and are filled by respondents. Schedules also contain
questions but responses are recorded directly by the investigator.
Delivered byIn general, questionnaires are Enumerators go to the informants with
delivered to the persons the schedule.
concerned either by post or mail,
requesting them to answer the
questions and return it.
Role of Read and understand the Only answer the questions asked by
Respondents questions and reply in the space enumerators. Sometimes, the schedule is
provided in the questionnaire distributed to the respondents, and the
itself. enumerators assist them in answering the
questions.
Filled by Respondents Enumerators
Response Low High
Rate
Coverage Large Comparatively small
Cost Economical Expensive
Respondent’s Not known Known
identity
Observation Not applicable Applicable
Method
Important · Simple to understand No special features required
features · Short questions
required · Interesting and engaging
Success Quality of the questionnaire Honesty and competence of the
relies on enumerator.
 Usage Only when the people are literate Used on both literate and illiterate
and cooperative. people.

UNIT-3

1. Form frequency distribution for the following data regarding weight of 50

people.
Data regarding weight of 50 people
50 72 61 64 72 62 61 56 75 55
52 71 54 64 71 64 59 59 70 54
60 60 57 57 66 68 60 62 68 54
62 65 58 64 65 60 60 67 58 56
70 62 60 68 64 62 59 69 52 58

Ans: - To form a frequency distribution

Step 1 N= 50
Range = Upper class limit - lower class limit
which is 75- 50 = 25
Step 2 Interval range as per Struges algorithm
K= 1 + 3.32 log N
K=1+ 3.32 log 50 = 6.67 (rounded off 7)

Step 3 Class width = Range / K = 25/7 = 3.5 (rounded off 4) Class width to be in
multiples of 5
Therefore, frequency distribution of the above is

Number of
Weight students
50-54 3
54-58 7
58-62 14
62-66 12
66-70 7
70-74 6
74-78 1
Total = 50
 2. Junior executive of XYZ Company has prepared budget for a new division of the
company. Table 3.49 depicts the budget data. Vice president of the company
wanted to see the summary of the budget in a diagrammatic form. Prepare a pie
diagram.

Ans: -
 3. ABC Ice Cream Company attempts to keep all of its ten flavours of icecream in
stock at each of its stores. In-charge of stores operation collects data on the daily
amount of each flavour to the nearest half gallon.
i. Is the flavour classification discrete or continuous? Open or closed?
ii. Data collected, is it qualitative or quantitative?
iii. Is the amount collected on each flavour discrete or continuous?

Ans: -
i. Is the flavour classification discrete or continuous? Open or closed?
Discrete and closed
ii. Data collected, is it qualitative or quantitative?
Quantitative
iii. Is the amount collected on each flavour discrete or continuous?
Continous

4.

Ans: -
 5. Association of real estate sellers has collected data on a sample of 100 people with
respect to the monthly commission earned by them.
Table 3.51 depicts certain data. Construct an ogive.
Find:
i. What proportion of sales people earn more than 25,000
ii. What proportion earn between 15,000 and 25,000.
 UNIT – 4

1. In an office there are 84 employees. Their salaries in Indian rupees are as given in
table 4.60. Find the mean salary per day.

Ans: -

2. A survey of 128 smokers gave the results represented in table 4.61, which are
frequency distributions of smokers’ daily expenses on smoking. Find the mean
expenses and standard deviation. Determine coefficient of variation.

Ans: -
3. For the distribution shown in table 4.62, find the median and mode.
Ans: -

4. Find the geometric mean of the following distribution given in table 4.63.
Ans:-

5. Find the harmonic mean of the following distribution given in table 4.64.

Ans:-
 6. Given that, sum of upper and lower quartiles is 122 and their difference is 23; find
the quartile deviation of the series.

Ans:-

7. If Coefficient of Variation = 22 and S.D. = 4, find the mean.

Ans: -

 22 = 4/ Mean X 100
 Mean = 4/22 x 100
 Mean = 18.18

8. The table 4.65 shows the distribution of age at the time of first delivery of 65
women. Find mean deviation from mean and median.
 Ans: -

9. Read the data given below and find the combined mean, S.D. and coefficient of
variation.

Ans:-

Combined mean = (n1 x X1 + n2 x X2)/ N1 + N2

= [15 x 40 + 20 x 50] / 35
Combined mean = 1600/35 = 45.71

Combined variance = (n1-1) x σ1² + (n2-1) x σ2² + n1 x (X1 - Xc)^2 + n2 x (X2 - Xc)^2] / (n1 + n2 -
1)

= (14 x 9 ) + (19 x 25) + 15 ( 40-45.71)² + 20 ( 50-45.71) ² / 34

= [126 + 475 + 489.06 + 368.08 ] / 34
= 42.88
S.D = 42.88

Combined standard deviation (S.D.c): S.D.c = √(σc^2)

S.D.c = √(42.83) S.D.c = 6.54

Coefficient of Variation (CV): CV = (S.D.c / Xc) * 100

CV = (6.54 / 45.71) * 100 CV = 14.31%
 10. Mean and Standard deviation of lengths of tails of 8 rats were found to be 4.7 cm and 0.8
cm respectively. However, one reading was taken as 3.6 cm instead of 6.3 cm; find the
corrected mean and standard deviation.

