UNIT -1

(BUSINESS
STATISTICS) LESSON 1
NATURE, SCOPE
AND LIMITATIONS OF STATISTICS
Introduction
The term “statistics” is used in two senses: First in plural sense meaning a
collection of numerical facts or estimates—the figure themselves. It is in this sense
that the public usually think of statistics, e.g., figures relating to population, profits
of different units in an industry etc. Secondly, as a singular noun, the term
‘statistics’ denotes the various methods adopted for the collection, analysis and
interpretation of the facts numerically represented. In singular sense, the term
‘statistics’ is better described as statistical methods. In our study of the subject, we
shall be more concerned with the second meaning of the word ‘statistics’.
Definition
Statistics has been defined differently by different authors and each author has
assigned new limits to the field which should be included in its scope. We can do
no better than give selected definitions of statistics by some authors and then come
to the conclusion about the scope of the subject. A.L. Bowley defines, “Statistics
may be called the science of counting”. At another place he defines, “Statistics
may be called the science of averages”. Both these definitions are narrow and
throw light only on one aspect of Statistics. According to King, “The science of
statistics is the method of judging collective, natural or social, phenomenon
from the results obtained from the analysis or enumeration or collection of
estimates”.
Many a time counting is not possible and estimates are required to be made.
Therefore, Boddington defines it as “the science of estimates and probabilities”.
But this definition also does not cover the entire scope of statistics. The statistical
methods are methods for the collection, analysis and interpretation of numerical
data and form a basis for the analysis and comparison of the observed phenomena.
In the words of Croxton &Cowden, “Statistics may be defined as the collection,
presentation, analysis and interpretation of numerical data”. Horace Secrist has
given an exhaustive definition of the term satistics in the plural sense. According to
him:
“By statistics we mean aggregates of facts affected to a marked extent by a
multiplicity of causes numerically expressed, enumerated or estimated
according to reasonable standards of accuracy collected in a systematic
manner for a pre-determined purpose and placed in relation to each other”.
This definition makes it quite clear that as numerical statement of facts, ‘statistic’
should possess the following characteristics.
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 Characteristics and Features of Statistics in the Plural sense

1. Statistics are aggregate of facts

A single age of 20 or 30 years is not statistics, a series of ages are. Similarly, a single
figure relating to production, sales, birth, death etc., would not be statistics although
aggregates of such figures would be statistics because of their comparability and
relationships.
2. Statistics are affected to a marked extent by a multiplicity of causes A number of
causes affect statistics in a particular field of enquiry, e.g., in production statistics are
affected by climate, soil, fertility, availability of raw materials and methods of quick
transport.
3. Statistics are numerically expressed, enumerated or estimated The
subject of statistics is concerned essentially with facts expressed in numerical form—
with their quantitative details but not qualitative descriptions. Therefore, facts
indicated by terms such as ‘good’, ‘poor’ are not statistics unless a numerical
equivalent is assigned to each expression. Also this may either be enumerated or
estimated, where actual enumeration is either not possible or is very difficult.
Statistics are numerated or estimated according to reasonable standard of accuracy
Personal bias and prejudices of the enumeration should not enter into the counting or
estimation of figures, otherwise conclusions from the figures would not be accurate.
The figures should be counted or estimated according to reasonable standards of
accuracy. Absolute accuracy is neither necessary nor sometimes possible in
social sciences. But whatever standard of accuracy is once adopted, should be used
throughout the process of collection or estimation.
Statistics should be collected in a systematic manner for a predetermined purpose
The statistical methods to be applied on the purpose of enquiry since figures are
always collected with some purpose. If there is no predetermined purpose, all the
efforts in collecting the figures may prove to be wasteful. The purpose of a series of
ages of husbands and wives may be to find whether young husbands have young
wives and the old husbands have old wives.
Statistics should be capable of being placed in relation to each other The
collected figure should be comparable and well-connected in the same department of
inquiry. Ages of husbands are to be compared only with the corresponding ages of
wives, and not with, say, heights of trees.

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Functions of Statistics
The functions of statistics may be enumerated as follows :
(i) To present facts in a definite form : Without a statistical study our ideas are
likely to be vague, indefinite and hazy, but figures helps as to represent things in

3
their true perspective. For example, the statement that some students out of 1,400
who had appeared, for a certain examination, were declared successful would not
give as much information as the one that 300 students out of 400 who took the
examination were declared successful.
(ii) To simplify unwieldy and complex data : It is not easy to treat large numbers
and hence theyare simplified either by taking a few figures to serve as a
representative sample or by taking average to give a bird’s eye view of the large
masses. For example, complex data may be simplified by presenting them in the
form of a table, graph or diagram, or representing it through an average etc.

(iii) To use it as a technique for making comparisons : The significance of

certain figures can be better appreciated when they are compared with others of the
same type. The comparison between two different groups is best represented by
certain statistical methods, such as average, coefficients, rates, ratios, etc.
(iv) To enlarge individual experience : An individual’s knowledge is limited to
what he can observe and see; and that is a very small part of the social organism.
His knowledge is extended n various ways by studying certain conclusions and
results, the basis of which are numerical investigations. For example, we all have
general impression that the cost of living has increased. But to know to what extent
the increase has occurred, and how far the rise in prices has affected different
income groups, it would be necessary to ascertain the rise in prices of articles
consumed by them.
(v) To provide guidance in the formulation of policies : The purpose of statistics
is to enable correct decisions, whether they are taken by a businessman or
Government. In fact statistics is a great servant of business in management,
governance and development. Sampling methods are employed in industry in
tacking the problem of standardisation of products. Big business houses maintain a
separate department for statistical intelligence, the work of which is to collect,
compare and coordinate figures for formulating future policies of the firm
regarding production and sales.
(vi) To enable measurement of the magnitude of a phenomenon : But for the
development of the statistical science, it would not be possible to estimate the
population of a country or to know the quantity of wheat, rice and other
agricultural commodities produced in the country during any year.

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Importance of Statistics
These days statistical methods are applicable everywhere. There is no field of work
in which statistical methods are not applied. According to A L. Bowley, ‘A
knowledge of statistics is like a knowledge of foreign languages or of Algebra, it
may prove of use at any time under any circumstances”. The importance of the
statistical science is increasing in almost all spheres of knowledge, e g., astronomy,
biology, meteorology, demography, economics and mathematics. Economic
planning without statistics is bound to be baseless. Statistics serve in
administration, and facilitate the work of formulation of new policies. Financial
institutions and investors utilise statistical data to summaries the past experience.
Statistics are also helpful to an auditor, when he uses sampling techniques or test
checking to audit the accounts of his client.

LIMITATIONS OF STATISTICS

The scope of the science of statistic is restricted by certain limitations :

1. The use of statistics is limited numerical studies: Statistical methods cannot
be applied to study the nature of all type of phenomena. Statistics deal with only
such phenomena as are capable of being quantitatively measured and numerically
expressed. For, example, the health, poverty and intelligence of a group of
individuals, cannot be quantitatively measured, and thus are not suitable subjects
for statistical study.
2. Statistical methods deal with population or aggregate of individuals rather than
with individuals. When we say that the average height of an Indian is 1 metre 80
centimetres, it shows the height not of an individual but as found by the study of all
individuals.
3. Statistical relies on estimates and approximations : Statistical laws are not
exact laws like mathematical or chemical laws. They are derived by taking a
majority of cases and are not true for every individual. Thus the statistical
inferences are uncertain.
4. Statistical results might lead to fallacious conclusions by deliberate
manipulation of figures and unscientific handling. This is so because statistical
results are represented by figures, which are liable to be manipulated. Also the data
placed in the hands of an expert may lead to fallacious results. The figures may be
stated without their context or may be applied to a fact other than the one to which
they really relate. An interesting example is a survey made some years ago which
reported that 33% of all the girl students at John Hopkins University had married

5
University teachers. Whereas the University had only three girls student at that
time and one of them married to a teacher.
Distrust of Statistics
Due to limitations of statistics an attitude of distrust towards it has been developed.
There are some people who place statistics in the category of lying and maintain
that, “there are three degrees of comparison in lying-lies, dammed lies and
statistics”. But this attitude is not correct. The person who is handling statistics
may be a liar or inexperienced. But that would be the fault not of statistics but of
the person handling them. The person using statistics should not take them at their
face value. He should check the result from an independent source. Also only
experts should handle the statistics otherwise they may be misused. It may be
noted that the distrust of statistics is due more to insufficiency of knowledge
regarding the nature, limitations and uses of statistics then to any fundamental
inadequacy in the science of statistics. Medicines are meant for curing people, but
if they are unscientifically handle by quacks, they may prove fatal to the patient. In
both the cases, the medicine is the same; but its usefulness or harmfulness depends
upon the man who handles it. We cannot blame medicine for such a result.
Similarly, if a child cuts his finger with a sharp knife, it is not a knife that is to be
blamed, but the person who kept the kni fe at a place that the child could reach it.
These examples help us in emphasising that if statistical facts are misused by some
people it would be wrong to blame the statistics as such. It is the people who are to
be blamed. In fact statistics are like clay which can be moulded in any way.

Collection of data
For studying a problem statistically first of all, the data relevant thereto must be
collected. The numerical facts constitute the raw material of the statistical process.
The interpretation of the ultimate conclusion and the decisions depend upon the
accuracy with which the data are collected. Unless the data are collected with
sufficient care and are as accurate as is necessary for the purposes of the inquiry,
the result obtained cannot be expected to be valid or reliable.
Before starting the collection of the data, it is necessary to know the sources from
which the data are to be collected.
Primary and Secondary Sources
The original compiler of the data is the primary source. For example, the office of
the Registrar General will be the primary source of the decennial population census
figures.
A secondary source is the one that furnishes the data that were originally compiled

6
by someone else. If the population census figures issued by the office of the
Registrar-General are published in the Indian year Book, this publication will be
the secondary source of the population data. The source of data also are classified
according to the character of the data yielded by them. Thus the data which are
gathered from the primary source is known as primary data and the one gathered
from the secondary source is known as secondary data. When an investigator is
making use of figures which he has obtained by field enumeration, he is said to be
using primary data and when he is making use of figures which he has obtained
from some other source, he is said to be using secondary data.

Choice between Primary and Secondary Data

An investigator has to decide whether he will collect fresh (primary) data or he will
compile data from the published sources. The former is reliable per se but the latter
can be relied upon only by examining the following factors :—
(i) source from which they have been obtained;
(ii) their true significance;
(iii) completeness and
(iv) method to collection.
In addition to the above factors, there are other factors to be considered while
making choice between the primary or secondary data :
(i) Nature and scope of enquiry.
(ii) Availability of time and money.
(iii) Degree of accuracy required and
(iv) The status of the investigator i.e., individual, Pvt. Co., Govt. etc.
However, it may be pointed out that in certain investigations both primary
and secondary data may have to be used, one may be supplement to the other.
Methods of Collection of Primary Data
The primary methods of collection of statistical information are the following :
1. Direct Personal Observation,
2. Indirect Personal Observation,
3. Schedules to be filled in by informants
4. Information from Correspondents, and
5. Questionnaires in charge of enumerators
The particular method that is decided to be adopted would depend upon the nature
and availability of time, money and other facilities available to the investigation.

1. Direct Personal Observation

According to this method, the investigator obtains the data by personal
observation. The method is adopted when the field of inquiry is small. Since the

7
investigator is closely connected with the collection of data, it is bound to be more
accurate. Thus, for example, if an inquiry is to be conducted into the family
budgets and giving conditions of industrial labour, the investigation himself live in
the industrial area as one of the industrial workers, mix with other residents and
make patience and careful personal observation regarding how they spend, work
and live.
2. Indirect Personal Observation
According to this method, the investigator interviews several persons who are
either directly or indirectly in possession of the information sought to be collected.
It may be distinguished form the first method in which information is collected
directly from the persons who are involved in the inquiry. In the case of indirect
personal observation, the persons from whom the information is being collected
are known as witnesses or informants. However it should be ascertained that the
informants really passes the knowledge and they are not prejudiced in favour of or
against a particular view point.
This method is adopted in the following situations:
1. Where the information to be collected is of a complete nature.
2. When investigation has to be made over a wide area.
3. Where the persons involved in the inquiry would be reluctant to part with
the information.
This method is generally adopted by enquiry committee or commissions appointed
by government.
3. Schedules to be filled in by the informants
Under this method properly drawn up schedules or blank forms are distributed
among the persons from whom the necessary figure are to be obtained. The
informants would fill in the forms and return them to the officer incharge of
investigation. The Government of India issued slips for the special enumeration of
scientific and technical personnel at the time of census. These slips are good
examples of schedules to be filled in by the informants.
The merit of this method is its simplicity and lesser degree of trouble and pain for
the investigator. Its greatest drawback is that the informants may not send back the
schedules duly filled in.
4. Information from Correspondents
Under this method certain correspondent are appointed in different parts of the
field of enquiry, who submit their reports to the Central Office in their own
manner. For example, estimates of agricultural wages may be periodically
furnished to the Government by village school teachers.
The local correspondents being on the spot of the enquiry are capable of giving
reliable information.

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 But it is not always advisable to place much reliance on correspondents, who have
often got their own personal prejudices. However, by this method, a rough and
approximate estimate is obtained at a very low cost. This method is also adopted
by various departments of the government in such cases where regular information
is to be collected from a wide area.

Questionnaire incharge of Enumerations

A questionnaire is a list of questions directly or indirectly connected with the work
of the enquiry. The answers to these questions would provide all the information
sought. The questionnaire is put in the charge of trained investigators whose duty
is to go to all persons or selected persons connected with the enquiry. This method
is usually adopted in case of large inquiries. The method of collecting data is
relatively cheap. Also the information obtained is that of good quality.
The main drawback of this method is that the enumerator (i.e., investigator in
charge of the questionnaire) may be a biased one and may not enter the answer
given by the information. Where there are many enumerators, they may interpret
various terms in questionnaire according to their whims. To that extent the
information supplied may be either inaccurate or inadequate or not comparable.
This drawback can be removed to a great extent by training the investigators before
the enquiry begins. The meaning of different questions may be explained to them
so that they do not interpret them according to their whims.
Drafting the Questionnaire
The success of questionnaire method of collecting information depends on the
proper drafting of the questionnaire. It is a highly specialized job and requires great
deal of skill and experience. However, the following general principle may be
helpful in framing a questionnaire:
The number of the questions should be kept to the minimum fifteen to twenty-
five may be a fair number.
The questions must be arranged in a logical order so that a natural and spontaneous
reply to each is induced.
The questions should be short, simple and easy to understand and they should convey
one meaning.
As far as possible, quotation of a personal and pecuniary nature should not be asked.
As far as possible the questions should be such that they can be answered briefly in
‘Yes’ or ‘No’, or in terms of numbers, place, date, etc.
The questionnaire should provide necessary instructions to the Informants. For
instance, if there is a question on weight. It should be specified as to whether

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weight is to be indicated in lbs or kilograms.
Questions should be objective type and capable of tabulation.

Specimen Questionnaire
We are giving below a specimen questionnaire of Expenditure Habits or Students
residing in college Hostels.
Name of Student ............................................ Class ............................................
State and District of origin ......................................... Age ..............................
1. How much amount do you get from your father/guardian p.m. ?
2. Do you get some scholarship? If so, state the amount per month.
3. Is there any other source from which you get money regularly? (e.g. mother,
brother or uncle).
4. How much do you spend monthly on the following items:
Rs.
College Tuition Fee .........
Hostel Food Expenses ........
Other hostel fees ........
Clothing ........
Entertainment ........
Smoking ........
Miscellaneous ........
Total ........
5. Do you smoke? If so what is the daily expenditure on it?
6. Any other item on which you spend money ?

Sources of Secondary Data

There are number of sources from which secondary data may be obtained. They
may be classified as follow. :
1. Published sources, and
2. Unpublished sources.
1. Published Sources
The various sources of published data are :
1. Reports and official publications of-
(a) International bodies such as the International Monetary Fund, International

10
Finance Corporation, and United Nations Organisation.
(b) Central and State Governments- such as the Report of the Patel Committee, etc.
2. Semi Official Publication. Various local bodies such as Municipal Corporation,
and Districts Boards.
3. Private Publication of—
(a) Trade and professional bodies such as the Federation of India, Chamber
of Commerce and Institute of Chartered Accountants of India.
(b) Financial and Economic Journals such as “Commerce”, ‘Capital’ etc.
(c) Annual Reports of Joint Stock Companies.
(d) Publication brought out by research agendas, research scholars, etc.
2. Unpublished Sources
There are various sources of unpublished data such as records maintained by
various government and private offices, studies made by research institutions,
scholars, etc., such source can also be used where necessary.
Census and Sampling Techniques of Collection of Data
There are two important techniques of Data collection, (i) Census enquiry implies
complete enumeration of each unit of the universe, (ii) In a sample survey, only a
small part of the group, is considered, which is taken as representative. For
example the population census in India implies the counting of each and every
human being within the country. In practice sometimes it is not possible to
examine every item in the population. Also many a time it is possible to obtain
sufficiently accurate results by studying only a part of the “population”. For
example, if the marks obtained in statistics by 10 students in an examination are
selected at random, say out of 100, then the average marks obtained by 10 students
will be reasonably representative of the average marks obtained by all the 100
students. In such a case, the populations will be the marks of the entire group of
100 students and that of 10 students will be a sample.