Ans:-

Original Data = 4.7, 4.7 , 4.7 , 4.7 , 4.7 , 4.7 , 4.7 , 3.6
Corrected data: 4.7 , 4.7, 4.7, 4.7 , 4.7 , 4.7 , 4.7 , 6.3 (corrected value)

Corrected mean Xc = (4.7 + 4.7 + 4.7 + 4.7 + 4.7 + 4.7 + 4.7 + 6.3) / 8
Corrected Mean = 39.2/ 8 = 4.9 cm
Calculate the corrected variance (σc^2).
σc^2 = [(Sum of squares of corrected data) - (Number of data points * Corrected mean^2)] /
(Number of data points)
σc^2 = [(4.7^2 + 4.7^2 + 4.7^2 + 4.7^2 + 4.7^2 + 4.7^2 + 4.7^2 + 6.3^2) - (8 * 5^2)] / 8

σc^2 = [(22.09 + 22.09 + 22.09 + 22.09 + 22.09 + 22.09 + 22.09 + 39.69) - (8 * 25)] / 8
σc^2 = (176.72 + 39.69 - 200) / 8
σc^2 = 16.41 / 8 = 2.05

Standard Deviation Variance = 2.05

S. D= √2.05 = 1.43

UNIT – 5

1. Define independent events.

Ans: - Independent events are two or more events in probability theory that have no influence
on each other. In other words, the occurrence or non-occurrence of one event does not affect
the probability of the other event happening. If two events are independent, the probability of
both events occurring together is equal to the product of their individual probabilities.
Formally, two events A and B are considered independent if and only if:

P(A ∩ B) = P(A) * P(B)

where:

P(A) represents the probability of event A happening.

P(B) represents the probability of event B happening.
P(A ∩ B) represents the probability of both events A and B occurring together (the intersection
of A and B).
For example, consider rolling a fair six-sided die twice. Let event A be getting a 3 on the first
roll, and event B be getting a 5 on the second roll. Since rolling a die is a random process, the
outcome of the first roll has no impact on the outcome of the second roll. Therefore, events A
and B are independent.

The probability of rolling a 3 on the first roll is 1/6 (P(A) = 1/6), and the probability of rolling
a 5 on the second roll is also 1/6 (P(B) = 1/6). The probability of both events occurring together
is:

P(A ∩ B) = P(A) * P(B) = (1/6) * (1/6) = 1/36

Independent events are crucial in probability calculations, as they simplify the analysis and
allow for straightforward calculations of joint probabilities. When dealing with multiple
independent events, the probability of all events occurring together is the product of their
individual probabilities.

2. The probability of Mr. Sunil solving a problem is ¾. The probability of Mr. Anish
solving is ¼. What is the probability that a given problem will be solved?

Ans: - P(S) = 3/4,

P(A) = 1/4
P(S U A) = P(A) + P(S) - [(P( S ∩ A)]
= 3/4 + 1/4 - [ P(S) x P(A) ]
 = 1 - [ 3/4 x 1/4) = 1 - 3/16
= 13/16
P(S U A) = 13/16

3. The probability that a contractor will get an electrical job is 0.8, he will get a plumbing
job is 0.6 and he will get both 0.48. What is the probability that he gets at least one job?
Are the probabilities of getting electrical job and plumbing job independent?

Ans:- P(E) = 0.8

P(PL) = 0.6
P( E ∩ PL) = 0.48
P ( E U PL) = P( E ) + P(PL) - P( E ∩ PL)
= 0.8 + 0.6 - 0.48 = 1.4 - 0.48 = 0.92
Yes!

4. A box contains 4 red and 5 blue similar rings. What is the probability of selecting
at random two rings:
i. having same color
ii. having different colors

Ans: - Red Ball = 4, Blue Ball = 5, Total ball

Condition :- same color of ball ie either 4 from red ball or 5 from blue ball
if ball is
n(R) = C(4,2) = !4 / !2. !2 = 6
n(B) = C(5,2) = !5 / !3. !2 = 10
n(E) = c(9,2) = !9 / !7. !2 = 36
i) Total no of event if 2 ball is of same color = n(R) + n(B) = 6 +10 = 16
Total no of event if 2 ball is taken from total ball = 36
P (if ball have same color) = 16/36 = 4/9

ii) P ( if ball is have different color ) = 1 - P (if ball have same color) = 1 – 4/9 =
5/9
 5. If P(A ∩ B) = 1/2 and P(B) = 2/3, find P(A/B)?

Ans:- P(A/B) = P(A ∩ B) / P(B)

= ½ / 2/3
=¾

6. The probability that a company A will survive for 20 years is 0.6. The probability
that its sister concern will survive for 20 years is 0.8. What is the probability that
at least one of them will survive for 20 years?

Ans: - P(A) = 0.6

P(B) = 0.8
P( A U B) = P(A) + P(B) - P( A ∩ B)
= P(A) + P(B) - [ P(A) * P(B)]
= 0.6 + 0.8 - (0.6 x 0.8)
= 1.4 - 0.48 = 0.92

7. A recently developed car has two important components A and B. The probability
of failure of A and B are 0.2 and 0.1. What is the probability that the car will fail?

Ans:- P(A) 0.2

P(B) = 0.1
P( A U B ) = P(A ) + P(B) -P( A and B)
Now A and B are independent here since passing or failing of two parts are not
dependent on anyone
P(A U B) = 0.1 + 0.2 - (0.2*0.1)
P(A U B) = 0.28

8. The probability that a football player will play on ordinary ground is 0.6 and on
green turf is 0.4. The probability that he will get knee injury when playing an
ordinary ground is 0.07 and that on green turf is 0.04. What is the probability that
he got a knee-injury due to the play on ordinary ground?
Ans: -

P(A1) = 0.6 P(B/A1) = 0.07

P(A2) = 0.4 P(B/A2) = 0.04

By using Bayes' theorem, the probability of GETTING an injury on ordinary

ground
P(A1/B) = [ P(E1) * P(A/E1)] / P(E1) * P(A/E1) + P(E2) * P(A/E2)

The probability of playing on ordinary ground : Green turf = 6/10 : 4/10 = 3:2
P( E1/A) = [P(A1) * P(B/E1) ] / [P(A) * P(A/E1) + P(B) * P(B/E2)]
= 0.6 x 0.07 / 0.6 x 0.07 + 0.4 x 0.04
= 0.042 / 0.042 + 0.016 = 0.042/0.058= 42/58 = 21/29
P( E1/A) = 21/29

UNIT - 6

1. What are the assumptions under which binomial distribution is applied?

Ans: - The binomial distribution is a probability distribution that describes the number of
successes in a fixed number of independent Bernoulli trials (experiments with two possible
outcomes: success or failure), under certain assumptions. To apply the binomial distribution,
the following assumptions must be met:
Binary Outcome: Each trial has only two possible outcomes, often labeled as "success" and
"failure." For example, in coin tosses, the outcomes are heads (success) or tails (failure).
Fixed Number of Trials: The number of trials (n) is fixed and known in advance. Each trial is
independent of the others.
Independence: The outcome of one trial does not influence the outcome of any other trial. In
other words, the trials are independent of each other.
Constant Probability of Success: The probability of success (denoted as p) remains constant
from trial to trial. It does not change throughout the experiment.
Identical Probability of Success: The probability of success (p) is the same for each trial.
When these assumptions are met, the binomial distribution can be used to calculate the
probability of getting a specific number of successes (k) in the fixed number of trials (n), given
the probability of success (p).
The probability mass function (PMF) of the binomial distribution is given by:
P(X = k) = C(n, k) * p^k * (1-p)^(n-k)
where:
P(X = k) is the probability of getting exactly k successes.
C(n, k) is the binomial coefficient (number of combinations) for choosing k successes out of n
trials, and it is calculated as C(n, k) = n! / (k! * (n-k)!).
p is the probability of success in a single trial.
(1-p) is the probability of failure in a single trial.
The binomial distribution is commonly used in various fields to model discrete outcomes with
two possible categories, such as success/failure, yes/no, heads/tails, and so on. It is applicable
in situations where each trial is independent and has the same probability of success. Examples
include flipping a coin, rolling a die, testing defective items in a production line, and analyzing
survey responses with binary responses.

2. A shopkeeper notes that the probability that a customer will buy his articles is 0.4. Six
customers enter his shop in an hour. What is the probability that:
i) At least one customer bought something?
ii) Exactly two bought something?
iii) None bought anything?

Ans: -

i) One customer bought out of 6,

n=6
p = 0.4
q = 1- 0.4 = 0.6

Here, P (X = 1) = 6 C 1 . (0 ⋅ 6) . (0.4)

= !6 / !5 . (0 ⋅ 6) . (0.4)
= 6 x 0.0776 x 0.4
= 0.186
ii) 2 bought something
n=6
p = 0.4
 q = 1- 0.4 = 0.6

Here, P (X = 2) = 6 C 2. (0 ⋅ 6) . (0.4)
= 15 x 0.1296 x 0.16
= 0.311
iii) None bought anything
n=6
p = 0.4
q = 1- 0.4 = 0.6

Here, P (X = 0) = 6 C 0. (0 ⋅ 6) . (0.4)
= 1 x 0.46 x 1
= 0.46

3. Find P (X = 2), given mean and standard deviation of the binomial distribution are
4 and √𝟑 respectively.

Ans: - To find the probability P(X = 2) in a binomial distribution,

the mean (μ) and
standard deviation (σ),
As per the properties of the binomial distribution and the formulas for the mean and
standard deviation.
μ = np

σ = 𝑛𝑝𝑞

Here, n is number of trials, p is probability of success, q is probability of unsuccess.

Now, 4 = n x p,
n = 4/p …………………. Eqn 1

and √3 = 𝒏 𝑝 (1 − 𝑝),

 3 = np (1-p) ,
 n = 3 / p (1 – p)…………………….. eqn 2
Comparing eqn 1 & 2,
4/ p = 3 / p(1-p)
 4 = 3/(1-p)
 1-p = ¾
 p = 1- ¾ = ¼
Here, p = ¼ ; q = ¾ finding n if μ = 4
 4=n¼
 n = 16
As per Binomial distribution,
P(X=x)=𝑛 .𝑝 ⋅𝑞

 P ( X = 2) = 16 . 0.75 ⋅ 0.25
 P ( X = 2) = 120 x 0.0178 x 0.0625
 P ( X = 2) = 0.1335

So, Probability which is < 1 satisfying the above condition that is P (X = 2), given mean and
standard deviation of the binomial distribution are 4 and √3 respectively.

Unit:-13

Question:-1 what is business forecasting?

Answer: Business forecasting refers to the analysis of past and present economic conditions
with the object of drawing inferences about probable future business conditions. The process
of making definite estimates of future course of events is referred to as forecasting and the
figure or statements obtained from the process is known as ‘forecast’; future course of events
is rarely known. In order to be assured of the coming course of events, an organized system of
forecasting helps.
The following are two aspects of scientific business forecasting:
1. Analysis of past economic conditions
For this purpose, the components of time series are to be studied. These cular trend shows how
the series has been moving in the past and what its future course is likely to be over a long
period of time. The cyclic fluctuations would reveal whether the business activity is subjected
to a boom or depression. The seasonal fluctuations would indicate the seasonal changes in the
business activity.
2. Analysis of present economic conditions
The object of analyzing present economic conditions is to study those factors which affect the
sequential changes expected on the basis of the past conditions. Such factors are new
inventions, changes in fashion, changes in economic and political spheres, economic and
monetary policies of the government, war, etc. These factors may affect and alter the duration
of trade cycle. Therefore, it is essential to keep in mind the present economic conditions since
they have an important bearing on the probable future tendency.