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 LESSON 2
CONSTRUCTION OF FREQUENCY DISTRIBUTION
AND GRAPHICAL PRESENTATION

What is frequency distribution

Collected and classified data are presented in am form of frequency distribution.
Frequency distribution is simply a table in which the data are grouped into classes
on the basis of common characteristics and the number of cases which fall in each
class are recorded. It shows the frequency of occurrence of different values of a
single variable. A frequency distribution is constructed to satisfy three objectives :
(i) to facilitate the analysis of data,
(ii) to estimate frequencies of the unknown population distribution from the
distribution of sample data, and
(iii) to facilitate the computation of various statistical
measures. Frequency distribution can be of two types :
1. Univariate Frequency Distribution.
2. Bivariate Frequency Distribution.
In this lesson, we shall understand the Univariate frequency distribution.
Univariate distribution incorporates different values of one variable only whereas
the Bivariate frequency distribution incorporates the values of two variables. The
Univariate frequency distribution is further classified into three categories:
(i) Series of individual observations,
(ii) Discrete frequency distribution, and
(iii) Continuous frequency distribution.
Series of individual observations, is a simple listing of items of each observation. If
marks of 14 students in statistics of a class are given individually, it will form a
series of individual observations.
Marks obtained in Statistics :
Roll Nos. 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Marks: 60 71 80 41 81 41 85 35 98 52 50 91 30 88

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Marks Marks in Descending Order
in
Ascending
Order
30 98
35 91
41 88
41 85
50 81
52 80
60 71
71
80 60
81 52
85 50
88 41
91 41
35
98 30
Discrete Frequency Distribution: In a discrete series, the data are presented in
such a way that exact measurements of units are indicated. In a discrete frequency
distribution, we count the number of times each value of the variable in data given
to you. This is facilitated through the technique of tally bars.
In the first column, we write all values of the variable. In the second column, a
vertical bar called tally bar against the variable, we write a particular value has
occurred four times, for the fifth occurrence, we put a cross tally mark (/) on the
four tally bars to make a block of 5. The technique of putting cross tally bars at
every fifth repetition facilitates the counting of the number of occurrences of the
value. After putting tally bars for all the values in the data; we count the number of
times each value is repeated and write it against the corresponding value of the
variable in the third column entitled frequency. This type of representation of the
data is called discrete frequency distribution.
We are given marks of 42 students:
55 51 57 40 26 43 46 41 46 48 33 40 26 40 40 41
43 53 45 53 33 50 40 33 40 26 53 59 33 39 55 48
15 26 43 59 51 39 15 45 26 15
We can construct a discrete frequency distribution from the above given marks.
Marks of 42 Students

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------------------------------------------
Marks Tally Bars Frequency
------------------------------------------
15 ||| 3
26 5
33 |||| 4
39 || 2
40 5
41 || 2
43 ||| 3
45 || 2
46 || 2
48 || 2
50 | 1
51 || 2
53 ||| 3
55 ||| 3
57 | 1
59 || 2
Total 42
The presentation of the data in the form of a discrete frequency distribution is
better than arranging but it does not condense the data as needed and is quite
difficult to grasp and comprehend. This distribution is quite simple in case the
values of the variable are repeated otherwise there will be hardly any condensation.

Continuous Frequency Distribution; If the identity of the units about a particular

information collected, is neither relevant nor is the order in which the observations
occur, then the first step of condensation is to classify the data into different classes
by dividing the entire group of values of the variable into a suitable number of
groups and then recording the number of observations in each group. Thus, we
divide the total range of values of the variable (marks of 42 students) i.e. 59-15 =
44 into groups of 10 each, then we shall get
(42/10) 5 groups and the distribution of marks is displayed by the following
frequency distribution:
Marks of 42 Students

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---------------------------------------------------------------------
Marks (×) Tally Bars Number of Students (f)
---------------------------------------------------------------------
15 – 25 ||| 3
25 – 35 |||| 9
35 – 45 || 12
45 – 55 || 12
55 – 65 | 6
----------------------------------------------------------------------
Total 42
----------------------------------------------------------------------
The various groups into which the values of a variable are classified are known
classes, the length of the class interval (10) is called the width of the class. Two
values, specifying the class. are called the class limits. The presentation of the data
into continuous classes with the corresponding frequencies is known as continuous
frequency distribution. There are two methods of classifying the data according to
class intervals :
(i) exclusive method, and
(ii) inclusive method
In an exclusive method, the class intervals are fixed in such a manner that upper
limit of one class becomes the lower limit of the following class. Moreover, an
item equal to the upper limit of a class would be excluded from that class and
included in the next class. The following data are classified on this basis.
---------------------------------------------------------
Income (Rs.) No. of Persons
---------------------------------------------------------
200 – 250 50
250 – 300 100
300 – 350 70
350 – 400 130
400 – 50 50
450 – 500 100
------------------------------------
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 Total 500
------------------------------------
It is clear from the example that the exclusive method ensures continuity of the
data in as much as the upper limit of one class is the lower limit of the next class.
Therefore, 50 persons have their incomes between 200 to 249.99 and a person
whose income is 250 shall be included in the next class of 250 – 300. According to
the inclusive method, an item equal to upper limit of a class is included in that
class
itself. The following table demonstrates this method.
-----------------------------------------------------------
Income (Rs.) No.of Persons
-----------------------------------------------------------
200 – 249 50
250 – 299 100
300 – 349 70
350 – 399 130
400 – 149 50
450 – 499 100
----------------------------------------------------------
Total 500
----------------------------------------------------------
Hence in the class 200 – 249, we include persons whose income is between Rs.
200 and Rs. 249.
Principles for Constructing Frequency Distributions
Inspite of the great importance of classification in statistical analysis, no hard and
fast rules are laid down for it. A statistician uses his discretion for classifying a
frequency distribution and sound experience, wisdom, skill and aptness for an
appropriate classification of the data. However, the following guidelines must be
considered to construct a frequency distribution:
1. Type of classes: The classes should be clearly defined and should not lead
to any ambiguity. They should be exhaustive and mutually exclusive so that
any value of variable corresponds to only class.
2. Number of classes: The choice about the number of classes in which a
given frequency distribution should he divided depends upon the following

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 things;
(i) The total frequency which means the total number of observations in the
distribution.
(ii) The nature of the data which means the size or magnitude of the values
of the variable.
(iii) The desired accuracy.
(iv) The convenience regarding computation of the various descriptive
measures of the frequency distribution such as means, variance etc.
The number of classes should not be too small or too large. If the classes are few,
the classification becomes very broad and rough which might obscure some
important features and characteristics of the data. The accuracy of the results
decreases as the number of classes becomes smaller. On the other hand, too many
classes will result in a few frequencies in each class. This will give an irregular
pattern of frequencies in different classes thus makes the frequency distribution
irregular. Moreover a large number of classes will render the distribution too
unwieldy to handle. The computational work for further processing of the data will
become quite tedious and time consuming without any proportionate gain in the
accuracy of the results.
Hence a balance should be maintained between the loss of information in the first
case and irregularity of frequency distribution in the second case, to arrive at a
suitable number of classes. Normally, the number of classes should not be less than
5 and more than 20. Prof. Sturges has given a formula:
k = 1 + 3.322 log n

where k refers to the number of classes and n refers to total frequencies or number
of observations.
The value of k is rounded to the next higher integer :
If n = 100 k = 1 + 3.322 log 100 = 1 + 6.644 = 8
If n = 10,000 k = 1 + 3.22 log 10,000 = 1 + 13.288 = 14
However, this rule should be applied when the number of observations are not very
small.
Further, the number or class intervals should be such that they give uniform and
unimodal distribution which means that the frequencies in the given classes
increase and decrease steadily and there are no sudden jumps. The number of
classes should be an integer preferably 5 or multiples of 5, 10, 15, 20, 25 etc.
which are convenient for numerical computations.
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3. Size of Class Intervals : Because the size of the class interval is inversely
proportional to the number of classes in a given distribution, the choice about the
size of the class interval will depend upon the sound subjective judgment of the
statistician. An approximate value of the magnitude of the class interval say i can
be calculated with the help of Sturge’s Rule :
where i slands for class magnitude or interval, Range refers to the difference
between the largest and smallest value of the distribution, and n refers to total
number of observations. If we are given the following information; n = 400,
Largest item = 1300 and Smallest item = 340. then, = =
Another rule to determine the size of class interval is that the length of the class
interval should not he greater than of the estimated population standard deviation.
If 6 is the estimate of population standard deviation then the length of class interval
is given by: i £ 6/4, The size of class intervals should he taken as 5 or multiples of
5, 10, 15 or 20 for easy computations of various statistical measures of the
frequency distribution, class intervals should be so fixed that each class has a
convenient mid-point around which all the observations in that class cluster. It
means that the entire frequency of the class is concentrated at the mid value of the
class. It is always desirable to take the class intervals of equal or uniform
magnitude throughout the frequency distribution.
4. Class Boundaries: If in a grouped frequency distribution there are gaps between
the upper limit of any class and lower limit of the succeeding class (as in case of
inclusive type of classification), there is a need to convert the data into a
continuous distribution by applying a correction factor for continuity for
determining new classes of exclusive type. The lower and upper class limits of new
exclusive type classes are called class boundaries. If d is the gap between the upper
limit of any class and lower limit of succeeding class, the class boundaries for any
class are given by:
d/2 is called the correction factor. Let us consider the following example to
understand :

Marks Class Boundaries

20 – 24 (20 – 0.5, 24 + 0.5) i.e., 19.5 – 24.5

25 – 29 (25 – 0.5,29 + 0.5) i.e., 24.5 – 29.5
30 – 34 (30 – 0.5,34 + 0.5) i.e., 29.5 – 34.5
55 – 39 (35 – 0.5,39 + 0.5) i.e., 34.5 – 39.5
40 – 44 (40 – 0.5,44 + 0.5) i.e., 39.5 – 44.5

18
 Correction factor = =

5. Mid-value or Class Mark: The mid value or class mark is the value of a
variable which is exactly at the middle of the class. The mid-value of any class is
obtained by dividing the sum of the upper and lower class limits by 2.
Mid value of a class = 1/2 [Lower class limit + Upper class limit]
The class limits should be selected in such a manner that the observations in any
class are evenly distributed throughout the class interval so that the actual average
of the observations in any class is very close to the mid-value of the class.
6. Open End Classes : The classification is termed as open end classification if the
lower limit of the first class or the upper limit of the last class or both are not
specified and such classes in which one of the limits is missing are called open end
classes. For example, the classes like the marks less than 20 or age above 60 years.
As far as possible open end classes should be avoided because in such classes the
mid-value cannot be accurately obtained. But if the open end classes are inevitable
then it is customary to estimate the class mark or mid-value for the first class with
reference to the succeeding class. In other words, we assume that the magnitude of
the first class is same as that of the second class.
Example :Construct a frequency distribution from the following data by inclusive
method Takin 4 as the class interval:
g
10 17 15 22 11 16 19 24 29 18
25 26 32 14 17 20 23 27 30 12
15 18 24 36 18 15 21 28 33 38
34 13 10 16 20 22 29 19 23 31
Solution : Because the minimum value of the variable is 10 which is a very
convenient figure for taking the lower limit of the first class and the magnitude of
the class interval is given to be 4, the classes for preparing frequency distribution
by the Inclusive method will be 10 – 13, 14 – 17, 18 – 21, 22 – 25,.............. 38 –
41.

19
Frequency Distribution
---------------------------------------------------------------
Class Interval Tally Bars Frequency (f)
---------------------------------------------------------------
10 – 13 5
14 – 17 ||| 8
18 – 21 ||| 8
22 – 25 || 7
26 – 29 5
30 – 33 |||| 4
34 – 37 || 2
38 – 41 | 1
---------------------------------------------------------------
Example : Prepare a statistical table from the following :
Weekly wages (Rs.) of 100 workers of Factory A

88 23 27 28 86 96 94 93 86 99
82 24 24 55 88 99 55 86 82 36
96 39 26 54 87 100 56 84 83 46
102 48 27 26 29 100 59 83 84 48
104 46 30 29 40 101 60 89 46 49
106 33 36 30 40 103 70 90 49 50
104 36 37 40 40 106 72 94 50 60
24 39 49 46 66 107 76 96 46 67
26 78 50 44 43 46 79 99 36 68
29 67 56 99 93 48 80 102 32 51

Solution : The lowest value is 23 and the highest 106. The difference between the
lowest and highest value is 83. If we take a class interval of 10. nine classes would
be made. The first class should be taken as 20 – 30 instead of 23 – 33 as per the
guidelines of classification.

20
Frequency Distribution of the Wages of 100 Workers
-----------------------------------------------------------------
Wages (Rs.) Tally Bars Frequency (f)
-----------------------------------------------------------------
29 – 30 |||| 13
30 – 40 | 11
40 – 50 ||| 18
50 – 60 10
60 – 70 | 6
70 – 80 5
80 – 90 |||| 14
90 – 100 || 12
100 – 110 | 11
------------------------------------------------------------------
Total 100
------------------------------------------------------------------
Graphs of Frequency Distributions
The guiding principles for the graphic representation of the frequency distributions
are same as for the diagrammatic and graphic representation of other types of data.
The information contained in a frequency distribution can be shown in graphs
which reveals the important characteristics and relationships that are not easily
discernible on a simple examination of the frequency tables. The most commonly
used graphs for charting a frequency distribution are :
1. Histogram
2. Frequency polygon
3. Smoothed frequency curves
4. Ogives or cumulative frequency curves.
1. Histogram
The term ‘histogram’ must not be confused with the term ‘historigram’ which
relates to time charts. Histogram is the best way of presenting graphically a simple
21
frequency distribution. The statistical meaning of histogram is that it is a graph that
represents the class frequencies in a frequency distribution by vertical adjacent
rectangles.
While constructing histogram the variable is always taken on the X-axis and the
corresponding classinterval. The distance for each rectangle on the X-axis shall
remain the same in case the class-intervals are uniform throughout; if they are
different the width of the rectangles shall also change proportionately. The Yaxis
represents the frequencies of each class which constitute the height of its rectangle.
We get a series of rectangles each having a class interval distance as its width and
the frequency distance as its height. The area of the histogram represents the total
frequency.
The histogram should be clearly distinguished from a bar diagram. A bar diagram
is one-dimensional where the length of the bar is important and not the width, a
histogram is two-dimensional where both the length and width are important.
However, a histogram can be misleading if the distribution has unequal class
intervals and suitable adjustments in frequencies are not made.
The technique of constructing histogram is explained for :
(i) distributions having equal class-intervals, and
(ii) distributions having unequal class-intervals.
Example : Draw a histogram from the following data :
------------------------------------------------------------
Classes Frequency
------------------------------------------------------------
0 – 10 5
10 – 20 11
20 – 30 19
30 – 40 21
40 – 50 16
50 – 60 10
60 – 70 8
70 – 80 6
80 – 90 3
90 – 100 1

22
Solution :
When class-intervals are unequal the frequencies must be adjusted before
constructing a histogram. We take that class which has the lowest class-interval
and adjust the frequencies of classes accordingly. If one class interval is twice as
wide as the one having the lowest class-interval we divide the height of its
rectangle by two, if it is three times more we divide it by three etc. the heights will
be proportional to the ratios of the frequencies to the width of the classes.
Example : Represent the following data on a histogram.
Average monthly income of 1035 employees in a construction industry is given
below :
------------------------------------------------------------
Monthly Income (Rs.) No. of Workers
------------------------------------------------------------
600 – 700 25
700 – 800 100
800 – 900 150
900 – 1000 200
1000 – 1200 140
1200 – 1400 80
1400 – 1500 50
1500 – 1800 30
1800 or more 20

Solution : Histogram showing monthly incomes of workers :

When mid point are given, we ascertain the upper and lower limits of each class
and then construct the histogram in the same manner.
Example : Draw a histogram of the following distribution :
----------------------------------------------------------------------

23
Life of Electric Lamps Frequency
(hours) Firm A Firm B
---------------------------------------------------------------------
10 10 102 87
10 30 130 105
10 50 48 226
10 70 360 230
10 90 18 352
---------------------------------------------------------------------
Solution : Since we are given the mid points, we should ascertain the class limits.
To calculate the class limits of various classes, take difference of two consecutive
mid-points and divide the difference by 2, then add and subtract the value obtained
from each mid-point to calculate lower and higher class-limits.
3. Frequency Polygon
This is a graph of frequency distribution which has more than four sides. It is
particularly effective in comparing two or more frequency distributions. There are
two ways of constructing a frequency polygon.
1) We may draw a histogram of the given data and then join by straight line the
mid-points of the upper horizontal side of each rectangle with the adjacent ones.
The figure so formed shall be frequency polygon. Both the ends of the polygon
should be extended to the base line in order to make the area under frequency
polygons equal to the area under Histogram.
2) Another method of constructing frequency polygon is to take the mid-points of
the various classintervals and then plot the frequency corresponding to each point
and join all these points by straight lines. The figure obtained by both the methods
would be identical.
Frequency polygon has an advantage over the histogram. The frequency polygons
of several distributions can be drawn on the same axis, which makes comparisons
possible whereas histogram cannot be used in the same way. To compare
histograms we need to draw them on separate graphs.

3) Smoothed Frequency Curve

24
A smoothed frequency curve can be drawn through the various points of the
polygon. The curve is drawn by free hand in such a manner that the area included
under the curve is approximately the same as that of the polygon. The object of
drawing a smoothed curve is to eliminate all accidental variations which exists in
the original data, while smoothening, the top of the curve would overtop the
highest point of polygon particularly when the magnitude of the class interval is
large. The curve should look as regular as possible and all sudden turns should be
avoided. The extent of smoothening would depend upon the nature of the data. For
drawing smoothed frequency curve it is necessary to first draw the polygon and
then smoothen it. We must keep in mind the following points to smoothen a
frequency graph:
(i) Only frequency distribution based on samples should be smoothened.
Only continuous series should be smoothened.
(ii) The total area under the curve should be equal to the area under the
histogram or polygon.
The diagram given below will illustrate the point :
4. Cumulative Frequency Curves or Ogives
We have discussed the charting of simple distributions where each frequency refers
to the measurement of the class-interval against which it is placed. Sometimes it
becomes necessary to know the number of items whose values are greater or less
than a certain amount. We may, for example, be interested in knowing the number
of students whose weight is less than 65 Ibs. or more than say 15.5 Ibs. To get this
information, it is necessary to change the form of frequency distribution from a
simple to a cumulative distribution. In a cumulative frequency distribution, the
frequency of each class is made to include the frequencies of all the lower or all the
upper classes depending upon the manner in which cumulation is done. The graph
of such a distribution is called a cumulative frequency curve or an Ogive.
There are two method of constructing ogives, namely:
(i) less than method, and
(ii) more than method
(iii) In less than method, we start with the upper limit of each class and go on
adding the frequencies.When these frequencies are plotted we get a rising
curve.In more than method, we start with the lower limit of each class
and we subtract the frequency of each class from total frequencies. When
these frequencies are plotted, we get a declining curve. This example
would illustrate both types of ogives.