Question: -2 Explain the objectives of business forecasting.

Answer: Objectives of forecasting in business: Forecasting is a part of human nature.

Businessmen also need to look to the future. Success in business depends on correct
predictions. In fact when a man enters business, he automatically takes with it the responsibility
for attempting to forecast the future. To a very large extent, success or failure would depend
upon the ability to successfully forecast the future course of events. Without some element of
continuity between past, present and future, there would be little possibility of successful
prediction. But history is not likely to repeat itself and we would hardly expect economic
conditions next year or over the next 10 years to follow a clear cut prediction. Yet, past patterns
prevail sufficiently to justify using the past as a basis for predicting the future.
A businessman cannot afford to base his decisions on guesses. Forecasting helps a businessman
in reducing the areas of uncertainty that surround management decision making with respect
to costs, sales, production, profits, capital investment, pricing, expansion of production,
extension of credit, development of markets, increase of inventories and curtailment of loans.
These decisions are to be based on present indications of future conditions.
However, we know that it is impossible to forecast the future precisely. There is a possibility
of occurrence of some range of error in the forecast. Statistical forecasts are the methods in
which we can use the mathematical theory of probability to measure the risks of errors in
predictions.

Question:-3 Explain the steps involved in forecasting.

Answer: Forecasting of business fluctuations consists of the following steps:
 1. Understanding why changes in the past have occurred
One of the basic principles of statistical forecasting is that the forecaster should use past
performance data. The current rate and changes in the rate constitute the basis of forecasting. Once
they are known, various mathematical techniques can develop projections from them. If an attempt
is made to forecast business fluctuations without understanding why past changes have taken place,
the forecast will be purely mechanical.
Business fluctuations are based solely upon the application of mathematical formulae and are
subject to serious error.

2. Determining which phases of business activity must be measured

After understanding the reasons of occurrence of business fluctuations, it is necessary to measure
certain phases of business activity in order to predict what changes will probably follow the present
level of activity.

3. Selecting and compiling data to be used as measuring devices

There is an independent relationship between the selection of statistical data and determination of
why business fluctuations occur. Statistical data cannot be collected and analyzed in an intelligent
manner unless there is sufficient understanding of business fluctuations. It is important that reasons
for business fluctuations be stated in such a manner that it is possible to secure data that is related
to the reasons.
4. Analysing the data
Lastly, the data is analyzed to understanding the reason why change occurs. For example, if it is
reasoned that a certain combination of forces will result in a given change, the statistical part of
the problem is to measure these forces, from the data available, to draw conclusions on the future
course of action. The methods of drawing conclusions may be called forecasting techniques.

Question 4:- Explain the characteristics of business forecasting.

Answer: Characteristics of Business Forecasting

1. Based on past and present conditions:-business forecasting is based on past and present
economic condition of the business. To forecast the future, various data, information and
facts concerning to economic condition of business for past and present are analyzed.
 2. Based on mathematical and statistical methods:-The process of forecasting includes the
use of statistical and mathematical methods. By using these methods, the actual trend which
may take place in future can be forecasted.

3. Period:-The forecasting can be made for long term, short term, medium term or any
specific period.

4. Estimation of future:-Business forecasting is to forecast the future regarding probable

economic conditions.

5. Scope:-Forecasting can be physical as well as financial.

Question:-5 Differentiate between prediction, projection and forecasting.

Answer: A great amount of confusion seems to have grown up in the use of words ‘forecast’,
‘prediction’ and ‘projection’. Key Statistic
A prediction is an estimate based solely on past data of the series under investigation. It is purely
a statistical extrapolation.
A projection is a prediction, where the extrapolated values are subject to certain numerical
assumptions.
A forecast is an estimate, which relates the series in which we are interested into external factors.

Question:-6 Describe the limitations of business forecasting.

Answer: Limitations of business forecasting:

Business forecasting cannot be accurate due to various limitations which are mentioned below.
1) Forecasting cannot be accurate, because it is largely based on future events and there is no
guarantee that they will happen.

2) Business forecasting is generally made by using statistical and mathematical methods.

However, these methods cannot claim to make an uncertain future a definite one.

3) The underlying assumptions of business forecasting cannot be satisfied simultaneously. In

such a case, the results of forecasting will be misleading.
4) The forecasting cannot guarantee the elimination of errors and mistakes. The managerial
decision will be wrong if the forecasting is done in a wrong way.

5) Factors responsible for economic changes are often difficult to discover and measure. Hence,
business forecasting becomes an unnecessary exercise.

6) Business forecasting does not evaluate risks.

7) The forecasting is made on the basis of past information and data and relies on the
assumption that economic events are repeated under the same conditions. But there may be
circumstances where these conditions are not repeated.

8) Forecasting is not a continuous process. In order to be effective, it requires continuous

attention.

Question:-7 Explain the main method of business forecasting.

Answer: Almost all businessmen forecast about the conditions related to their business. In
recent years scientific methods of forecasting have been developed. The base of scientific
forecasting is statistics. To handle the increasing variety of managerial forecasting problems,
several forecasting techniques have been developed in recent years. Forecasting techniques
vary from simple expert guesses to complex analysis of mass data. Each technique has its
special use, and care must be taken to select the correct technique for a particular situation.

The following are the main methods of business forecasting.

1. Business barometers

2. Time series analysis

3. Extrapolation
4. Regression analysis

5. Modern econometric methods

6. Exponential smoothing method

Business Barometers:
Business indices are constructed to study and analyze the business activities on the basis of
which future conditions are predetermined. As business indices are the indicators of future
conditions, they are also known as ’business barometers’ or ‘economic barometers’. With the
help of these business barometers the trend of fluctuations in business conditions are
understood and a decision can be taken relating to the problem by forecasting.
The construction of business barometer consists of gross national product, wholesale prices,
consumer prices, industrial production, stock prices, bank deposits etc. These quantities may
be converted into relatives on a certain base. The relatives so obtained may be weighted and
their average computed.
There are three types of business barometers. They are barometers for:
1. General business activities
2. Specific business or industry
3. Individual business firm
1. Barometers relating to general business activities:
Barometers relating to general business activities are also known as general indices of business
activities which refer to weighted or composite indices of individual index business activities.
With the help of general index of business activity, long term trends and cyclical fluctuations
in the economic activities of a country are measured. However, in some specific cases, the long
term trends can be different from general trends. These types of indices help in the formation
of a country’s economic policies.
2. Business barometers for specific business or industry
These barometers are used as the supplement of general index of business activity and are
constructed to measure future variations in a specific business or industry.
3. Business barometers concerning to individual business firm
This type of barometer is constructed to measure the expected variations ina specific firm of
an industry.

Time series analysis

Time series analysis is also used for the purpose of making business forecasting. The
forecasting through time series analysis is possible only when the business data of various years
are available which reflects a definite trend and seasonal variation. By time series analysis the
long term trend, secular trend, seasonal and cyclical variations are ascertained, analysed and
separated from the data of various years.

Extrapolation
Extrapolation is the simplest method of business forecasting. By extrapolation, a businessman
finds out the possible trend of demand of his goods and also about the future price trends. The
accuracy of extrapolation depends on two factors:
Knowledge about the fluctuations of the figures

Knowledge about the course of events relating to the problem under consideration

Thus, extrapolation is based on two assumptions:

1. There is no sudden jump in figures from one period to another
2. There is regularity in fluctuations and the rise and fall is uniform
In extrapolation, we assume that the variable will follow the established pattern of growth. For
the purpose of business forecasting, one needs to determine accurately the appropriate trend
curve and the values of its parameters.

Regression analysis
The regression approach offers many valuable contributions to the solution of the forecasting
problem. It is the means by which we select from among the many possible relationships
between variables in a complex economy, which will be useful for forecasting.
Regression relationship may involve one predicted or dependent variable and one independent
variable under simple regression, or it may involve relationships between the variable to be
forecasted and several independent variables under multiple regressions.
Statistical techniques to estimate the regression equations are often fairly complex and time-
consuming. However, there are many computer programs now available that estimate simple
and multiple regressions quickly.

Modern econometric methods

Econometric techniques, which originated in the eighteenth century, have recently gained
popularity for forecasting. Econometrics refers to the application of mathematical economic
theories and statistical procedures to economic data to verify economic theorems. Models take
the form of a set of simultaneous equations. The values of the constants in such equations are
supplied by a study of statistical time series, and a large number of equations may be necessary
to produce an adequate model.
Presently, short-term forecasting uses only statistical methods with little qualitative
information. However, in the years to come when most large companies develop and refine
econometric models of their major business, this tool of forecasting will become more popular.
Exponential smoothing method
This method is regarded as the best method of business forecasting as compared to other
methods. Exponential smoothing is a special kind of increasing exponential weighted average
assigned to recent observation data and is found extremely useful in short-term forecasting of
inventories and sales.

Question:-8 Critically examine the important theories of business forecasting.

Answer: Theories of Business Forecasting

There are a few theories that are followed while making business forecasts.
Some of them are:
1. Sequence or time-lag theory

2. Action and reaction theory

3. Economic rhythm theory

4. Specific historical analogy

5. Cross-cut analysis theory

Sequence or time-lag theory

This is the most important theory of business forecasting. It is based on the assumption that
most of the business data have the lag and lead relationships, that is, changes in business are
successive and not simultaneous. There is time-lag between different movements.

Merits and Demerits of Sequence or Time-lag Theory

Merits Demerits
This method is largely used for business This method studies only the action and not
forecasting. the reaction
Though this theory is based on statistical This method cannot be regarded as accurate
techniques, yet it is easy to understand. because by using statistical techniques the
 results can be up to the truth but not an
accurate one.
Time-interval between two events
can be ascertained.
Government can use this technique
for the purpose of economic stability
of the economy by exercising control
over possible losses

Action and reaction theory

This theory is based on the following two assumptions.
Every action has a reaction

Magnitude of the original action influences the reaction

When the price of rice goes above a certain level in a certain period, there is a likelihood that
after some time it will go down below the normal level. Thus, according to this theory a certain
level of business activity is normal or abnormal; conditions cannot remain so for ever. Thus,
we find four phases of a business cycle. They are:

1. Prosperity

2. Decline

3. Depression

4. Improvement

Merits Demerits
This theory is better than other theories The determination of normal level is very
difficult
By this theory more reliable results can be It is not necessary that reaction is equal to the
obtained because this theory gives attention action
to action and reaction of an event.

Economic rhythm theory:

The basic assumption of this theory is that history repeats itself and hence assumes that all
economics and business events behave in a rhythmic order. according to this theory, the speed
and time of all business cycles are more or less the same and by using statistical and
mathematical methods, a trend is obtained which will represent a long term tendency of growth
or decline. It is done on the basis of the assumption that the trend line denotes the normal
growth or decline of business events.

Merits Demerits
Forecasting is made on the basis of past The business events are not strictly periodic
conditions, hence they are more reliable. and prediction of business cycle on the basis
of statistical method is not satisfactory.
This method is helpful in long-term Past conditions are given more weightage
forecasting. than the present conditions

Specific historical analogy

History repeats itself is the main foundation of this theory. If conditions are the same, whatever
happened in the past under a set of circumstances is likely to happen in future also. A time
series relating to the data in question is thoroughly scrutinised such a period is selected in which
conditions were similar to those prevailing at the time of making the forecast. However, this
theory depends largely on past data. Table 13.8 depicts the merits and demerits of specific
historical analogy.