25
Example : Draw ogives by both the methods from the following data.
Distribution of weights of the students of a college (Ibs.)
-----------------------------------------------------
Weights No. of Students
-----------------------------------------------------
90.5 – 100.5 5
100.5 – 110.5 34
110.5 – 120.5 139
120.5 – 130.5 300
130.5 – 140.5 367
140.5 – 150.5 319
150.5 – 160.5 205
160.5 – 170.5 76
170.5 – 180.5 43
180.5 – 190.5 16
190.5 – 200.5 3
200.5 – 210.5 4
210.5 – 220.5 3
220.5 – 230.5 1

Solution : First of all we shall find out the cumulative frequencies of the given
data by less than method.
--------------------------------------------------------------
Less than (Weights) Cumulative Frequency
--------------------------------------------------------------
100.5 5
110.5 39
120.5 178

26
130.5 478
140.5 845
150.5 1164
160.5 1369
170.5 1445
180.5 1488
190.5 1504
200.5 1507
210.5 1511
220.5 1514
230.5 1515

Plot these frequencies and weights on a graph paper. The curve formed is called an
Ogive Now we calculate the cumulative frequencies of the given data by more than
method.
--------------------------------------------------------------
More than (Weights) Cumulative Frequencies
--------------------------------------------------------------
90.5 1515
100.5 1510
110.5 1476
120.5 1337
130.5 1037
140.5 670
150.5 351
160.5 146
170.5 70
180.5 27

27
190.5 11
200.5 8
210.5 4
220.5 1

By plotting these frequencies on a graph paper, we will get a declining curve which
will be our cumulative frequency curve or Ogive by more than method.
Although the graphs are a powerful and effective method of presenting statistical
data, they are not under all circumstances and for all purposes complete substitutes
for tabular and other forms of presentation. The specialist in this field is one who
recognizes not only the advantages but also the limitations of these techniques. He
knows when to use and when not to use these methods and from his experience and
expertise is able to select the most appropriate method for every purpose.
Example :Draw an ogive by less than method and determine the number of
companies earning profits between Rs. 45 crores and Rs. 75 crores :
------------------------------------------------------------------------
Profits No. of Profits No. Of
(Rs. crores) Companies (Rs. crores) Companies
------------------------------------------------------------------------
10—20 8 60—70 10
20—30 12 70—80 7
30—40 20 80—90 3
40—50 24 90—100 1
50—6.0 15
------------------------------------------------------------------------
Solution :
OGIVE BY LESS THAN METHOD
-----------------------------------------------
Profits No.of
(Rs. crores) Companies
----------------------------------------------
Less than 20 8
Less than 30 20

28
Less than 40 40
Less than 50 64
Less than 60 79
Less than 70 89
Less than 80 96
Less than 90 99
Less than 100 100
-----------------------------------------------
It is clear from the graph that the number of companies getting profits less than
Rs.75 crores is 92 and the number of companies getting profits less than Rs. 45
crores is 51. Hence the number of companies getting profits between Rs. 45 crores
and Rs. 75 crores is 92 – 51 = 41.
Example : The following distribution is with regard to weight in grams of
mangoes of a given variety. If mangoes of weight less than 443 grams be
considered unsuitable for foreign market, what is the percentage of total mangoes
suitable for it? Assume the given frequency distribution to be typical of the variety:
------------------------------------------------------------------------------------------------
Weight in gms. No. of mangoes Weight in gms. No. of mangoes
------------------------------------------------------------------------------------------------
410 – 119 10 450 – 159 45
420 – 429 20 460 – 469 18
430 – 139 42 470 – 179 7
440 – 449 54
--------------------------------------------------------------------------------------------------
Draw an ogive of ‘more than’ type of the above data and deduce how many
mangoes will be more than 443 grams.
Solution : Mangoes weighting more than 443 gms. are suitable for foreign market.
Number of mangoes weighting more than 443 gms. lies in the last four classes.
Number of mangoes weighing between 444 and 449 grams would be
Total number of mangoes weighing more than 443 gms. = 32.4 + 45 + 18 + 7 =
102.4
Percentage of mangoes =

29
30
Therefore, the percentage of the total mangoes suitable for foreign market is 52.25.
OGIVE BY MORE THAN METHOD
------------------------------------------------------------------
Weight more than (gms.) No. of Mangoes
------------------------------------------------------------------
410 196
420 186
430 166
440 124
450 70
460 25
470 7
------------------------------------------------------------------
From the graph it can be seen that there are 103 mangoes whose weight will be
more than 443 gms. and are suitable for foreign market.
DIAGRAM
Statistical data can be presented by means of frequency tables, graphs and
diagrams. In this lesson, so far we have discussed the graphical presentation. Now
we shall take up the study of diagrams. There are many variety of diagrams but
here we are concerned with the following types only :
(i) Bar diagrams
(ii) Rectangles, squares and circles
Bar Diagram
A bar diagram may be simple or component or multiple. A simple bar diagram
is used to represent only one variable. Length of the bars is proportional to the
magnitude to be represented. But when we are interested in showing various
parts of a whole, then we construct component or composite bar diagrams.
Whenever comparisons of more than one variable is to be made at the same
time, then multiple bar chart, which groups two or more bar charts together, is
made use of. We shall now illustrate these by examples.
Example 1 : The following table gives the average approximate yield of rice in
Ibs, per acre in various countries of the world in 2000–05.

31
-------------------------------------------------------
Country Yield in lbs. per acre
-------------------------------------------------------
India 728
Siam 943
U.S.A. 1469
Italy 2903
Egypt 2153
Japan 2276
-------------------------------------------------------
Indicate this by a suitable diagram
Solution :
In the above example, bars have been erected vertically. Also bars may be erected
horizontally.
Example 2 : Draw a suitable diagram for the following date of expenditure of an
average working class family,
---------------------------------------------------------------------------
Item of Expenditure Percentage of Total Expenditure
---------------------------------------------------------------------------
Food 65
Clothing 10
Housing 12
Fuel and lighting 5
Miscellaneous 8
----------------------------------------------------------------------------
Solution : This is a case of percentage bar diagram as per cent of total expenditure
is given.
Example 3 : Represent the following data with a suitable diagram.
----------------------------------------------------

32
Year Men Women Children Total
----------------------------------------------------
1990 180 110 100 390
1995 200 140 125 465
2000 250 200 150 600
----------------------------------------------------
Solution : This is case of a component or composite bar diagram. In addition to the
number of men, women and children employed the total number of labour force for
the three years is obvious.
Example 4 : The following table gives the number of companies at work in India
for a few years. Represent the data by a suitable diagram.
---------------------------------------------------------------------------------
Year Public companies Private companies Total
---------------------------------------------------------------------------------
2000 5000 20,000 25,000
2001 4000 16,000 20,000
2002 6000 18,000 24,000
2003 7000 21,000 28,000
2004 5000 15,000 20,000
---------------------------------------------------------------------------------
Solution : The data can be shown with the help of a component bar diagram for
each year. Also it can be shown with the help of multiple bar diagram which is
drawn below. From the above diagram it is clear that comparison between the
number of private companies and public companies is very sharp as the data is
placed side by side. But as compared to a component bar diagram, no idea can be
formed about the total number of companies at work.

Circles or Pie Diagrams

When circles are drawn to represent its idea equivalent to the figures, they are said
to form piediagrams or circle diagrams. In case of circles the square roots of
magnitudes are proportional to the radius. Suppose we are given the following
figures 144, 81, 64, 16, 9 For the purpose of showing the data with the help of

33
circles, we shall find out the square roots of all the values. We get 12, 9, 8, 4 and 3.
Now we shall use these values as radii of the different circles. It may be noted that
in this case, bar diagram would not show the comparison and also it would be
difficult to draw as there is a wide gap between the smallest and the highest value
of the variate.
Sub-divided Pie-diagrams
Sub-divided pie-diagrams are used when comparison of the component parts is
done with another and the total. The total value is equated to 360° and then the
angles corresponding to component parts are calculated. Let us take an example.
Example : A rupee spent on “Khadi” is distributed as follows :
Farmer 20 Paise
Carder and spinner 35
Weaver 25
Washerman, dyer and printer 10
Administrative Agency 10
Total 100
Present the data in the form of a pie-diagram.
Solution : The angles subtended at the centre would be calculated as follows :
Expenditure Paise Angle
Farmer 20 72
Carder and spinner 35 126
Weaver 25 90
Washerman, dyer and printer 10 36
Administrative Agency 10 36
Total 100 360°
A sub-divided circle is drawn with the angles of 72°, 126°, 90°, 36° and 36° for the
various items of expenditure. The above data could also be presented by a
percentage bar diagram as there is not much difference between the smaller and the
highest values. It is simple and easier to draw a bar diagram in this case.

34
Choice of a Suitable Diagram
The choice of diagram out of several ones in a given situation is a ticklish problem.
The choice primarily depends upon two factors, (i) the nature of the data; and (ii)
the type of people for whom the diagram is needed. On the nature of the data
would depend whether to use one dimensional, two dimensional or three
dimensional diagram, and if it is one dimensional, whether to adopt the simple bar
or sub-divided bar, multiple bar or some other type.
While selecting the diagram the type of the people for whom the diagram is
intended must also be considered. For example, for drawing attention of an
uneducated mass, pictograms and cartograms are more effective.
There are different types of bars and the appropriate type of bar chart can be
divided on the following basis :
(a) Simple bar charts should be used where changes in totals are required to be
conveyed.
(b) Components bar charts are more useful where changes in totals as well as in the
size of component figures (absolute ones) are required to be displayed.
(c) Percentage composition bar charts are better suited where changes in the
relative size of components figures are to be exhibited.
(d) Multiple bar charts should be used where changes in the absolute values of the
components figures are to be emphasised and the overall total is of no importance.
However, multiple and component bar charts should be used only when there are
not more than three or four components as a large number of components make the
bar charts too complex to enable worthwhile visual impression to be gained. When
a large number of components have to be shown a pie chart is more suitable.
Occassionally, circles are used to represent size. But it is difficult to compare them
and they should not be used when it is possible to use bars. This is because it is
easier to compare the lengths of lines or bars than to compare areas or volume.

35
 UNIT-2(BUSINESS STSTISTICS)
MEASURES OF CENTRAL TENDENCY

What is Central Tendency?

One of the important objectives of statistics is to find out various numerical values
which explains the inherent characteristics of a frequency distribution. The first of
such measures is averages. The averages are the measures which condense a huge
unwieldy set of numerical data into single numerical values which represent the
entire distribution. The inherent inability of the human mind to remember a large
body of numerical data compels us to few constants that will describe the data.
Averages provide us the gist and give a bird’s eye view of the huge mass of
unwieldy numerical data. Averages are the typical values around which other items
of the distribution congregate. This value lie between the two extreme
observations of the distribution and give us an idea about the concentration of the
values in the central part of the distribution. They are called the measures of central
tendency.
Averages are also called measures of location since they enable us to locate the
position or place of the distribution in question. Averages are statistical constants
which enables us to comprehend in a single value the significance of the whole
group. According to Croxlon and Cowden, an average value is a single value
within the range of the data that is used to represent all the values in that series.
Since an average is some where within the range of data, it is sometimes called a
measure of central value. An average is the most typical representative item of the
group to which it belongs and which is capable of revealing all important
characteristics of that group or distribution.

What are the Objects of Central Tendency

The most important object of calculating an average or measuring central tendency

is to determine a single figure which may be used to represent a whole series
involving magnitudes of the same variable.

Second object is that an average represents the empire data, it facilitates

comparison within one group or between groups of data. Thus, the performance of

36
the members of a group can be compared with the average performance of
different groups.

Third object is that an average helps in computing various other statistical

measures such as dispersion,skewness, kurtosis etc. Essential of a Good Average
An average represents the statistical data and it is used for purposes of comparison,
it must possess the following properties.

1. It must be rigidly defined and not left to the mere estimation of the observer. If
the definition is rigid, the computed value of the average obtained by different
persons shall be similar.

2. The average must be based upon all values given in the distribution. If the item
is not based on all value it might not be representative of the entire group of data.
3. It should be easily understood. The average should possess simple and obvious
properties. It should be too abstract for the common people.
4. It should be capable of being calculated with reasonable care and rapidity.

5. It should be stable and unaffected by sampling fluctuations.

6. It should be capable of further algebraic manipulation.
Different methods of measuring “Central Tendency” provide us with different
kinds of averages. The following are the main types of averages that are commonly
used:
1. Mean
(i) Arithmetic mean
(ii) Weighted mean
(iii) Geometric mean
(iv) Harmonic mean
2. Median
3. Mode
Arithmetic Mean: The arithmetic mean of a series is the quotient obtained by
dividing the sum of the values by the number of items. In algebraic language, if
X1, X2, X3........Xn are the n values of a variate X.
Then the Arithmetic Mean is defined by the following formula:
=
=

37
Example : The following are the monthly salaries (Rs.) of ten employees in an
office. Calculate the mean salary of the employees: 250, 275, 265, 280, 400, 490,
670, 890, 1100, 1250.
Solution : =
= Rs. 587
Short-cut Method: Direct method is suitable where the number of items is
moderate and the figures are small sizes and integers. But if the number of items is
large and/or the values of the variate are big, then the process of adding together all
the values may be a lengthy process. To overcome this difficulty of computations,
a short-cut method may be used. Short cut method of computation is based on an
important characteristic of the arithmetic mean, that is, the algebraic sum of the
deviations of a series of individual observation from their mean is always equal to
zero. Thus deviations of the various values of the variate from an assumed mean
computed and the sum is divided by the number of items. The quotient obtained
is added to the assumed mean lo find the arithmetic mean.
Symbolically, = . where A is assumed mean and dx are deviations = (X – A).
We can solve the previous example by short-cut method.

Computation of Arithmetic Mean

Serial Salary (Rupees) Deviations from assumed mean

Number X where dx = (X – A), A = 400

1. 250 –150
2. 275 –125
3. 265 –135

4. 280 –120
5. 400 0
6. 490 +90
7. 670 +270
8. 890 +490

38
9. 1100 + 700
10. 1250 + 850

N = 10 ∑dx = 1870

By substituting the values in the formula, we get

=
Computation of Arithmetic Mean in Discrete series. In discrete series, arithmetic
mean may be computed by both direct and short cut methods. The formula
according to direct method is:
=

where the variable values X1 X2, .......... Xn, have frequencies f1, f2,................fn
and N = ∑f.

Example : The following table gives the distribution of 100 accidents during seven
days of the week in a given month. During a particular month there were 5 Fridays
and Saturdays and only four each of other days. Calculate the average number of
accidents per day.
Days : Sun. Mon. Tue. Wed. Thur. Fri. Sat. Total
Number of
accidents : 20 22 10 9 11 8 20 = 100

Solution : Calculation of Number of Accidents per Day

Day No. of No. of Days Total Accidents

Accidents in Month

X f fX

Sunday 20 4 80
Monday 22 4 88

39
Tuesday 10 4 40
Wednesday 9 4 36
Thursday 11 4 44
Friday 8 5 40
Saturday 20 5 100

100 N = 30 ∑fX = 428

= = 14.27 = 14 accidents per day

The formula for computation of arithmetic mean according to the short cut method
is = where A is assumed mean, dx = (X – A) and N = ∑f.
We can solve the previous example by short-cut method as given below :

Calculation of Average Accidents per Day

Day X dx = X – A f fdx

(where A = 10)

Sunday 20 + 10 4 + 40
Monday 22 + 12 4 + 48
Tuesday 10 +0 4 +0
Wednesday 9 –1 4 –4
Thursday 11 +1 4 +4
Friday 8 –2 5 – 10
Saturday 20 + 10 5 + 50

30 + 128

40
= = = 14 accidents per day

Calculation of arithmetic mean for Continuous Series: The arithmetic mean can be
computed both by direct and short-cut method. In addition, a coding method or
step deviation method is also applied for simplification of calculations. In any case,
it is necessary to find out the mid-values of the various classes in the frequency
distribution before arithmetic mean of the frequency distribution can be computed.
Once the mid-points of various classes are found out, then the process of the
calculation of arithmetic mean is same as in the case of discrete series. In case of
direct method, the formula to be used:

= , when m = mid points of various classes and N = total frequency In the short-cut
method, the following formula is applied:
= where dx = (m – A) and N = ∑f

The short-cut method can further be simplified in practice and is named coding
method. The deviations from the assumed mean are divided by a common factor to
reduce their size. The sum of the products of the deviations and frequencies is
multiplied by this common factor and then it is divided by the total frequency and
added to the assumed mean. Symbolically
= where and i = common factor

Example : Following is the frequency distribution of marks obtained by 50

students in a test of Statistics:

Marks Number of Students

0 – 10 4
10 – 20 6

20 – 30 20
30 – 40 10
40 – 50 7
50 – 60 3

41
Calculate arithmetic mean by:
(i) direct method.
(ii) short-cut method, and
(iii) coding method

Solution : Calculation of Arithmetic Mean

X f m fm dx = (m – A) fdx fd’x
(where A = 25) where i = 10

0 – 10 4 5 20 – 20 –2 – 80 –8
10 – 20 6 15 90 – 10 –1 – 60 –6
20 – 30 20 25 500 0 0 0 0
30 – 40 10 35 350 +10 +1 100 + 10
40 – 50 7 45 315 +20 +2 140 + 14
50 – 60 3 55 165 +30 +3 90 +9

-
N = 50 ∑fm = 1440 ∑fdx = 190 ∑fd’x =
19

--

Direct Method :
= = marks
Short-cut Method :
= marks
Coding Method :
= marks
We can observe that answer of average marks i.e. 28.8 is identical by all methods.