Merits and Demerits of Specific Historical Analogy

Merits Demerits
It is an easy method. In this theory, forecasting is based on guess
work, not on a scientific method because the
past and present conditions are rarely found
to be similar.
 As the future is forecasted on the basis of past It is very difficult to select the past period
business conditions, the forecasting is more with the same business conditions like
reliable. present.

Cross-cut analysis theory

This theory proceeds on the analysis of interplay of current economic forces. In this method,
the combined effects of various factors are not studied. The effect of each factor is studied
independently. Under this theory, forecasting is made on the basis of analysis and interpretation
of present conditions because the past events have no relevance with present conditions.

Merits and Demerits of Cross-cut Analysis Theory

Merits Demerits
Present conditions are preferred than past. Independent analysis of individual facts is
very difficult.
The effect of each factor is studied Past facts are equally important for the
independently. purpose of forecasting, but in this method no
importance is given to past facts.
Forecast is nearer to the accuracy as it is The forecasting made on the basis of this
based on present conditions. technique cannot be regarded as reliable.

Unit 14
Question 1: What is meant by analysis of time series?

Answer: Given a time series, we need to study about the forces that influence the variations in
time series and the behaviour of phenomenon over the given period of time. For example,
consider the sales of T.V sets (in thousands) by a producing company. The table depicts the
sales data of TV sets sold from 1995 to 2000.

Sales Data of TV Sets 1995 1996 1997 1998 1999 2000

Sold From 1995 to
2000 Year
Number of TV sets 12 14 16 12 10 18
sold (in thousands)

Let us analyse the above data and give some trends regarding the sales. For example, the
company would like to know why sales dropped in 1998 and 1999 and why did it increase. In
other words, the company would like to analyse the various forces that affect the sales.
There can be changes in the values of the variable recorder over different points of time due to
various forces. Analysing the effect of all such forces on the values of the variable is generally
known as the analysis of time series. Broadly, the following are the four types of changes in
the values of the variable:
i) Changes which generally occur due to general tendency of the data to increase or
decrease
ii) Changes which occur due to change in climate, weather conditions and festivals
iii) Changes which occur due to booms and depressions
iv) Changes which occur due to some unpredictable forces like floods, famines and
earthquakes

Question 2. State the difference between seasonal variations and cyclical fluctuations.

Answer: Seasonal variations:

Variations in a time series that are periodic in nature and occur regularly over short periods of
time during a year are called seasonal variations. These variations are precise and can be
forecasted.
The following are examples of seasonal variations in a time series.
i. The prices of vegetables drop down after rainy season or in winter months and they
go up during summer, every year.
ii. The prices of cooking oils reduce after the harvesting of oil seeds andgo up after
some time.
Cyclic variations:
The long-term oscillations that represent consistent rise and decline in the values of the variable
are called cyclic variations. Since these are long-term oscillations in the time series, the period
of oscillation is usually greater than one year. The oscillations are either a trend curve or a trend
line. The period of one cycle is the time-distance between two successive peaks or two
successive troughs.

Question 3. What is trend? State various methods of measuring it.

Answer: Below are the following methods of measuring the trend of a time series:
i. Free hand or graphic methods
ii. Semi averages method
iii. Moving average method
iv. Method of least squares

Free hand or graphic method

This is the simplest method of drawing a trend curve. We plot the values of the variable
against time on a graph paper and join these points. The trend line is then fitted by inspecting
the graph of the time series. Fitting a trend line by this method is arbitrary. The trend line is
drawn such that the numbers of fluctuations on either side are approximately the same. The
trend line should be a smooth curve.
The free hand method has the following disadvantages:
i. It depends on individual judgment.
ii. It cannot be used for any predictions of trends as drawing the trend curve is
arbitrary

Semi Averages method

The methods of fitting a linear trend with the help of semi average method are as follows:
i. When the number of years is even, then the data of the time series is divided into
two equal parts. The total in each of the part is calculated and then divided by the
 number of items to obtain arithmetic means of the two parts. Each average is then
centered in the period of time from which it has been computed and plotted on the
graph paper. A straight line is drawn passing through these points. This is the
required trend line.
ii. When the number of years is odd, then the value of the middle year is omitted to
divide the time series into two equal parts. Then the preceding procedure is
followed.

Method of least squares

In this method, the trend curve is determined by fitting a mathematical equation. This method
is more accurate and precise and can be used even for forecasting. We can fit either a straight
line or a parabolic curve from the given data by this method.

Question 4. Explain the moving average method of measuring long term trend.

Answer: Moving averages method is used for smoothing the time series. It smoothens the
fluctuations of the data.
When period of Moving Average is odd:
The procedure to determine the trend by this method is depicted below.
By plotting these trend values (if desired) you can obtain the trend curve, with the help of
which, you can determine the increasing or decreasing trend. If needed, you can also compute
short-term fluctuations by subtracting the trend values from the actual values.
Example: Calculate the 3 yearly Moving Averages of the data depicted in table:
Production 198 1989 1990 1991 1992 1993 1994 1995 1996
Data from 8
1988 to 1996
Year
Production (in 21 22 23 25 24 22 25 27 26
Lakh ton)

Calculated Values of 3 Yearly Moving averages

 Year Production (Thousand 3 –yearly 3 –yearly Short term
Ton) moving totals moving average fluctuations
Y Yc (Y - Yc)
1988 21 - - -
1989 22 66 22.00 0
1990 23 70 23.33 -0.33
1991 25 72 24.00 1.00
1992 24 71 23.67 0.33
1993 22 71 23.67 -1.67
1994 25 74 24.67 0.33
1995 27 78 26 1.00
1996 26 - - -

When period of moving averages is even:

When period of moving averages is even (such as four years), we compute the moving averages
by using the steps depicted below

Merits and Demerits of Moving Averages Method

Merits Demerits
 This is a simple method. No functional relationship between the
values and time. Thus, this method is not
helpful in forecasting and predicting the
values on the basis of time.
This method is objective in the sense that No trend values for some years in the
anybody working on a problem with this beginning and some in the end.
method will get the same results.
This method is used for determining In case of non–linear trend, the values
seasonal, cyclic and irregular variations obtained by this method are biased in one or
besides the trend values. the other direction.
This method is flexible enough to add more The period selection of moving average is a
figures to the data because the entire difficult task. Hence, great care has to be
calculations are not changed. taken in period selection, particularly when
there is no business cycle during that time.

If the period of moving averages coincides

with the period of cyclic fluctuations in the
data, such fluctuations are automatically
eliminated.

Question 5. What are the components of time series? Bring out the significance of moving
average in analysing a time series and point out its limitations.
Answer: The behaviour of a time series over periods of time is called the movement of the
time series. The time series is classified into the following four components:
i) Long term trend or secular trend
ii) Seasonal variations
iii) Cyclic variations
iv) Random variations

Refer Answer 4.

Question 6. What is meant by secular trend? Discuss any two methods of isolating trend values
in a time series.
Answer: Long term trend or secular trend
This refers to the smooth or regular long term growth or decline of the series. This movement
can be characterised by a trend curve. If this curve is a straight line, then it is called a trend
line. If the variable increases over a long period of time, then it is called an upward trend. If
the variable decreases over a long period of time, then it is called a downward trend. If the
variable move upward or downward along a straight line then the trend is called a linear trend,
otherwise it is called a non-linear trend.

Isolating trend values in a time series involves separating the underlying secular trend from
other components like seasonality, cyclical fluctuations, and random noise. This is important
for better understanding the overall pattern of change and making more accurate predictions.
Here are two common methods of isolating trend values in a time series:

1. Moving Averages: Moving averages involve calculating the average of a set of data
points within a specific window or interval. This window is moved forward step by step
through the time series, and at each step, the average is calculated. The resulting values
form the trend component of the time series. Moving averages help smooth out short-
term fluctuations and highlight the underlying trend. Different types of moving
averages, such as simple moving averages and weighted moving averages, can be used
based on the characteristics of the data.
2. Linear Regression: Linear regression is a statistical method used to model the
relationship between a dependent variable (the time series data) and one or more
independent variables (time periods). In the context of isolating trends, time is often the
independent variable. Linear regression estimates the best-fitting linear equation that
describes the relationship between time and the data points. The slope of the linear
equation represents the trend component indicating the rate of change over time. By
subtracting the predicted values from the actual data, the trend component can be
isolated.
It's important to note that while these methods are useful for isolating trend values, they
may not be perfect in all cases. For example, moving averages might lag behind sudden
changes in the trend, and linear regression assumes a constant rate of change over time.
In practice, it's often necessary to combine multiple methods and consider the
characteristics of the data to accurately isolate the underlying trend.
 Other advanced techniques, such as exponential smoothing, polynomial regression, and
time series decomposition, can also be used to isolate trend values, depending on the
specific characteristics and complexities of the time series data.

Question 7. What is seasonal variation of a time series? Describe the various methods you
know to evaluate it and examine their relative merits.

Answer: In order to isolate and identify seasonal variations, we first eliminate the effect of
trend, cyclic variations and irregular fluctuations on the time series. The main methods of
measuring seasonal variations are:
i) Simple average method
ii) Ratio to moving averages method
iii) Chain or link relative method
iv) Ratio to trend method

Simple Average Method

In the simple average method, the steps followed are described below:
i) The time series is arranged by years and months or quarters.

ii) Totals of each month or quarter are obtained over all the years.

iii) The average for each month or quarter is obtained. The average may be mean or median. In
general, we take mean if not specified otherwise.

iv) Taking the average of monthly or quarterly average equal to 100, seasonal index for each
month or quarter is calculated by the following formula:

Seasonal Index for a month (or quarter) =

Symbolically, seasonal index for first term is given by: I1 = S1/ S x100
Where, S1 = Average of first term
S = Average of all terms Sj / k where j = 1, 2, 3, 4……..k
k = 12 for monthly data
k = 4 for quarterly data
Ratio to moving averages method
Ratio to moving averages method is also known as percentage of moving average method.
The steps involved in the computation of seasonal indices by this method are described below:
i) The moving averages of the data are computed. If the data is monthly then 12-monthly
moving averages will be computed and if they are quarterly then 4-quarterly moving averages
will be computed. In both the cases, time periods of moving averages are even. Hence, these
moving averages are to be centred.
ii) Under additive model, from each original value, the corresponding moving average is
deducted to find out short time fluctuations, which is given as:
Y–T=S+C+I
iii) By preparing a separate table, monthly (or quarterly) short time fluctuations are added for
each month (or quarter) over all the years and their average is obtained. These averages are
known as seasonal variations for each month or quarter.

iv) If we want to isolate / measure irregular variations, the mean of the respective month or
quarter is deducted from the short time fluctuations.