42
Mathematical Properties of the Arithmetic Mean
(i) The sum of the deviation of a given set of individual observations from the
arithmetic mean is always zero. Symbolically. = 0. It is due to this property that
the arithmetic mean is characterised as the centre of gravity i.e., the sum of
positive deviations from the mean is equal to the sum of negative deviations.
(ii) The sum of squares of deviations of a set of observations is the minimum
when deviations are taken from the arithmetic average. Symbolically, = smaller
than ∑ (X – any other value)2. We can verify the above properties with the help of
the following data:

Values Deviations from Deviations from Assumed Mean

3 –6 36 –7 49
5 –4 16 –5 25
10 1 1 0 0
12 3 9 2 4
15 6 36 5 25

Total = 45 0 98 –5 103

= where A (assumed mean) = 10

(iii) If each value of a variable X is increased or decreased or multiplied by a
constant k, the arithmetic mean also increases or decreases or multiplies by
the same constant.
(iv) If we are given the arithmetic mean and number of items of two or
more groups, we can compute the combined average of these groups by
apply the following formula :
=
where refers to combined average of two groups.

43
refers to arithmetic mean of first group.
refers to arithmetic mean of second group.
N1 refers to number of items of first group, and N2 refers to number of items of
second group
We can understand the property with the help of the following examples.
Example : The average marks of 25 male students in a section is 61 and average
marks of 35 female students in the same section is 58. Find combined average
marks of 60 students.
Solution : We are given the following information.

61, N1 = 25, = 58, N2 = 35

Apply =

Example : The mean wage of 100 workers in a factory, running two shifts of 60
and 40 workers respectively is Rs.38. The mean wage of 60 workers in morning
shift is Rs.40. Find the mean wage of 40 workers working in the evening shift.
Solution : We are given the following information
= 40, N1 = 60, = ?, N2 = 40, = 38, and N = 100
Apply =
38 = or 3800 = 2400 +
=

Example : The mean age of a combined group of men and women is 30 years. If
the mean age of the groupof men is 32 and that of women group is 27. find out the
percentage of men and women in the group.
Solution : Let us take group of men as first group and women as second group.
Therefore. = 32 years. =27 years, and = 30 years. In the problem, we are not given
the number of men and women. We can assume
N1 + N2 = 100 and therefore. N1 = 100 – N2
Apply =
30 = (Substitute N1 = 100 – N2)
30 × 100 = 32(100 – N2) + 27N2 or 5N2 = 200
N2 = 200/5 – 40%
N1 = (100 – N2) = (100 – 40) = 60%
Therefore, the percentage of men in the group is 60 and that of women is 40.

44
(v) Because =
» ∑X = N.

If we replace each item in the series by the mean, the sum of these substitutions
will be equal to the sum of the individual items. This property is used to find out
the aggregate values and corrected averages. We can understand the property with
the help of an example.
Example : Mean of 100 observations is found to be 44. If at the time of
computation two items are wrongly taken as 30 and 27 in place of 3 and 72. Find
the corrected average.
Solution : =

∑X = N. = 100 × 44 = 4400
Corrected ∑X = ∑X + correct items – wrong items = 4400 + 3 + 72 – 30 – 27 =
4418
Corrected average =

Calculation of Arithmetic mean for Open-End Classes

Open-end classes are those in which lower limit of the first class and the upper
limit of the last class are not defined. In these series, we can not calculate mean
unless we make an assumption about the unknown limits. The assumption depends
upon the class-interval following the first class and preceding the last class. For
example:

Marks No. of Students

Below 15 4
15 – 30 6
30 – 15 12
45 – 60 8
Above 60 7

In this example, because all defined class-intervals are same, the assumption would
be that the first and last class shall have same class-interval of 15 and hence the
lower limit of the first class shall be zero and upper limit of last class shall be 75.
Hence first class would be 0 – 15 and the last class 60 – 75.

45
What happens in this case?
Marks No. of Students
Below 10 4

10 – 30 7
30 – 60 10
60 – 100 8
Above 100 4

In this problem because the class interval is 20 in the second class, 30 in the third,
40 in the fourth class and so on. The class interval is increasing by 10. Therefore
the appropriate assumption in this case would be that the lower limit of the first
class is zero and the upper limit of the last class is 150. In case of other open-end
class distributions the first class limit should be fixed on the basis of succeeding
class interval and the last class limit should be fixed on the basis of preceding class
interval.
If the class intervals are of varying width, an effort should be made to avoid
calculating mean and mode. It is advisable to calculate median.

Weighted Mean
In the computation of arithmetic mean, we give equal importance to each item in
the series. Raja Toy Shop sell : Toy Cars at Rs. 3 each; Toy Locomotives at Rs. 5
each; Toy Aeroplane at Rs. 7 each; and Toy Double Decker at Rs. 9 each. What
shall be the average price of the toys sold ? If the shop sells 4 toys one of each
kind.

(Mean Price) =
In this case the importance of each toy is equal as one toy of each variety has been
sold. While computing the arithmetic mean this fact has been taken care of
including the price of each toy once only.
But if the shop sells 100 toys, 50 cars, 25 locomotives, 15 aeroplanes and 10
double deckers, the importance of the four toys to the dealer is not equal as a
source of earning revenue. In fact their respective importance is equal to the
number of units of each toy sold, i.e., the importance of Toy car is 50; the
importance of Locomotive is 25; the importance of Aeroplane is 15; and the
importance of Double Decker is 10.

46
It may be noted that 50, 25, 15, 10 are the quantities of the various classes of toys
sold. These quantities are called as ‘weights’ in statistical language. Weight is
represented by symbol W and SW represents the sum of weights.
While determining the average price of toy sold these weights are of great
importance and are taken into account to compute weighted mean.
=
where, W1, W2, W3, W4 are weights and X1, X2, X3, X4 represents the price of 4
varieties of toy.
Hence by substituting the values of W1, W2, W3, W4 and X1, X2, X3, X4, we get
=
=
The table given below demonstrates the procedure of computing the weighted
Mean.
Weighted Arithmetic mean of Toys by the Raja Shop.

Toy Price per toy (Rs.) Number Sold Price x Weight

X W WX

Car 3 50 150
Locomotive 5 25 125
Aeroplane 7 15 105
Double Decker 9 10 90

∑W = 100 ∑WX = 470

Example: The table below shows the number of skilled and unskilled workers in
two localities along with their average hourly wages.

47
 Ram Nagar Shyam Nagar
Worker Category Number Wages (per hour) Number Wages (per hour)

Skilled 150 1.80 350 1.75

Unskilled 850 1.30 650 1.25

Determine the average hourly wage in each locality. Also give reasons why the
results show that the average hourly wage in Shyam Nagar exceed the average
hourly wage in Ram Nagar even though in Shyam Nagar the average hourly wages
of both categories of workers is lower. It is required to compute weighted mean.
Solution :

Ram Nagar Shyam Nagar

X W WX X W WX

Skilled 1.80 150 270 1.75 350 612.50

Unskilled 1.30 850 1105 1.25 650 812.50

Total 1000 1375 1000 1425

It may be noted that weights are more evenly assigned to the different categories of
workers in Shyam Nagar than in Ram Nagar.
Geometric Mean :
In general, if we have n numbers (none of them being zero), then the GM. is
defined as

G.M. =

In case of a discrete series, if x1, x2,............. xn occur f1, f2,.................fn times

respectively and N is

48
the
total frequency (i.e. N = f1 + f2...................fn ), then
G.M. =

For convenience, use of logarithms is made extensively to calculate the nth root. In
terms of logarithms
G.M. =
= , where AL refers to antilog.
and in case of continuous series, G.M. =
Example: Calculate G.M. of the following data : 2, 4, 8

Solution: G.M. =
In terms of logarithms, the question can be solved as follows :
log 2 = 0.3010, log 4 = 0.6021, and log 8 = 9.9031
Apply the formula :
G.M. =

Example : Calculate geometric mean of the following data :

x 5 6 7 8 9 10 11
f 2 4 7 10 9 6 2

Solution : Calculation of G.M.

x log x f f log x

5 0.6990 2 1.3980
6 0.7782 4 3.1128
7 0.8451 7 5.9157
8 0.9031 10 9.0310
9 0.9542 9 8.5878
10 1.0000 6 6.0000
11 1.0414 2 2.0828

49
 N = 40 ∑f log x = 36.1281

G.M. =

Example : Calculate G.M. from the following data :

X f

9.5 – 14.5 10
14.5 – 19.5 15

19.5 – 24.5 17
24.5 – 29.5 25
29.5 – 34.5 18
34.5 – 39.5 12
39.5 – 44.5 8

Solution: Calculation of G.M.

X m log m f f log m

9.5 – 14.5 12 1.0792 10 10.7920

14.5 – 19.5 17 1.2304 15 18.4560
19.5 – 24.5 22 1.3424 17 22.8208
24.5 – 29.5 27 1.4314 25 35.7850
29.5 – 34.5 32 1.5051 18 27.0918
34.5 – 39.5 37 1.5682 12 18.8184
39.5 – 14.5 42 1.6232 8 12.9850

50
 N = 105 ∑f logm = 146.7410

Specific uses of G.M. : The geometric Mean has certain specific uses, some of
them are :
(i) It is used in the construction of index numbers.
(ii) It is also helpful in finding out the compound rates of change such as the rate
of growth of population in a country.
(iii) It is suitable where the data are expressed in terms of rates, ratios
and percentage.
(iv) It is quite useful in computing the average rates of depreciation
or appreciation.
(v) It is most suitable when large weights are to be assigned to small items
and small weights to large items.

Example : The gross national product of a country was Rs. 1.000 crores 10 years
earlier. It is Rs. 2,000 crores now. Calculate the rate of growth in G.N.P.
Solution: In this case compound interest formula will be used for computing the
average annual per cent increase of growth.

Pn = Po (l + r)n
where Pn = principal sum (or any other variate) at the end of the period.
Po = principal sum in the beginning of the period.
r = rate of increase or decrease.
n = number of years.
It may be noted that the above formula can also be written in the following form :

r=
Substituting the values given in the formula, we have
r=
=
Hence, the rate of growth in GNP is 7.18%.

Example : The price of commodity increased by 5 per cent from 2001 to 2002, 8
percent from 2002 to 2003 and 77 per cent from 2003 to 2004. The average
increase from 2001 to 2004 is quoted at 26 per cent and not 30 per cent. Explain

51
this slatement and verify the arithmetic.
Solution : Taking Pn as the price at the end of the period, Po as the price in the
beginning, we can substitute the values of Pn and Po in the compound interest
formula. Taking Po = 100; Pn = 200.72

Pn = Po (l + r)n

200.72 = 100 (1 + r)3

or (l + r)3 = or l+r=
r = – 1 = 1.260 – 1 = 0.260 = 26%

Thus increase is not average of (5 + 8 + 77)/3 = 30 percent. It is 26% as found out

by G.M.

Weighted G.M.: The weighted GM. is calculated with the help of the
following formula :
G.M. =
=
=
Example : Find out weighted G.M. from the following data :

Group Index Number Weights

Food 352 48
Fuel 220 10
Cloth 230 8
House Rent 160 12
Misc. 190 15

Solution : Calculation of Weighted GM.

Group Index Number (x) Weights (W) Log x w log x

52
Food 352 48 2.5465 122.2320
Fuel 220 10 2.3424 23.4240
Cloth 230 8 2.3617 17.8936
House Rent 160 12 2.2041 26.4492
Misc. 190 15 2.2788 34.1820

93 225.1808

G.M. =

Example: A machine depreciates at the rate of 35.5% per annum in the first year, at
the rate of 22.5% per annum in the second year, and at the rate of 9.5% per annum
in the third year, each percentage being computed on the actual value. What is the
average rate of depreciation?

Solution: Average rate of depreciation can be calculated by taking GM.

Year X (value is taking 100 as base) log X

I 100 – 35.5 = 64.5 1.8096

II 100 – 22.5 = 77.5 1.8893
III 100 – 9.5 = 90.5 1.9566

∑ log X = 5.6555

Apply G.M. =

Average rate of depreciation = 100-76.77 = 23.33%.

53
Example : The arithmetic mean and geometric mean of two values are 10 and 8
respectively. Find the values.
Solution : If two values are taken as a and b, then
and

or a + b = 20, ab = 64
then a – b =
Now, we have a + b = 20, ...(i)
Solving for a and b, we get a = 4 and b = 16....(ii)

Harmonic Mean : The harmonic mean is defined as the reciprocals of the average
of reciprocals of items in a series. Symbolically,
H. M. =
In case of a discrete series,
H. M. =
and in case of a continuous series,
H. M. =
It may be noted that none of the values of the variable should be zero.
Example: Calculate harmonic mean from the following data: 5, 15, 25, 35 and 45.
Solution :

X
5 0.20
15 0.067
25 0.040
35 0.029
45 0.022
N=5

H.M. =

Example : From the following data compute the value of the harmonic mean :
x : 5 15 25 35 45
f : 5 15 10 15 5
Solution : Calculation of Harmonic Mean

54
X f

5 5 0.200 1.000
15 15 0.067 1.005
25 10 0.040 0.400
35 15 0.29 0.435
45 5 0.022 0.110

∑f = 50

H.M. =
Example : Calculate harmonic mean from the following distribution :

x f
0 – 10 5
10 – 20 15
20 – 30 10
30 – 40 15
40 – 50 5

Solution : First of all, we shall find out mid points of the various classes. They are
5, 15, 25, 35 and 45.

Then we will calculate the H.M. by applying the following formula :

H.M. =
Calculation of Harmonic Mean

x (Mid Points) f

5 5 0.200 1.000
15 15 0.067 1.005
25 10 0.040 0.400

55
35 15 0.29 0.435
45 5 0.022 0.110

∑f = 50

H.M. =

Application of Harmonic Mean to special cases: Like Geometric means, the

harmonic mean is also applicable to certain special types of problems. Some of
them are:

(i) If in averaging time rates, distance is constant, then H.M. is to be calculated.

Example: A man travels 480 km a day. On the first day he travels for 12 hours @
40 km. per hour and second day for 10 hours @ 48 km. per hour. On the third
day he travels for 1.5 hours @ 32 km. per hour. Find his average speed.
Solution: We shall use the harmonic mean,
H.M. =
The arithmetic mean would be
(ii) If, in averaging the price data, the prices are expressed as “quantity per
rupee”. Then harmonic mean should be applied.
Example : A man purchased one kilo of cabbage from each of four places at the
rate of 20 kg. 16 kg. 12 kg., and 10 kg. per rupees respectively. On the average
how many kilos of cabbages he has purchased per rupee.
Solution : H.M. =

POSITIONAL AVERAGES
Median
The median is that value of the variable which divides the group in two equal
parts. One part comprising the values greater than and the other all values less than
median. Median of a distribution may be defined as that value of the variable
which exceeds and is exceeded by the same number of observation. It is the value
such that the number of observations above it is equal to the number of
observations below it.
Thus we know that the arithmetic mean is based on all items of the distribution, the

56
median is positional average, that is, it depends upon the position occupied by a
value in the frequency distribution.

When the items of a series are arranged in ascending or descending order of

magnitude the value of the middle item in the series is known as median in the case
of individual observation. Symbolically.
Median = size of th item
It the number of items is even, then there is no value exactly in the middle of the
series. In such a situation the median is arbitrarily taken to be halfway between the
two middle items. Symbolically.
Median =
Example : Find the median of the following series:
Solution : Computation of Median

(i) (ii)
Serial No. X Serial No. X
1315
2425
3437
4549
5 6 5 11
6 8 6 12
7 8 7 15
8 8 8 28
9 10
N=9N–8

Far (i) series Median = size of th item = size of the th item = size of 5th item = 6
For (ii) series Medium = size of th item = size of the th item
==

Location of Median in Discrete series: In a discrete series, medium is computed in

the following manner:
(i) Arrange the given variable data in ascending or descending order,
(ii) Find cumulative frequencies.
(iii) Apply Med. = size of th item

57
(iv) Locate median according to the size i.e., variable corresponding to the size
or for next cumulative frequency.

Example: Following are the number of rooms in the houses of a particular locality.
Find median of the data:
No. of rooms: 3 4 5 6 7 8
No of houses: 38 654 311 42 12 2

Solution: Computation of Median

No. of Rooms No. of Houses cumulative Frequency

X f Cf

3 38 38
4 654 692
5 311 1003
6 42 1045
7 12 1057
8 2 1059

Median = size of th item = size of th item = 530 th item.

Median lies in the cumulative frequency of 692 and the value corresponding to this
is 4
Therefore, Median = 4 rooms.
In a continuous series, median is computed in the following manner:
(i) Arrange the given variable data in ascending or descending order.
(ii) If inclusive series is given, it must he converted into exclusive series to
find real class interval
(iii) Find cumulative frequencies.
(iv) Apply Median = size of th item to ascertain median class.
(v) Apply formula of interpolation to ascertain the value of median.

58
Median = l1 + or Median = l2 –
where, l1 refers to lower limit of median class,
l2 refers to higher limit of median class,
cfo refers cumulative frequency of previous to median class,
f refers to frequency of median class,
Example: The following table gives you the distribution of marks secured by some
students in an examination:
Marks No. of Students

0—20 42
21—30 38
31—40 120
41—50 84
51— 60 48
61—70 36
71—80 31

Find the median marks.

Solution: Calculation of Median Marks

Marks No. of Students cf

(x) (f)

0 – 20 42 42
21 – 30 38 80
31 – 40 120 200
41 – 50 84 284
51 – 60 48 332
61 – 70 36 368
71 – 80 31 399

59
Median = size of th item = size of th item = 199.5 th item.
which lies in (31 – 40) group, therefore the median class is 30.5 – 40.5.
Applying the formula of interpolation.
Median = l1 +
= 30.5 +

Related Positional Measures: The median divides the series into two equal parts.
Similarly there are certain other measures which divide the series into certain equal
parts, there are first quartile, third quartile, deciles, percentiles etc. If the items are
arranged in ascending or descending order of magnitude, Qt is that value which
covers l/4th of the total number of items. Similarly, if the total number of items are
divided into ten equal parts, then, there shall be nine deciles.
Symbolically,

First decile (Q1) = size of th item

Third quartile (Q3) = size of th item

First decile (D1) = size of th item

Sixth decile (D6) = size of th item

First percentile (P1) = size of th item

Once values of the items are found out, then formulae of interpolation are applied
for ascertaining the value of Q1, Q2, D1, D4, P40 etc.