Chain or link relative method

The steps involved in the chain or link relative method are described below.
i) Each quarterly or monthly value is divided by the preceding quarterly or monthly
value and the result is multiplied by 100. These percentages are known as ‘Link
Relatives’ of the seasonal values. Thus:
This chain relative may or may not be 100. It is not equal to 100 due to secular trend. If it is
100, go to ‘step vi’, if it is not 100, go to ‘step v’ and then go to ‘step vi’.
v) Compute the difference ‘d’ between the new chain relatives first obtained in ‘step iv’ and
chain relative assumed as 100. ‘d’ is divided by the number of seasons and the resulting figure
is multiplied by 1, 2, 3 and the product is deducted respectively from the chain relatives of 2nd,
3rd, and 4th quarters. These are called corrected relatives.

vi) The seasonal indices are obtained when the corrected chain relatives are expressed as
percentage of their relative averages.

Ratio to trend method

The following steps are considered to determine seasonal indices by this method:

Question8. Find a straight line trend to the following data and find trend value.
Year Y X X2 XY
1990 80 -3 9 -240
1991 90 -2 4 -180
1992 92 -1 1 -92
1993 83 0 0 0
1994 94 1 1 94
1995 99 2 4 198
1996 92 3 9 276
ƩY = 630 0 ƩX2 = 28 ƩXY = 56

Y = a + bX
a = ƩY/N = 630/7= 90
b = ƩXY/ƩX2 = 56/28 = 2

Linear trend = 84, 86, 88, 90, 92, 94, 96

Question 9. Find seasonal values for the data in table

Answer:

Year I Quarter II Quarter III Quarter IV Quarter

1995 3.7 4.1 3.3 3.5
1996 3.7 3.9 3.6 3.6
1997 4 4.1 3.3 3.1
1998 3.3 4.4 4 4
Avg 3.675 4.125 3.55 3.55
Grand Avg 3.725
S.I. 98.66 110.74 95.30 95.30

S.I. = Avg Quarter/ Grand Avg

Unit 15

Question1. What is index number? State its utility.

Answer: An index number is a number which is used to measure the level of a certain
phenomenon as compared to the level of the same phenomenon at some standard period. In
other words, an index number is a number which is used as a device for comparison between
the price, quantity or value of a group of articles in different situations for example, at a certain
place or a period of time and that of another place or period of time. An index number is a
statistical measure which is designed to express changes or differences in a variable or a group
of related variables. It is usually expressed in percentage form.
Main utilities of Index Numbers:
 Comparative study is made possible
 Simplifies data
 Provides guidelines to economic policy and in formulating decisions
 Measures purchasing power of money
 Measures changes in cost of living
 National income calculations
 Reveals trends and tendencies
 Useful in deflating
 Universal utility

Question2. Discuss the problems of:

A) Selection of the base year
The base period of an index number is the period of time against which the comparisons
are made. There are three types of base periods.
a. Fixed base (a single period)
b. Fixed base (an average of selected periods)
c. Chain base
While selecting the base, a decision has to be made to decide whether we have fixed base
or chain base.
Fixed base (a single period): In a fixed base (a single period), the base period must be a normal
period. A normal period means that the period must be free from all sorts of abnormalities or
random causes such as financial crisis, floods, famines, earth quakes, strikes of laborers, wars,
etc. The base period should be a period for which reliable figures are available. The base period
should not be too distant in the past.
Fixed base (an average of selected periods): When it is difficult to choose just one single
period as the normal, then a better choice is an average of several periods.
Chain base: If the comparisons are required from year to year, a system of chain base is used.

B) Selection of weights in the construction of index numbers

The term ‘weight’ refers to the relative importance of the different commodities included in the
construction of index numbers. There are two methods of assigning weights. They are:
a. Implicit method: In this method, several varieties of a certain type of commodity
under study are used. Such weights are called implicit weights.
b. Explicit method: In this method, the weights are laid down on the basis of one
outward evidence of importance of commodities. One of the problems in the
selection of appropriate weight is to decide this evidence. Another problem with
regard to the system of weighing is whether weights should be fixed or fluctuating.

Question3. What are the characteristics of an index number?

Answer:
1. Expressed in numbers
Index numbers represent the relative changes such as increase in production; reduction in prices
etc. in the numbers.
2. Expressed in percentage
Index numbers are expressed in terms of percentages so as to show the extent or relative change
where the value of base is assumed to be 100 butthe sign of percentage (%) is not used.
3. Relative measure
Index numbers measure changes which are not capable of direct measurement.
4. Specified averages
Index number represents a special case of average, in general known as weighted average. It is
a special type of average, because in a simple average, the data is homogenous having the same
unit of measurement, whereas the average variables have different units of measurement.
5. Basis of comparison
Index numbers by their very nature are comparative. They compare changes over time or
between places or similar categories.

Question4. Construct Fisher’s ideal index for the data depicted

 Commodity Base Year 1997 Current Year 2005
Price P0 Qty Q0 Price P1 Qty Q1
A 16 110 25 132
B 5 220 5 264
C 10 132 15 165
D 25 66 30 55

P0Q0 P1Q0 P0Q1 P1Q1

A 1760 2750 2112 3300
B 1100 1100 1320 1320
C 1320 1980 1650 2475
D 1650 1980 1375 1650
Total 5830 7810 6457 8745

= 134.7

Question5. The table 15.13 depicts the price of commodities along with the weights of
respective commodities. Calculate index number for 2000 based on the year 1995.

Weights
Commodity 1995 2000
(W) P = (P1/P0)x100 PW
P0 P1
A 2 0.5 0.75 150 300
B 5 0.6 0.75 125 625
C 4 2 2.4 120 480
D 8 1.8 2.1 116.67 933.33
E 1 8 10 125 125
20 636.67 2463.33
P01 = (ƩPW/ƩW) = 2463.33/20 = 123.16