Example: Calculate Q1, Q3, D2, and P5, from following data:
Marks : Below 10 10 – 20 20 – 40 40 – 60 60 – 80 above 80
No. of Students: 8 10 22 25 10 5

Solution: Calculation of Positional Values

Marks No. of Students (f) C.f.

Below 10 8 8
10 – 20 10 18

60
20 – 40 22 40
40 – 60 25 65

60 – 80 10 75
Above 80 5 80

N = 80

Q1 = size of th item = = 20th item

Hence Qt lies in the class 20 – 40, apply
Q1 = where l1 = 20, Cfo = 18, f = 22 and i = (l2 – l1) = 20
By substituting the values, we get
Q1 =
Similarly, we can calculate
Q3 = size of th item = th item = 60th item
Hence Q3 lies in the class 40 – 60, apply
Q3 = where l1 = 40, , Cfo = 40, f = 25, i = 20
\ Q3 =
D2 = size of th item = 16th item. Hence D2 lies in the class 10 – 20.
D2 = where
D2 =
P5 = size of th item = th item = 4th item. Hence P5 lies in the class 0 – 10.
P5 = where l1 = 0, Cfo = 0, f = 8, i = 10
P5 =

Calculation of Missing Frequencies:

Example: In the frequency distribution of 100 families given below: the number of
families corresponding to expenditure groups 20 – 40 and 60 – 80 are missing from
the table. However the median is known to be 50. Find out the missing
frequencies.

Expenditure: 0 – 20 20 – 40 40 – 60 60 – 80 80 – 100
No. of families: 14 ? 27 ? 15

Solution: We shall assume the missing frequencies for the classes 20—40 to be x
and 60—80 to y

61
Expenditure (Rs.) No. of Families C.f.

0 – 20 14 14
20 – 40 x 14 + x
40 – 60 27 14 + 27 + x
60 – 80 y 41 + x + y
80 – 100 15 41 + 15 + x + y

N = 100 = 56 + x + y

From the table, we have N = SF = 56 + x + y = 100

x + y = 100 – 56 + 44
Median is given as 50 which lies in the class 40 – 60, which becomes the median
class, By using the median formula we get:
Median =
50 = or 50 =
or 50 – 40 = or 50 – 40 =
or 10 × 27 = 720 – 20x or 270 = 720 – 20x
20x = 720 – 270
x=
By substitution the value of x in the equation,
x + y = 44
We get, 22.5 + y = 44
y = 44 – 22.5 = 21.5
Hence frequency for the 20 – 40 is 22.5 and 60 – 80 is 21.5

Mode
Mode is that value of the variable which occurs or repeats itself maximum number
of item. The mode is most “ fashionable” size in the sense that it is the most
common and typical and is defined by Zizek as “the value occurring most

62
frequently in series of items and around which the other items are distributed most
densely.” In the words of Croxton and Cowden, the mode of a distribution is the
value at the point where the items tend to be most heavily concentrated. According
to A.M. Tuttle, Mode is the value which has the greater frequency density in its
immediate neighbourhood. In the case of individual observations, the mode is that
value which is repeated the maximum number of times in the series. The value of
mode can be denoted by the alphabet z also.

Example : Calculate mode from the following data:

Sr. Number : 1 2 3 4 5 6 7 8 9 10
Marks obtained : 10 27 24 12 27 27 20 18 15 30

Solution :

Marks No. of students

10 1
12 1
15 1
18 1
20 1
24 1
27 3 Mode is 27 marks
30 1

Calculation of Mode in Discrete series. In discrete series, it is quite often

determined by inspection.We can understand with the help of an example:

X 1 2 3 4 5 6 7
f 4 5 13 6 12 8 6

By inspection, the modal size is 3 as it has the maximum frequency. But this test of
greatest frequency is not fool proof as it is not the frequency of a single class, but

63
also the frequencies of the neighbour classes that decide the mode. In such cases,
we shall be using the method of Grouping and Analysis table.

Size of shoe 1 2 3 4 5 6 7
Frequency 4 5 13 6 12 8 6

Solution : By inspection, the mode is 3, but the size of mode may be 5. This is so
because the neighboring frequencies of size 5 are greater than the neighbouring
frequencies of size 3. This effect of neighbouring frequencies is seen with the help
of grouping and analysis table technique.

When there exist two groups of frequencies with equal magnitude, then we should
consider either both or omit both while analysing the sizes of items.

Analysis Table

Column Size of Items with Maximum Frequency

1 3
2 5, 6

3 1, 2, 3, 4, 5
4 4, 5, 6
5 5, 6, 7
6 3, 4, 5

Item 5 occurs maximum number of times, therefore, mode is 5. We can note that
by inspection we had determined 3 to be the mode.
Determination of mode in continuous series: In the continuous series, the
determination of mode requires one additional step. Once the modal class is
determined by inspection or with the help of grouping technique, then the
following formula of interpolation is applied:
Mode = or Mode =
l1 = lower limit of the class, where mode lies,

64
l2 = upper limit of the class, where mode lies,
f 0 = frequency of the class preceding the modal class.
f 1 = frequency of the class, where mode lies.
f 2 = frequency of the class succeeding the modal class.
Example: Calculate mode from the following frequency distribution:

Variable Frequency
0 – 10 5
10 – 20 10
20 – 30 15
30 – 40 14
40 – 50 10
50 – 60 5
60 – 70 3

Analysis Table

Column Size of Item with Maximum Frequency

1 20 – 30
2 20 – 30, 30 – 40
3 10 – 20, 20 – 30
4 0 – 10, 10 – 20, 30 – 40
5 10 – 20, 20 – 30, 30 – 40
6 20 – 30, 30 – 40, 40 – 50

Modal group is 20 – 30 because it has occurred 6 times. Applying the formula of

interpolation,
Mode =
=
Calculation of mode where it is ill defined. The above formula is not applied where
there are many modal values in a series or distribution. For instance there may be
two or more than two items having the maximum frequency. In these cases, the

65
series will be known as bimodal or multimodal series. The mode is said to be ill-
defined and in such cases the following formula is applied.
Mode = 3 Median – 2 Mean.
Example: Calculate mode of the following frequency data:

Variate Value Frequency

10 – 20 5
20 – 30 9
30 – 40 13
40 – 50 21
50 – 60 20
60 – 70 15
70 – 80 8
80 – 90 3

Solution : First of all, ascertain the modal group with the help of process of
grouping.

Analysis Table

Column Size of Item with Maximum Frequency

1 40 – 50
2 50 – 60, 60 – 70
3 40 – 50, 50 – 60
4 40 – 50, 50 – 60, 60 – 70
5 20 – 30, 30 – 40, 40 – 50, 50 – 60, 60 – 70, 70 – 80
6 30 – 40, 40 – 50, 50 – 60

There are two groups which occur equal number of items. They are 40 – 50 and 50
– 60. Therefore, we will apply the following formula:
Mode = 3 median – 2 mean and for this purpose the values of mean and median are
required to be computed.
Calculation of Mean and Median

66
Variate Frequency Mid Values
X f m d’x fd’x Cf

10 – 20 5 15 –3 – 15 5
20 – 30 9 25 –2 – 18 14
30 – 40 13 35 –1 – 13 27
40—50 21 45 0 0 48 Median is the
50—60 20 55 +1 + 20 68 value of
60—70 15 65 +2 + 30 83 item which lies

70—80 8 75 +3 + 24 91 in (40 – 50) group

80—90 3 85 +4 + 12 94

N = 94 ∑fd’ = + 40

= Med. =
= =
Mode = 3 median – 2 mean
= 3 (49.5)-2 (49.2)= 148.5-98.4 = 50.1

Determination of mode by curve fitting : Mode can also be computed by curve

fitting. The following steps are to be taken;
(i) Draw a histogram of the data.
(ii) Draw the lines diagonally inside the modal class rectangle, starting from
each upper corner of the rectangle to the upper corner of the adjacent rectangle.
(iii) Draw a perpendicular line from the intersection of the two diagonal lines to the
X-axis.
The abscissa of the point at which the perpendicular line meets is the value of the
mode.
Example : Construct a histogram for the following distribution and, determine the
mode graphically:

67
X : 0 – 10 10 – 20 20 – 30 30 – 40 40 – 50
f: 5 8 15 12 7
Verify the result with the help of interpolation.
Solution :
Mode =
=
Example: Calculate mode from the following data:

Marks No. of Students

Below 10 4
‘’ 20 6
‘’ 30 24
‘’ 40 46
‘’ 50 67
‘’ 60 86
‘’ 70 96
‘’ 80 99
‘’ 90 100

Solution :

Since we are given the cumulative frequency distribution of marks, first we shall
convert it into the normal frequency distribution:

Marks Frequencies

0 – 10 4
10 – 20 6–4=2
20 – 30 24 – 6 = 18
30 – 40 46 – 24 = 22
40 – 50 67 – 46 = 21

68
50 – 60 86 – 67 = 19
60 – 70 96 – 86 = 10
70 – 80 99 – 96 = 3
80 – 90 100 – 99 = 1

It is evident from the table that the distribution is irregular and maximum chances
are that the distribution would be having more than one mode. You can verify by
applying the grouping and analysing table.
The formula to calculate the value of mode in cases of bio-modal distributions is :
Mode = 3 median – 2 mean.
Computation of Mean and Median:

Marks Mid-value Frequency

(X) (f) Cf (dx) fdx

0 – 10 5 4 4 –4 – 16
10 – 20 15 2 6 –3 –6
20 – 30 25 18 24 –2 – 36
30 – 40 35 22 46 –1 – 22
40—50 45 21 67 0 0
50—60 55 19 86 1 19
60—70 65 10 96 2 20
70—80 75 3 99 3 9
80—90 85 1 100 4 4

∑f = 100 ∑fdx = – 28

Mean =
Median = size of item = = 50th item
Because 50 is smaller to 67 in C.f. column. Median class is 40 – 50
Median =

69
Median =
Apply, Mode = 3 median – 2 mean

Mode = 3 × 41.9 – 2 × 42.2 = 125.7 – 84.6 = 41.3

Example : Median and mode of the wage distribution are known to be Rs. 33.5 and
34 respectively. Find the missing values.

Wages (Rs.) No. of Workers

0 – 10 4
10 – 20 16
20 – 30 ?
30 – 40 ?
40 – 50 ?
50 – 60 6
60 – 70 4

Total = 230

Solution : We assume the missing frequencies as 20 – 30 as x, 30 – 40 as y, and 40

– 50 as 230 – (4 + 16 + x + y + 6 + 4) = 200 – x – y.
We now proceed further to compute missing frequencies:

Wages (Rs.), No. of workers Cumulative frequencies

X f C.f.

0 – 10 4 4
10 – 20 16 20
20 – 30 x 20 + x
30 – 40 y 20 + x + y

70
40 – 50 200 – x – y 220
50 – 60 6 226
60 – 70 4 230

N = 230

Apply, Median =
33.5 =
y(33.5 – 30) = (115 – 20 – x)10
3.5y = 1150 – 200 – 10x
10x + 3.5y = 950 ...(i)
Apply, Mode =
34 =
4(3y – 200) = 10(y – x)
10x + 2y = 800 ...(ii)
Subtract equation (ii) from equation (i),
1.5y = 150, y =
Substitute the value of y = 100 in equation (i), we get

10x + 3.5(100) = 950

10x = 950 – 350
x = 600/10 = 60
\Third missing frequency = 200 – x – y = 200 – 60 – 100 = 40.

71
MEASURES OF DISPERSION

Why dispersion?
Measures of central tendency, Mean, Median, Mode, etc., indicate the central
position of a series. They indicate the general magnitude of the data but fail to
reveal all the peculiarities and characteristics of the series. In other words, they fail
to reveal the degree of the spread out or the extent of the variability in individual
items of the distribution. This can be explained by certain other measures, known
as ‘Measures of Dispersion’ or Variation.
We can understand variation with the help of the following example :

Series 1 Series 11 Series III

10 2 10
10 8 12
10 20 8

∑X = 30 30 30

In all three series, the value of arithmetic mean is 10. On the basis of this average,
we can say that the series are alike. If we carefully examine the composition of
three series, we find the following differences:
(i) In case of 1st series, three items are equal; but in 2nd and 3rd series, the
items are unequal and do not follow any specific order.
(ii) The magnitude of deviation, item-wise, is different for the 1st, 2nd and 3rd
series. But all these deviations cannot be ascertained if the value of simple mean
is taken into consideration.
(iii) In these three series, it is quite possible that the value of arithmetic mean is
10; but the value of median may differ from each other. This can be understood as
follows ;

72
I II III
10 2 8
10 Median 8 Median 10 Median
10 20 12

The value of Median’ in 1st series is 10, in 2nd series = 8 and in 3rd series = 10.
Therefore, the value of the Mean and Median are not identical.
(iv) Even though the average remains the same, the nature and extent of the
distribution of the size of the items may vary. In other words, the structure of
the frequency distributions may differ even (though their means are identical.

What is Dispersion?
Simplest meaning that can be attached to the word ‘dispersion’ is a lack of
uniformity in the sizes or quantities of the items of a group or series. According to
Reiglemen, “Dispersion is the extent to which the magnitudes or quantities of the
items differ, the degree of diversity.” The word dispersion may also be used to
indicate the spread of the data.
In all these definitions, we can find the basic property of dispersion as a value
that indicates the extent to which all other values are dispersed about the central
value in a particular distribution.

Properties of a good measure of Dispersion

There are certain pre-requisites for a good measure of dispersion:
1. It should be simple to understand.
2. It should be easy to compute.
3. It should be rigidly defined.
4. It should be based on each individual item of the distribution.
5. It should be capable of further algebraic treatment.
6. It should have sampling stability.
7. It should not be unduly affected by the extreme items.

Types of Dispersion
The measures of dispersion can be either ‘absolute’ or “relative”. Absolute
measures of dispersion are expressed in the same units in which the original data
are expressed. For example, if the series is expressed as Marks of the students in a

73
particular subject; the absolute dispersion will provide the value in Marks. The
only difficulty is that if two or more series are expressed in different units, the
series cannot be compared on the basis of dispersion.
‘Relative’ or ‘Coefficient’ of dispersion is the ratio or the percentage of a measure
of absolute dispersion to an appropriate average. The basic advantage of this
measure is that two or more series can be compared with each other despite the fact
they are expressed in different units. Theoretically, ‘Absolute measure’ of
dispersion is better. But from a practical point of view, relative or coefficient of
dispersion is considered better as it is used to make comparison between series.

Methods of Dispersion
Methods of studying dispersion are divided into two types :
(i) Mathematical Methods: We can study the ‘degree’ and ‘extent’ of variation by
these methods. In this category, commonly used measures of dispersion are :
(a) Range
(b) Quartile Deviation
(c) Average Deviation
(d) Standard deviation and coefficient of variation.
(ii) Graphic Methods: Where we want to study only the extent of
variation, whether it is higher or lesser a Lorenz-curve is used.

Mathematical Methods

(a) Range
It is the simplest method of studying dispersion. Range is the difference between
the smallest value and the largest value of a series. While computing range, we do
not take into account frequencies of different groups.
Formula: Absolute Range = L – S
Coefficient of Range =
where, L represents largest value in a distribution
S represents smallest value in a distribution
We can understand the computation of range with the help of examples of different
series,
(i) Raw Data: Marks out of 50 in a subject of 12 students, in a class are given
as follows:
12, 18, 20, 12, 16, 14, 30, 32, 28, 12, 12 and 35.

74
In the example, the maximum or the highest marks obtained by a candidate is ‘35’
and the lowest marks obtained by a candidate is ‘12’. Therefore, we can calculate
range;
L = 35 and S = 12
Absolute Range = L – S = 35 – 12 = 23 marks
Coefficient of Range =

(ii) Discrete Series

Marks of the Students in No. of students

Statistics (out of 50)

(X) (f)

Smallest 10 4
12 10
18 16
Largest 20 15

Total = 45

Absolute Range = 20 – 10 = 10 marks

Coefficient of Range =

(iii) Continuous Series

X Frequencies

10 – 15 4
S = 10 15 – 20 10

75
L = 30 20 – 25 26
25 – 30 8

Absolute Range = L – S = 30 – 10 = 20 marks

Coefficient of Range =
Range is a simplest method of studying dispersion. It takes lesser time to compute
the ‘absolute’ and ‘relative’ range. Range does not take into account all the values
of a series, i.e. it considers only the extreme items and middle items are not given
any importance. Therefore, Range cannot tell us anything about the character of
the distribution. Range cannot be computed in the case of “open ends’ distribution
i.e., a distribution where the lower limit of the first group and upper limit of the
higher group is not given.
The concept of range is useful in the field of quality control and to study the
variations in the prices of the shares etc.

(b) Quartile Deviations (Q.D.)

The concept of ‘Quartile Deviation does take into account only the values of the
‘Upper quartile (Q3) and the ‘Lower quartile’ (Q1). Quartile Deviation is also
called ‘inter-quartile range’. It is a better method when we are interested in
knowing the range within which certain proportion of the items fall.
‘Quartile Deviation’ can be obtained as :
(i) Inter-quartile range = Q3 – Q1
(ii) Semi-quartile range =
(iii) Coefficient of Quartile Deviation =

Calculation of Inter-quartile Range, semi-quartile Range and Coefficient of

Quartile Deviation in case of Raw Data
Suppose the values of X are : 20, 12, 18, 25, 32, 10
In case of quartile-deviation, it is necessary to calculate the values of Q1 and Q3
by arranging the given data in ascending of descending order.
Therefore, the arranged data are (in ascending order):
X = 10, 12, 18, 20, 25, 32
No. of items = 6
Q1 = the value of item = = 1.75th item

76
= the value of 1st item + 0.75 (value of 2nd item – value of 1st item)
= 10 + 0.75 (12 – 10) = 10 + 0.75(2) = 10 + 1.50 = 11.50
Q3 = the value of item =
= the value of 3(7/4)th item = the value of 5.25th item
= 25 + 0.25 (32 – 25) = 25 + 0.25 (7) = 26.075

Therefore,
(i) Inter-quartile range = Q3 – Q1 = 26.75 – 11.50 = 15.25
(ii) Semi-quartile range =
(iii) Coefficient of Quartile Deviation =

Calculation of Inter-quartile Range, semi-quartile Range and Coefficient of

Quartile Deviation in discrete series
Suppose a series consists of the salaries (Rs.) and number of the workers in a
factory:

Salaries (Rs.) No. of workers

60 4
100 20
120 21
140 16
160 9

In the problem, we will first compute the values of Q3 and Q1

Salaries (Rs.) No. of workers Cumulative frequencies

(x) (f) (c.f.)

77
60 4 4
100 20 24 – Q1 lies in this cumulative
120 21 45 frequency
140 16 61 – Q3 lies in this cumulative
160 9 70 frequency

N = Sf = 70

Calculation of Q1 : Calculation of Q3 :
Q1 = size of th item Q3 = size of th item
= size of th item = 17.75 = size of th item = 53.25th item
17.75 lies in the cumulative frequency 24, 53.25 lies in the cumulative frequency
61 which
which is corresponding to the value Rs. 100 is corresponding to Rs. 140
Q1 = Rs. 100 Q3 = Rs. 140

(i) Inter-quartie range = Q3 – Q1 = Rs. 140 – Rs. 100 = Rs. 40

(ii) Semi-quartie range =
(iii) Coefficient of Quartile Deviation =

Calculation of Inter-quartile range, semi-quartile range and Coefficient of Quartile

Deviation in case of continuous series
We are given the following data :

Salaries (Rs.) No. of Workers

10 – 20 4
20 – 30 6
30 – 10 10
40 – 50 5

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Total = 25
In this example, the values of Q3 and Q1 are obtained as follows:

Salaries (Rs.) No. of workers Cumulative frequencies

(x) (f) (c.f.)
10 – 20 4 4
20 – 30 6 10
30 – 40 10 20
40 – 50 5 25
N = 25

Q1 =
Therefore, . It lies in the cumulative frequency 10, which is corresponding to class
20 – 30.
Therefore, Q1 group is 20 – 30.
where, l1 = 20, f = 6, i = 10, and cfo = 4
Q1 =
Q3 =
Therefore, = 18.75, which lies in the cumulative frequency 20, which is
corresponding to class 30 –40, Therefore Q3 group is 30 – 40.
where, l1 = 30, i = 10, cf0 = 10, and f = 10
Q3 = = Rs. 38.75
Therefore :
(i) Inter-quartile range = Q3 – Ql = Rs. 38.75 – Rs. 23.75 = Rs.15.00
(iii) Semi-quartile range =
(iii) Coefficient of Quartile Deviation =

Advantages of Quartile Deviation

Some of the important advantages are :
(i) It is easy to calculate. We are required simply to find the values of Q1 and
Q3 and then apply the formula of absolute and coefficient of quartic deviation.
(ii) It has better results than range method. While calculating range, we
consider only the extreme values that make dispersion erratic, in the case of
quartile deviation, we take into account middle 50% items.

79
(iii) The quartile deviation is not affected by the extreme items.
Disadvantages
(i) It is completely dependent on the central items. If these values are irregular
and abnormal the result is bound to be affected.

(ii) All the items of the frequency distribution are not given equal importance
in finding the values of Q1 and Q3.
(iii) Because it does not take into account all the items of the series, considered
to be inaccurate.
Similarly, sometimes we calculate percentile range, say, 90th and 10th percentile
as it gives slightly better measure of dispersion in certain cases.
(i) Absolute percentile range = P90 – P10.
(ii) Coefficient of percentile range =
This method of calculating dispersion can be applied generally in case of open end
series where the importance of extreme values are not considered.

(c) Average Deviation

Average deviation is defined as a value which is obtained by taking the average of
the deviations of various items from a measure of central tendency Mean or
Median or Mode, ignoring negative signs. Generally, the measure of central
tendency from which the deviations arc taken, is specified in the problem. If
nothing is mentioned regarding the measure of central tendency specified than
deviations are
taken from median because the sum of the deviations (after ignoring negative
signs) is minimum.
Computation in case of raw data
(i) Absolute Average Deviation about Mean or Median or
Mode= where: N = Number of observations,
|d| = deviations taken from Mean or Median or Mode ignoring signs.
(ii) Coefficient of A.D. =
Steps to Compute Average Deviation :
(i) Calculate the value of Mean or Median or Mode
(ii) Take deviations from the given measure of central-tendency and they
are shown as d.
(iii) Ignore the negative signs of the deviation that can be shown as \d\ and add
them to find S|d|.
80
(iv) Apply the formula to get Average Deviation about Mean or Median or
Mode. Example : Suppose the values are 5, 5, 10, 15, 20. We want to calculate
Average Deviation and Coefficient of Average Deviation about Mean or Median
or Mode. Solution : Average Deviation about mean (Absolute and Coefficient).

Deviation from mean Deviations after ignoring signs

(x) d |d|

5 –6 6=
5 –6 6 where N = 5. SX = 55
10 +1 1
15 +4 4
20 +9 9

∑X = 55 ∑| d | = 26

Average Deviation about Mean =

Coefficient of Average Deviation about mean =
Average Deviation (Absolute and Coefficient) about Median

Average Deviation about Mode =

Coefficient of Average Deviation about Mode =
Average deviation in case of discrete and continuous series
Average Deviation about Mean or Median or Mode =
where N = No. of items
|d| = deviations from Mean or Median or Mode after ignoring signs.
Coefficient of A.D. about Mean or Median or Mode =
Example: Suppose we want to calculate coefficient of Average Deviation about
Mean from the following discrete series:

81
X Frequency
10 5
15 10
20 15
25 10
30 5

Solution: First of all, we shall calculate the value of arithmetic Mean,

Calculation of Arithmetic Mean

Coefficient of Average Deviation about Mean =

Average Deviation about Mean =
In case we want to calculate coefficient of Average Deviation about Median from
the following data:
Class Interval Frequency
10 – 14 5
15 – 19 10
20 – 24 15

25 – 29 10
30 – 34 5

First of all we shall calculate the value of Median but it is necessary to find the
‘real limits’ of the given class-intervals. This is possible by subtracting 0.5 from all
the lower-limits and add 0.5 to all the upper limits of the given classes. Hence, the
real limits shall be : 9.5 – 14.5, 14.5 – 19.5, 19.5 – 24.5, 24.5 – 29.5 and 29.5 –
34.5
Calculation of Median

Advantages of Average Deviations

1. Average deviation takes into account all the items of a series and hence,
it provides sufficiently representative results.
2. It simplifies calculations since all signs of the deviations are taken as positive.

3. Average Deviation may be calculated either by taking deviations from Mean

or Median or Mode.
4. Average Deviation is not affected by extreme items.

82
5. It is easy to calculate and understand.
6. Average deviation is used to make healthy comparisons.

Disadvantages of Average Deviations

1. It is illogical and mathematically unsound to assume all negative signs
as positive signs.
2. Because the method is not mathematically sound, the results obtained by
this method are not reliable.
3. This method is unsuitable for making comparisons either of the series
or structure of the series.
This method is more effective during the reports presented to the general public or
to groups who are not familiar with statistical methods.
(d) Standard Deviation
The standard deviation, which is shown by greek letter s (read as sigma) is
extremely useful in judging the representativeness of the mean. The concept of
standard deviation, which was introduced by Karl Pearson has a practical
significance because it is free from all defects, which exists in a range, quartile
deviation or average deviation.
Standard deviation is calculated as the square root of average of squared
deviations taken from actual mean. It is also called root mean square deviation.
The square of standard deviation i.e., s2 is called ‘variance’.
Calculation of standard deviation in case of raw data
There are four ways of calculating standard deviation for raw data:
(i) When actual values are considered;
(ii) When deviations are taken from actual mean;
(iii) When deviations are taken from assumed mean; and
(iv) When ‘step deviations’ are taken from assumed mean.

(i) When the actual values are considered:

σ = where, N = Number of the items,
or σ2 = X = Given values of the series,
= Arithmetic mean of the series
We can also write the formula as follows :
σ = where, =

83
Steps to calculate σ
(i) Compute simple mean of the given values,
(ii) Square the given values and aggregate them
(iii) Apply the formula to find the value of standard deviation
Example: Suppose the values are given 2, 4, 6, 8, 10. We want to apply the formula

σ=
Solution: We are required to calculate the values of N, , SX2. They are calculated
as follows :

X X2
2 4
4 16
6 36
8 64
10 100
N = 5 ∑X2 = 220

σ=
Variance (σ)2 =
=

(ii) When the deviations are taken from actual mean

σ = where, N = no. of items and x = (X – )
Steps to Calculate σ
(i) Compute the deviations of given values from actual mean i.e., (X – ) and
represent them by x.
(ii) Square these deviations and aggegate them
(iii) Use the formula, σ =
Example : We are given values as 2, 4, 6, 8, 10. We want to find out standard
deviation.

X (X – ) = x x2
2 2–6=–4 (– 4)2 = 16
4 4–6=–2 (– 2)2 = 4
6 6 –6 = 0 =0
8 8–6=+2 (2)2 = 4

84
10 10 – 6 = + 4 (4)2 = 16
N=5 ∑x2 = 40

(iii) When the deviations are taken from assumed mean

σ=
where, N = no. of items,

dx = deviations from assumed mean i.e., (X – A).

A = assumed mean
Steps to Calculate :
(i) We consider any value as assumed mean. The value may be given in the
series or may not be given in the series.
(ii) We take deviations from the assumed value i.e., (X – A), to obtain dx for the
series and aggregate them to find ∑dx.
(iii) We square these deviations to obtain dx2 and aggregate them to find ∑dx2.
(iv) Apply the formula given above to find standard deviation.

Example : Suppose the values are given as 2, 4, 6, 8 and 10. We can obtain the
standard deviation as:

X dx = (X – A) dx2

2 – 2 = (2 – 4) 4
assumed mean (A) 4 0 = (4 – 4) 0
6 + 2 = (6 – 4) 4
8 + 4 = (8 – 4) 16
10 + 6 = (10 – 4) 36

N=5 ∑dx = 10 ∑dx2 = 60

(iv) When step deviations are taken from assumed mean

σ=
where, i = common factor, N = number of item, dx (Step-deviations) =

85
Steps to Calculate :
(i) We consider any value as assumed mean from the given values or from outside.
(ii) We take deviation from the assumed mean i.e. (X – A).
(iii) We divide the deviations obtained in step (ii) with a common factor to
find step deviations and represent them as dx and aggregate them to obtain
∑dx.
(iv) We square the step deviations to obtain dx2 and aggregate them to find ∑dx2.
Example : We continue with the same example to understand the computation of
Standard Deviation.

X d = (X – A) dx = and i = 2 dx2
2–211
A=4000
6+211
8+424
10 + 6 3 9

N = 5 Sdx = 5 Sdx2 = 15

s = where N = 5, i = 2, dx = 5, and Sdx2 = 15

s=
Note :We can notice an important point that the standard deviation value is
identical by four methods. Therefore any of the four formulae can be applied to
find the value of standard deviation. But the suitability of a formula depends on the
magnitude of items in a question.
Coefficient of Standard-deviation =
In the above given example, s = 2.828 and = 6
Therefore, coefficient of standard deviation =

Coefficient of Variation or C. V.
=
Generally, coefficient of variation is used to compare two or more series. If
coefficient of variation (C.V.) is more for one series as compared to the other,
there will be more variations in that series, lesser stability or consistency in its
composition. If coefficient of variation is lesser as compared to other series, it will
be more stable or consistent. Moreover that series is always better where
coefficient of variation or coefficient of standard deviation is lesser.
86
Example : Suppose we want to compare two firms where the salaries of the
employees are given as follows:

Firm A FirmB
No. of workers 100 100
Mean salary (Rs.) 100 80
Standard-deviation (Rs.) 40 45

Solution : We can compare these firms either with the help of coefficient of
standard deviation or coefficient of variation. If we use coefficient of variation,
then we shall apply the formula :

Firm A Firm B
C.V. = C.V. =
= 100, σ = 40. = 80, σ = 45

Because the coefficient of variation is lesser for firm A than firm B, therefore, firm
A is less variable and more stable.
Calculation of standard-deviation in discrete and continuous series
We use the same formula for calculating standard deviation for a discrete series
and a continuous series. The only difference is that in a discrete series, values and
frequencies are given whereas in a continuous series, class-intervals and
frequencies are given. When the mid-points of these class-intervals are obtained, a
continuous series takes shape of a discrete series. X denotes values in a discrete
series and mid points in a continuous series.
When the deviations are taken from actual mean
We use the same formula for calculating standard deviation for a continuous series

σ=
where N = Number of items
f = Frequencies corresponding to different values or class-intervals.
x = Deviations from actual mean (X – ).
X = Values in a discrete series and mid-points in a continuous series.

Step to calculate σ
(i) Compute the arithmetic mean by applying the required formula.
(ii) Take deviations from the arithmetic mean and represent these deviations by x.

87
(iii) Square the deviations to obtain values of x .
(iv) Multiply the frequencies of different class-intervals with x2 to find fx2.
Aggregate fx2 column to obtain ∑ fx2.
(v) Apply the formula to obtain the value of standard
deviation. If we want to calculate variance then we can
compute σ2 =
Example : We can understand the procedure by taking an example :

σ = where, N = 45, ∑fx2 = 1500

σ =
When the deviations are taken from assumed mean
In some cases, the value of simple mean may be in fractions, them it becomes time
consuming to
take deviations and square them. Alternatively, we can take deviations from the
assumed mean.
σ =
where N = Number of the items,
dx = deviations from assumed mean (X – A),
f = frequencies of the different groups,
A = assumed mean and
X = Values or mid points.
Step to calculate σ
(i) Take the assumed mean from the given values or mid points.
(ii) Take deviations from the assumed mean and represent them by dx.
(iii) Square the deviations to get dx2 .
(iv) Multiply f with dx of different groups to abtain fdx and add them up
to get ∑fdx.
(v) Multiply f with dx2 of different groups to abtain fdx2 and add them up to
get ∑fdx2.
(vi) Apply the formula to get the value of standard deviation.

Steps to calculate σ
(i) Take deviations from the assumed mean of the calculated mid-points and divide
all deviations by a common factor (i) and represent these values by dx.
(ii) Square these step deviations dx to obtain dx2 for different groups.
88
(iii) Multiply f with dx of different groups to find fdx and add them to obtain fdx .
(iv) Multiply f with dx2 of different groups to find fdx2 for different groups and
add them to obtain ∑fdx2.
(v) Apply the formula to find standard deviation.

Advantages of Standard Deviation

(i) Standard deviation is the best measure of dispersion because it takes into
account all the items and is capable of future algebric treatment and
statistical analysis.
(ii) It is possible to calculate standard deviation for two or more series.
(iii) This measure is most suitable for making comparisons among two or
more series about varibility.
Disadvantages
(i) It is difficult to compute.
(ii) It assigns more weights to extreme items and less weights to items that are
nearer to mean. It is because of this fact that the squares of the deviations
which are large in size would be proportionately greater than the squares of
those deviations which are comparatively small.

Mathematical properties of standard deviation (σ)

(i) If deviations of given items are taken from arithmetic mean and squared
then the sum of squared deviation should be minimum, i.e., = Minimum,
(ii) If different values are increased or decreased by a constant, the standard
deviation will remain the same. If different values arc multiplied or divided by a
constant than the standard deviation will be multiplied or divided by that
constant.
(iii) Combined standard deviation can be obtained for two or more series
with below given formula:
σ12 =
where:

N1 represents number of items in first series,

N2 represents number of items in second series,
represents variance of first series,
represents variance of second series,
d1 represents the difference between
d2 represents the difference between
89
represents arithmetic mean of first series,
represents arithmetic mean of second series,
represents combined arithmetic mean of both the series.

Example : Find the combined standard deviation of two series, from the below
given information :
First Series Second Series
No. of items 10 15
Arithmetic means 15 20
Standard deviation 4 5

Solution : Since we are considering two series, therefore combined standard

deviation is computed by the following formula :

σ12 =
where: N1 = 10, N2 = 15, , , σ1 = 4, s2 = 5
=
or =
d1 =
By applying the formula of combined standard deviation, we get :
σ12 =
=
=
(iv) Standard deviation of n natural numbers can he computed as
: σ = where, N represents number of items.

(v) For a symmetrical distribution

+ σ covers 68.27% of items.
+ 2σ covers 95.45% of items.
+ 3σ covers 99.73% of items.

Example : You are heading a rationing department in a State affected by food

shortage. Local investigators submit the following report:

Daily calorie value of food available per adult during current period :
Area Mean Standard deviation

90
A 2,500 400
B 2,000 200

The estimated requirement of an adult is taken at 2,800 calories daily and the
absolute minimum is 1,350. Comment on the reported figures, and
determine which area, in your opinion, need more urgent attention.
Solution : We know that + σ covers 68.27% of items. + 2σ covers 95.45% of items
and + 3σ covers 99.73% . In the gjven problem if we take into consideration
99.73%. i.e., almost the whole population, the limits would be + 3σ.

For Area A these limits are :

+ 3σ = 2,500 + (3 × 400) = 3,700
– 3σ = 2,500 – (3 × 400) = 1,300
For Area B these limits are :
+ 3σ = 2,000 + (3 × 200) = 2,600
– 3σ = 2,000 – (3 × 200) = 1,400

It is clear from above limits that in Area A there are some persons who are getting
1300 calories, i.e. below the minimum which is 1,350. But in case of area B there
is no one who is getting less than the minimum. Hence area A needs more urgent
attention.

(vi) Relationship between quartile deviation, average deviation and

standard deviation is given as:
Quartile deviation = 2/3 Standard deviation
Average deviation = 4/5 Standard deviation
(vii) We can also compute corrected standard deviation by using the following
formula :
Correct σ =
(a) Compute corrected =
where, corrected ∑f = ∑X + correct items – wrong items
where, ∑X = N.
(b) Compute corrected ∑X2 =∑ X2 + (Each correct item)2 – (Each wrong
item}2 where, ∑X2 = Nσ1 +

Example : (a) Find out the coefficient of variation of a series for which the
following results are given :

91
N = 50, ∑X’ = 25, ∑X’2 = 500 where: X’ = deviation from the assumed average 5.
(b) For a frequency distribution of marks in statistics of 100 candidates, (grouped
in class inervals of 0 – 10, 10 – 20) the mean and standard deviation were found to
be 45 and 20. Later it was discovered that the score 54 was misread as 64 in
obtaining frequency distribution. Find out the correct mean and correct standard
deviation of the frequency destribution.
(c) Can coefficient of variation be greater than 100%? If so, when?
Solution : (a) We want to calculate, coefficient of variation which is =

Therefore, we are required to calculate mean and standard deviation.

Calculation of simple mean

= where, A = 5, N = 50, ∑X’ = 25

Calculation of standard deviation

σ=
Calculation of Coefficient of variation
C.V. =

(b) Given = 45, σ = 20, N = 100, wrong value = 64, correct value = 54
Since this is a case of continuous series, therefore, we will apply the formula for
mean and standard deviation that are applicable in a continuous series.

Calculation of correct Mean

= or N = ∑fX
By substituting the values, we get 100 × 45 = 4500
Correct ∑fX = 4500 – 64 + 54 = 4490
Correct =

Calculation of correct σ
σ = or σ2 =
where, σ = 20, N = 100, = 45
(20)2 =
or 400 =
or 400 + 2025 =
or 2425 × 100 = ∑fX2 = 242500
\ Correct ∑fX2 = 242500 – (64)2 + (54)2 = 242500 – 4096 + 2916 = 242500 –

92
1180 = 241320
Correct σ =

(c) The formulae for the computation of coefficient of variation is =

Hence, coefficient of variation can be greater than 100% only when the value of
standard deviation is greater than the value of mean.
This will happen when data contains a large number of small items and few items
are quite large. In such a case the value of simple mean will be pulled down and
the value of standard deviation will go up. Similarly, if there arc negative items in
a series, the value of mean will come down and the value of standard deviation
shall not be affecied because of squaring the deviations.
Example : In a distribution of 10 observations, the value of mean and standard
deviation are given as 20 and 8. By mistake, two values are taken as 2 and 6
instead of 4 and 8. Find out the value of correct mean and variance.
Solution : We are given: N – 10, = 20, σ = 3
Wrong values = 2 and 6 and Correct values = 4 and 8
Calculation of correct Mean
=
∑X = 10 × 20 = 200
But ∑X is incorrect. Therefore we shall find correct ∑X.
Correct ∑X = 200 – 2 – 6 + 4 + 8 = 204
Correct Mean =
Calculation of correct variance
σ=
or σ2 =
or (8)2 =
or 64 + 400 =
or ∑X2 = 4640
But this is wrong and hence we shall compute correct ∑X2
Correct ∑X2 = 4640 – 22 – 62 + 42 + 82
= 4640 – 4 – 36 + 16 + 64 = 4680
Correct σ2 =

Revisionary Problems
Example : Compute (a) Inter-quartile range. (b) Semi-quartile range, and (c)
Coefficient of quartile deviation from the following data :
93
Farm Size (acres) No. of firms Farm Size (acres) No. of firms

0 – 40 394 161 – 200 169

41 – 80 461 201 – 240 113

81 – 120 391 24 1 and over 148

121 – 160 334

Solution :
In this case, the real limits of the class intervals are obtained by subtracting 0.5
from the lower limits of each class and adding 0.5 to the upper limits of each class.
This adjustment is necessary to calculate median and quartiles of the series.

Farm Size (acres) No. of firms Cumulative frequency (c.f.)

– 0.5 – 10.5 394 394

40.5 – 80.5 461 855
80.5 – 120.5 391 1246
120.5 – 160.5 334 1580
160.5 – 200.5 169 1749
200.5 – 240.5 113 1862
240.5 and over 148 2010

N = 2010

Q1 =
=
Q1 lies in the cumulative frequency of the group 40.5 – 80.5. and l1 = 40.5, f =

94
461, i = 40, cf0 = 394, = 502.5
Q1 =
Similarly, Q3 =
=
Q3 lies in the cumulative frequency of the group 121 – 160, where the real limits
of the class interval are 120.5 – 160.5 and l1 = 120.5, i = 40, f = 334, = 1507.5, c.f.
= 1246
Q3 =
Inter-quartile range = Q3 – Q1 = 151.8 – 49.9 = 101.9 acres
Semi-quartile range =
Coefficient of quartile deviation =

Example : Calculate mean and coefficient of mean deviation about mean from the
following data :

Marks less than No. of students

10 4
20 10
30 20
40 40

50 50
60 56
70 60

Solution :
In this question, we are given less than type series alongwith the cumulative
frequencies. Therefore, we are required first of all to find out class intervals and
frequencies for calculating mean and coefficient of mean deviation about mean.

M.D. about mean =

Coefficient of M.D. about mean =
Example : Calculate standard deviation from the following data :

95
Class Interval frequency
– 30 to – 20 5
– 20 to – 10 10
– 10 to – 0 15

0 to 10 10
10 to 20 5
N = 45

Example : For two firms A and B belonging to same industry, the following details
are available :

Firm A Firm B

Number of Employees : 100 200

Average wage per month : Rs. 240 Rs. 170
Standard deviation of the wage per month : Rs. 6 Rs. 8

Find (i) Which firm pays out larger amount as monthly wages?
(ii) Which firm shows greater variability in the distribution of wages?
(iii) Find average monthly wages and the standard deviation of wages of
all employees for both the firms.

Solution : (i) For finding out which firm pays larger amount, we have to find out
∑X.
X= or ∑X = NX

Firm A : N = 100, X = 240 , ∑X = 100 × 240 = 24000

Firm B : N = 200, X = 170 , ∑X = 200 × 170 = 34000
Hence firm B pays larger amount as monthly wages.

(ii) For finding out which firm shows greater variability in the distribution
of wages, we have to calculate coefficient of variation.
Firm A : C.V. =

96
Firm B : C.V. =
Since coefficient of variation is greater for firm B. hence it shows greater
variability in the distribution of wages.
(iii) Combined wages : =
where, N1 = 100, = 240, N2 = 200, = 170
Hence =

Combined Standard Deviation :

σ12 =
where N1 = 100, N2 = 200, σ1 = 6, σ2 = 8, = 240 – 193.3 = 46.7
and d1 = = 170 – 193.3 = – 23.3
σ12 =
=

Example : From the following frequency distribution of heights of 360 boys in the
age-group 10 – 20 years calculate the :
(i) arithmetic mean;
(ii) coefficient of variation; and
(iii) quartile deviation

Height (cms) No. of boys Height (cms) No. of boys

126 – 130 31 146 – 150 60

131 – 135 44 151 – 155 55
136 – 140 48 156 – 160 43
141 – 145 51 161 – 165 28

97
Solution : Calculation of , Q.D., and C.V.

Heights m.p. (X – 143)/5

X f dx fdx fdx2 c.f.

126 – 130 128 31 –3 – 93 279 31

131 – 135 133 44 –2 – 88 176 75
136 – 140 138 48 –1 – 48 48 123
141 – 145 143 51 0 0 0 174
146 – 150 148 60 +1 + 60 60 234
151 – 155 153 55 +2 + 10 220 289
156 – 160 158 43 +3 + 129 387 332
161 – 165 163 28 +4 + 112 448 360

N = 45 ∑fdx = 182 ∑fdx2 = 1618

(i) = where, N = 360, A = 143, i = 5, ∑fdx = 182

=
(ii) C.V. =
σ=
=
C.V. =
(iii) Q.D. =
Q1 = Size of th observation = observation
Q1 lies in the class 136 – 140. But the real limits of this class is 135.5 – 140.5
Q1 =
Q3 = Size of observition = observation
Q3 lies in the class 151 – 155. But the real limit of this class is 150 – 155.5
Q3 =
Q.D. =

98
 UNIT-3(BUSINESS SYSYISTICS)
CORRELATION

In the earlier chapters we have discussed univariate distributions to highlight the

important characteristics by different statistical techniques. Univariate distribution
means the study related to one variable only we may however come across certain
series where each item of the series may assume the values of two or more
variables. The distributions in which each unit of series assumes two values is
called bivariate distribution. In a bivariate distribution, we are interested to find out
whether there is any relationship between two variables. The correlation is a
statistical technique which studies the relationship between two or more variables
and correlation analysis involves various methods and techniques used for studying
and measuring the extent of relationship between the two variables. When two
variables are related in such a way that a change in the value of one is
accompanied either by a direct change or by an inverse change in the values of the
other, the two variables are said to be correlated. In the correlated variables an
increase in one variable is accompanied by an increase or decrease in the other
variable. For instance, relationship exists between the price and demand of a
commodity because keeping other things equal, an increase in the price of a
commodity shall cause a decrease in the demand for that commodity. Relationship
might exist between the heights and weights of the students and between amount of
rainfall in a city and the sales of raincoats in that city.
These are some of the important definitions about correlation. Croxton and
Cowden says, “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”.
A.M. Tuttle says, “Correlation is an analysis of the co variation between two or
more variables.” W.A. Neiswanger says, “Correlation analysis contributes to the
understanding of economic behavior, aids in locating the critically important
variables on which others depend, may reveal to the economist the connections by
which disturbances spread and suggest to him the paths through which stabilizing
forces may become effective.” L.R. Conner says, “If two or more quantities vary in
sympathy so that the movements in one tends to be accompanied by corresponding
movements in others than they are said be correlated.”
Utility of Correlation
The study of correlation is very useful in practical life as revealed by these points.
1. With the help of correlation analysis, we can measure in one figure, the degree
of relationship existing between variables like price, demand, supply, income,
expenditure etc. Once we know that two variables are correlated then we can easily
99
estimate the value of one variable, given the value of other.
2. Correlation analysis is of great use to economists and businessmen, it reveals to
the economists the disturbing factors and suggest to him the stabilizing forces. In
business, it enables the executive to estimate costs, sales etc. and plan accordingly.
3. Correlation analysis is helpful to scientists. Nature has been found to be a
multiplicity of interrelatedforces.
Difference between Correlation and Causation
The term correlation should not be misunderstood as causation. If correlation exists
between two variables, it must not be assumed that a change in one variable is the
cause of a change in other variable. In simple words, a change in one variable may
be associated with a change in another variable but this change need not
necessarily be the cause of a change in the other variable. When there is no cause
and effect relationship between two variables but a correlation is found between
the two variables such correlation is known as “spurious correlation” or “nonsense
correlation”. Correlation may exist due to the following:
1. Pure change correlation : This happens in a small sample. Correlation may
exist between incomes and weights of four persons although there may be no cause
and effect relationship between incomes and weights of people. This type of
correlation may arise due to pure random sampling variation or because of the bias
of investigator in selecting the sample.
2. When the correlated variables are influenced by one or more variables. A high
degree of correlation between the variables may exist, where the same cause is
affecting each variable or different cause affecting each with the same effect. For
instance, a degree of correlation may be found between yield per acre of rice and
tea due to the fact that both are related to the amount of rainfall but none of the two
variables is the cause of other.
3. When the variable mutually influence each other so that neither can be called the
cause of other. All times it may be difficult to say that which of the two variables is
the cause and which is the effect because both may be reacting on each other.
Types of Correlation
Correlation can be categorised as one of the following :
(i) Positive and Negative,
(ii) Simple and Multiple.
(iii) Partial and Total.
(iv) Linear and Non-Linear (Curvilinear)

100
(i) Positive and Negative Correlation : Positive or direct Correlation refers
to the movement of variables in the same direction. The correlation is
said to be positive when the increase (decrease) in the value of one
variable is accompanied by an increase (decrease) in the value of other
variable also. Negative or inverse correlation refers to the movement of
the variables in opposite direction. Correlation is said to be negative, if an
increase (decrease) in the value of one variable is accompanied by a
decrease (increase) in the value of other.
(ii) Simple and Multiple Correlation : Under simple correlation, we study the
relationship between two variables only i.e., between the yield of wheat and the
amount of rainfall or between demand and supply of a commodity. In case of
multiple correlation, the relationship is studied among three or more variables.
For example, the relationship of yield of wheat may be studied with both
chemical fertilizers and the pesticides.
(ii) Partial and Total Correlation : There are two categories of multiple
correlation analysis. Under partial correlation, the relationship of two or
more variables is studied in such a way that only one dependent variable
and one independent variable is considered and all others are kept
constant. For example, coefficient of correlation between yield of wheat
and chemical fertilizers excluding the effects of pesticides and manures is
called partial correlation. Total correlation is based upon all the variables.
(iv) Linear and Non-Linear Correlation : When the amount of change
in one variable tends to keep a constant ratio to the amount of change in
the other variable, then the correlation is said to be linear. But if the
amount of change in one variable does not bear a constant ratio to the
amount of change in the other variable then the correlation is said to be
non-linear. The distinction between linear and non-linear is based upon
the consistency of the ratio of change between the variables.
Methods of Studying Correlation
There are different methods which helps us to find out whether the variables are
related or not.
1. Scatter Diagram Method.
2. Graphic Method.
3. Karl Pearson’s Coefficient of correlation.
4. Rank Method.
We shall discuss these methods one by one.
101
 (1) Scatter Diagram : Scatter diagram is drawn to visualise the relationship
between two variables. The values of more important variable is plotted on the
X-axis while the values of the variable are plotted on the Y-axis. On the graph,
dots are plotted to represent different pairs of data. When dots are plotted to
represent all the pairs, we get a scatter diagram. The way the dots scatter gives
an indication of the kind of relationship which exists between the two variables.
While drawing scatter diagram, it is not necessary to
take at the point of sign the zero values of X and Y variables, but the minimum
values of the variables considered may be taken.
When there is a positive correlation between the variables, the dots on the
scatter diagram run from left hand bottom to the right hand upper corner. In
case of perfect positive correlation all the dots will lie on a straight line.
When a negative correlation exists between the variables, dots on the scatter
diagram run from the upper left hand corner to the bottom right hand corner. In
case of perfect negative correlation, all the dots lie on a straight line.
If a scatter diagram is drawn and no path is formed, there is no correlation.
Students are advised to prepare two scatter diagrams on the basis of the
following data :
(i) Data for the first Scatter Diagram :
Demand Schedule
Price (Rs.) Commodity Demand (units)
6 180
7 150
8 130
9 120
10 125
(iii) Data for the second Scatter Diagram
: Supply Schedule
Price(Rs.) CommoditySupply
50 2,000
51 2,100
52 2,200
53 2,500
54 3,000
102
55 3,800
56 4,700
Students will find that the first diagram indicate a negative correlation where the
second diagram shall reveal a positive correlation.

(2) Graphic Method. In this method the individual values of the two variables are
plotted on the graph paper. Therefore two curves are obtained-one for X variable
and another for Y variable.
Interpreting Graph
The graph is interpreted as follows:
(i) If both the curves run parallel or nearly parallel or more in the same direction,
there is positive correlation,
(ii) On the other hand, if both the curves move in the opposite direction, there is a
negative correlation.
Illustration : Show correlation from the following data by graphic method;
Year 1995 96 97 98 99 2000 2001 2002 2003 2004
Average Income (Rs.) 100 110 125 140 150 180 200 220 250 360
Average Expenditure (Rs.) 90 95 100 120 120 140 150 170 200 260
Solution :
The graph prepared shows that income and expenditure have a close positive
correlation. As income increases, the expenditure also increases.
(3) Karl Pearson’s Co-efficient of Correlation. Karl Pearson’s method, popularly
known as Pearson co-efficient of correlation, is most widely applied in practice to
measure correlation. The Pearson co-efficient of correlation is represented by the
symbol r.
According to Karl Pearson’s method, co-efficient of correlation between the
variables is obtained by dividing the sum of the products of the corresponding
deviations of the various items of two series from their respective means by the
product of their standard deviations and the number of pairs of observations.
Symbolically, r = where r stands for coefficient of correlation ...(i)
where x1, x2, x3, x4.......................xn are the deviations of various items of the first
variable from the mean,
y1, y2, y3,........................ yn are the deviations of all items of the second variable
from mean, Sxy is the sum of products of these corresponding deviations. N stands
for the number of pairs, sx stands for the standard deviation of X variable and sy
103
stands for the standard deviation of Y variable. sx = and sy =
If we substitute the value of sx and sy in the above written formula of computing r,
we get r = or r =
Degree of correlation varies between + 1 and –1; the result will be + 1 in case of
perfect positive correlation and – 1 in case of perfect negative correlation.
Computation of correlation coefficient can be simplified by dividing the given data
by a common factor. In such a case, the final result is not multiplied by the
common factor because coefficient of correlation is independent of change of scale
and origin.
Illustration : Calculate Co-efficient of Correlation from the following data:
X 50 100 150 200 250 300 350
Y 10 20 30 40 50 60 70
Solution :

The value of r indicates that there exists a high degree positive correlation between
lengths and weights.
Illustration : From the following data, compute the co-efficient of correlation
between X and Y :
X Series Y Series
Number of items 15 15
Arithmetic Mean 25 18
Square of deviation from Mean 136 138
Summation of product deviations of X and Y from their Arithmetic Means = 122
Solution : Denoting deviations of X and Y from their arithmetic means by x and y
respectively, the given data
are : Sx2 = 136, Sxy = 122, and Sy2 = 138
r = =
Short-cut Method: To avoid difficult calculations due to mean being in fraction,
deviations are taken from assumed means while calculating coefficient of
correlation. The formula is also modified for standard deviations because
deviations are taken from assumed means. Karl Perason’s formula for short-cut
method is given below :
r = or
r=
Illustration : Compute the coefficient of correlation from the following data :
Marks in Statistics 20 30 28 17 19 23 35 13 16 38

104
Marks in Mathematics 18 35 20 18 25 28 33 18 20 40
Solution :
Direct Method of Computing Correlation Coefficient
Correlation Coefficient can also be computed from given X and Y values by using
the below given formula:
r =
The above given formula gives us the same answer as we are getting by taking
durations from actual mean or arbitrary mean.
Illustration : Compute the coefficient of correlations from the following data :
Marks in Statistics 20 30 28 17 19 23 35 13 16 38
Marks in Mathematics 18 35 20 18 25 28 33 18 20 40
Solution :
Marks in Marks in
Statistics X Mathematics Y X2 Y2 XY
20 18 400 324 360
30 35 900 1225 1050
28 20 784 400 560
17 18 289 324 306
19 25 361 625 475
23 28 529 784 644
35 33 1225 1089 1155
13 18 169 324 234
16 20 256 400 320
38 40 1444 1600 1520
SX = 239 SY = 255 SX2 = 6357 SY2 = 7095 SXY = 6624
Substitute the computed values in the below given formula,
r=
=
=

105
Coefficient of Correlation in a Continuous Series
In the case of a continuous series, we assume that every item which falls within a
given class interval falls exactly at the middle of that class. The formula, because
of the presence of frequencies is modified as follows:
r=
Various values shall be calculated as follows :
(i) Take the step deviations of variable X and denote it as dx.
(ii) Take the step deviations of variable Y and denote it as dy.
(iii) Multiply dx dy and the respective frequency of each cell and write the figure
obtained in the right-hand upper comer of each cell.
(iv) Add all the cornered values calculated in step (iii) to get Sfdxdy.
(v) Multiply the frequencies of the variable X by the deviations of X to get Sfdx.
(vi) Take the squares of the deviations of the variable X and multiply them by the
respective frequencies to get Sfdx2.
(vii) Multiply the frequencies of the variable Y by the deviations of Y to get Sfdy.
(viii) Take the squares of the deviations of the variable Y and multiply them by the
respective frequencies to get Sfdy2.
(ix) Now substitute the values of Sfdxdy, Sfdx, Sfdx2, Sfdy, Sfdy2 in the formula
to get the value of r.
Properties of Coefficient of Correlation
Following are some of the important proportion of r :
(1) The coefficient of correlation lies between – 1 and + 1 (– 1 £ r £ + 1 )
(2) The coefficient of correlation is independent of change of scale and origin of
the variable X and Y.
(3) The coefficient of correlation is the geometric mean of two regression
coefficients.
r =
Merits of Pearson’s coefficient of correlation : The correlation of coefficient
summarizes in one figure the degree and direction of correlation. Value varies
between +1 and –1.
Demerits of Pearson’s coefficient of correlation : It always assumes linear
relationship between the variables; in fact the assumption may be wrong. Secondly,
it is not easy to interpret the significance of correlation coefficient. The method is
time consuming and affected by the extreme items.
Probable Error of the coefficient of correlation : It is calculated to find out how
far the Pearson’s coefficient of correlation is reliable in a particular case.

106
P.E of coefficient of correlation =
where r = coefficient of correlation and N = number of pairs of items.
If the probable error calculated is added to and subtracted from the coefficient of
correlation, it would give us such limits within which we can expect the value of
the coefficient of correlation to vary. If r is less than probable error, then there is
no real evidence of correlation. If r is more than 6 times the probable error, the
coefficient of correlation is considered highly significant. If r is more than 3 times
the probable error but less than 6 times, correlation is considered significant but
not highly significant. If the probable error is not much and the given r is more
than the probable error but less then 3 times of it, nothing definite can be
concluded.
(4) Rank Correlation : There are many problems of business and industry when it
is not possible to measure the variable under consideration quantitatively or the
statistical series is composed of items which can not be exactly measured. For
instance, it may be possible for the two judges to rank six different brands of
cigarettes in terms of taste, whereas it may be difficult to give them a numerical
grade in terms of taste. In such problems. Spearman’s coefficient of rank
correlation is used. The formula for rank correlation is :
r = or where r stands for rank coefficient of correlation.
D refers to the difference of ranks between paired items.
N refers to the number of paired observations.
The value of rank correlation coefficient varies between +1 and –1. When the
value of r = +1, there is complete agreement in the order of ranks and the ranks
will be in the same order. When r = – l, the ranks will be in opposite direction
showing complete disagreement in the order of ranks. Let’ us understand with the
help of an illustration.
Illustration : Ranks of 10 individuals at the start and at the finish of a course of
training are given :
Individual : A B C D E F Q H I J
Rank before : 1 6 3 9 5 2 7 10 8 4
Rank after : 6 8 3 7 2 1 5 9 4 10
Calculate coefficient of correlation.

107
Solution :
Individual Rank before Rank after (R1 – R2)
R1 R2 D D2
A 1 6 5 25
B 6 8 2 4
C 3 3 0 0
D 9 7 2 4
E 5 2 3 9
F 2 1 1 1
G 7 5 2 4
H 10 9 1 1
I 8 4 4 16
J 4 10 6 36
N = 10 SD2 = 100
By applying the formula,
r=
When we are given the actual data and not the ranks, it becomes necessary for us to
assign the ranks. Ranks can be assigned by taking either the highest value as one or
the lowest value as one. But if we start by taking the highest value or the lowest
value we must follow the same order for both the variables to assign ranks.
Illustration : Calculate rank correlation from the following data :
X : 17 13 15 16 6 11 14 9 7 12
Y : 36 46 35 24 12 18 27 22 2 8

In some case it becomes necessary to rank two or more items an identical rank. In
such cases, it is customary to give each item an average rank. Therefore, if two
items are equal for 4th and 5th rank, each item shall be ranked 4.5 i.e., . It means,
where two or more items are to be ranked equal, the rank assigned for purposes of
calculating coefficient of correlation is the average of ranks which these items
would have got had they differed slightly from each other. When equal ranks are
assigned to some items, the rank correlation formula is also adjusted. The

108
adjustment consists of adding (m2 – m) to the value of SD2 where m stands for
number of items whose ranks are identical.
r=
Let us take an example to understand this.
Illustration : Compute the rank correlation coefficient from the following data:
Section A : 115 109 112 87 98 98 120 100 98 118
Section B : 75 73 85 70 76 65 82 73 68 80

Item 98 is repeated three times in series A. Hence m = 3. In series B the item 73 is

repeated two times and so m = 2.
r=
r=

REGRESSION ANALYSIS
The statistical technique correlation establishes the degree and direction of
relationship between two or more variables. But we may be interested in estimating
the value of an unknown variable on the basis of a known variable. If we know the
index of money supply and price-level, we can find out the degree and direction of
relationship between these indices with the help of correlation technique. But the
regression technique helps us in determining what the general price-level would be
assuming a fixed supply of money.
Similarly if we know that the price and demand of a commodity are correlated we
can find out the demand for that commodity for a fixed price. Hence, the statistical
tool with the help of which we can estimate orpredict the unknown variable from
known variable is called regression. The meaning of the term “Regression”is the
act of returning or going back. This term was first used by Sir Francis Galton in
1877 when he studied the relationship between the height of fathers and sons. His
study revealed a very interesting relationship.
All tall fathers tend to have tall sons and all short fathers short sons but the average
height of the sons of a group of tall fathers was less than that of the fathers and the
average height of the sons of a group of short fathers was greater than that of the
fathers. The line describing this tendency of going back is called“Regression
Line”. Modern writers have started to use the term estimating line instead of

109
regression linebecause the expression estimating line is more clear in character.
According to Morris Myers Blair, regressionis the measure of the average
relationship between two or more variables in terms of the original units of the
data.
Regression analysis is a branch of statistical theory which is widely used in all the
scientific disciplines. It is a basic technique for measuring or estimating the
relationship among economic variables that constitute the essence of economic
theory and economic life. The uses of regression analysis are not confined to
economic and business activities. Its applications are extended to almost all the
natural, physical and social sciences. The regression technique can be extended to
three or more variables but we shall limit ourselves to problems having two
variables in this lesson. Regression analysis is of great practical use even more
than the correlation analysis. Some of the uses of the regression analysis are given
below :
(i) Regression Analysis helps in establishing a functional relationship between two
or more variables. Once this is established it can be used for various analytic
purposes.
(ii) With the use of electronic machines and computers, the medium of calculation
of regression equation particularly expressing multiple and non-linear relations has
been reduced considerably.
(iii) The regression analysis is very useful for prediction purposes. Once a
functional relationship is established the value of the dependent variable can be
estimated from the given value of the independent variables.

Difference between Correlation and Regression

Both the techniques are directed towards a common purpose of establishing the
degree and direction of relationship between two or more variables but the
methods of doing so are different. The choice of one or the other will depend on
the purpose. If the purpose is to know the degree and direction of relationship,
correlation is an appropriate tool but if the purpose is to estimate a dependent
variable with the substitution of one or more independent variables, the regression
analysis shall be more helpful. The point of difference are discussed below :
(i) Degree and Nature of Relationship : The correlation coefficient is a measure
of degree of covariability between two variables whereas regression analysis is
used to study the nature of relationship between the variables so that we can
predict the value of one on the basis of another. The reliance on the estimates or
predictions depend upon the closeness of relationship between the variables.
(ii) Cause and Effect Relationship : The cause and effect relationship is

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explained by regression analysis. Correlation is only a tool to ascertain the degree
of relationship between two variables and we can not say that one variable is the
cause and other the effect. A high degree of correlation between price and demand
for a commodity or at a particular point of time may not suggest which is the cause
and which is the effect. However, in regression analysis cause and effect
relationship is clearly expressed— one variable is taken as dependent and the other
an independent.
The variable which is the basis of prediction is called independent variable and the
variable that is to be predicted is called dependent variable. The independent
variable is represented by X and the dependent variable by Y.
Principle of Least Squares
Regression refers to an average of relationship between a dependent variable with
one or more independent variables. Such relationship is generally expressed by a
line of regression drawn by the method of the “Least Squares”. This line of
regression can be drawn graphically or derived algebraically with the help of
regression equations. According to Tom Cars, before the equation of the least line
can be determined some criterion must be established as to what conditions the
best line should satisfy. The condition usually stipulated in regression analysis is
that the sum of the squares of the deviations of the observed Y values from the
fitted line shall be minimum. This is known as the least squares or minimum
squared error criterion. A line fitted by the method of least squares is the line of
best fit. The line satisfies the following conditions :
(i) The algebraic sum of deviations above the line and below the line are equal to
zero.
S(X – Xc) = 0 and S(Y – Yc) = 0
Where .XC and YC are the values derived with the help of regression technique.
(ii) The sum of the squares of all these deviations is less than the sum of the
squares of deviations from any other line, we can say
S (X – Xc)2 is smaller than S (X – A)2 and
S (Y – Yc)2 is smaller than S (Y – A)2
Where A is some other value or any other straight line.
(iii) The line of regression (best fit) intersect at the mean value of the variables i.e.,
and
(iv) When the data represent a sample from a larger population, the least square
line is the best estimate of the population line.

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Methods of Regression Analysis
We can study regression by the following methods :
1. Graphic method (regression lines)
2. Algebraic method (regression equations)
We shall discuss these methods in detail.
1. Graphic Method : When we apply this method different points are plotted on a
graph paper representing different pairs of variables. These points give a picture of
a scatter diagram with several points spread over. A regression line may be drawn
between these points either by free hand or by a scale in such a way that the
squares of the vertical or horizontal distances between the points and the line of
regression is minimum. It should be drawn in such a manner that the line leaves
equal number of points on both sides. However, to ensure this is rather difficult
and the method only renders a rough estimate which can not be completely free
from subjectivity of person drawing it. Such a line can be a straight line or a curved
line depending upon the scatter of points and relationship to be established. A non-
linear free hand curve will have more element of subjectivity and a straight line is
generally drawn. Let us understand it with the help of an example:
Example :
Height of father Height of sons
(Inches)
65 68
63 66
67 68
64 65
68 69
62 66
70 68
66 65
68 71
67 67
69 68
71 70

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Solution : The diagram given below shows the height of fathers on x-axis and the
height of sons on y-axis. The line of regression called the regression of y on x is
drawn between the scatter dots.
Fig. 1
Another line of regression called the regression line of x on y is drawn amongst the
same set of scatter dots in such a way that the squares of the horizontal distances
between dots are minimised.
Fig. 2 Fig. 3
It is clear that the position of the regression line of x on y is not exactly like that of
the regression lime of y on x. In the following figure both the regression of y on x
and x on y are exhibited.
Fig. 4
When there is either perfect positive or perfect negative correlation between the
two variables, the two regression lines will coincide and we will have only one
line. The farther the two regression lines from each other, the lesser is the degree of
correlation and vice-versa. If the variables are independent, correlation is zero and
the lines of regression will be at right angles. It should be noted that the regression
lines cut each other at the point of average of x and y, i.e., if from the point where
both the regression lines cut each other a perpendicular is drawn on the x-axis, we
will get the mean value of x series and if from that point a horizontal line is drawn
on the y-axis we will get the mean of y series.
2. Algebraic Method : The algebraic method for simple linear regression can be
understood by two methods:
(i) Regression Equations
(ii) Regression Coefficients
Regression Equations : These equations are known as estimating equations.
Regression equations are algebraic expressions of the regression lines. As there are
two regression lines, there are two regression equations :
(i) x on y is used to describe the variations in the values of x for given changes in
y.
(ii) y on x is used to describe the variations in the values of y for given changes in
x.
The regression equations of y on x is expressed as
Yc = a + bX

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The regression equations of x on y is expressed as
Xc = a + bY
In these equations a and b are constants which deretmine the position of the line
completely. These constants are called the parameters of the line. If the value of
any of these parameters is changed, another line is determind.
Parameter a refers to the intercept of the line and b to the slope of the line. The
symbol Yc and Xc refers to the values of Y computed and the value of X computed
on the basis of independent variable in both the cases. If the values of both the
parameters are obtained, the line is completely determined. The values of these two
parameters a and b can be obtained by the method of least squares. With a little
algebra and differential calculus it can be shown that the following two equations,
are solved simultaneously, will give values of the parameters a and b such that the
least squares requirement is fulfilled;
For regression equation Yc = a + bX
Sy = Na + bSx
Sxy = aSx + bSx2
For regression equation Xc = a + bY
Sx = Na + bSY
Sxy = aSy + bSy2
These equations are usually called the normal equations. In the equations Sx, Sy,
Sxy, Sx2, Sy2 indicate totals which are computed from the observed pairs of
values of two variables x and y to which the least squares estimating line is to be
fitted and N is the number of observed pairs of values. Let us understand by an
example.
Example : From the following data obtain the two regression equations :
x:6 2 10 4 8
y:9 11 5 8 7
Solution :
Computation of Regression Equations

Regression coefficients of x on y is

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bxy =
bxy =
bxy = where x = and y =
Regression Coefficient of Y on X is
byx =
byx =
byx = where x = and y =
Example : Calculate the regression coefficients from data given below :
Series x Series y
Average 25 22
Standard deviation 4 5 r = 0.8
Solution : The coefficient of regression of x on y is
bxy =
The coefficient of regression of y on x is
byx =
Properties of Regression Coefficients
(i) The coefficient of correlation is the geometric mean of the two regression
coefficients, r =
(ii) Both the regression coefficients are either positive or negative. It means that
they always have identical sign i.e., either both have positive sign or negative sign.
(iii) The coefficient of correlation and the regression coefficients will also have
same sign.
(iv) If one of the regression coefficient is more than unity, the other must be less
than unity because the value of coefficient of correlation can not exceed one (r = ±
1)
(v) Regression coefficients are independent of the change in the origin but not of
the scale.
(vi) The average of regression coefficients is always greater than correlation
coefficient.
We can compute the regression equations with the help of regression coefficients
by the following equations:
1. Regression equation X on Y

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 Where is the mean of X series is the mean of X series is the regression
coefficient of x on y
2. Regression equation Y on X
=
We can explain this by taking an example :
Example : Calculate the following from the below given data :
(a) the two regression equations,
(b) the coefficient of correlation and
(c) the most likely marks in Statistics when the marks in Economics are 30

Marks in Economics : 25 28 35 32 31 36 29 38 34 32
Marks in Statistics : 43 46 49 41 36 32 31 30 33 39
Solution : Calculation of Regression Equations and Correlation Coefficient

Standard Error of Estimate

Standard error of an estimate is the measure of the spread of observed values from
estimated ones, expressed by regression line or equation. The concept of standard
error of estimate is analogous to the standard deviation which measures the
variation or scatter of individual items about the arithmetic mean.
Therefore, like the standard deviation which is the average of square of deviations
about the arithmetic mean, the standard error of an estimate is the average of the
square of deviations between the actual or the observed values and the estimated
values based on the regression equation. It can also be expressed as the root of the
measure of unexplained variations divided by N – 2 :
Syx =
and Sxy =
where Syx refers to standard error of estimate of Y values on X values. Sxy refers
to standard error of estimate of X values on Y values.
Yc and Xc are the estimated values of Y and X variables by means of their
regression equations respectively.
N – 2 is used for getting an unbiased estimate of standard error. The usual
explanation given for this division by N – 2 is that the two constants a and b were
calculated on the basis of original data and we lose two degrees of freedom.

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Degrees of freedom mean the number of classes to which values can be assigned at
will without violating any restrictions.
However a simpler method of computing Syx and Sxy is to use the following
formulae :
Syx =
and Sxy =
The standard error of estimate measures the accuracy of the estimated figures. The
smaller the values of standard error of estimate, the closer will be the dots to the
regression line and the better the estimates based on the equation for this line. If
standard error of estimate is zero, then there is no variation about the line and the
correlation will be perfect. Thus with the help of standard error of estimate it is
possible for us to ascertain how good and representative the regression line is as a
description of the average relationship
between two series.
Example : Given the following data :
X : 6 2 10 4 8
Y : 9 11 5 8 7
And two regression equations Y = 11.09 – 0.65 X and X = 16.4 – 1.3 Y. Calculate
the standard error of estimate i.e. Syx and Sxy.
Solution : We can calculate Xc and Yc values from these regression equations.

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UNIT-4(BUSINESS
STATISTICS)
PROBABILITY

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