POSTS AND TELECOMMUNICATIONS INSTITUTE OF

TECHNOLOGY
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Chapter 1: Probability

PROBABILITY & STATISTICS FOR ECONOMICS

Department of Mathematics, Faculty of Fundamental

Science 1

Hanoi - 2025

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Chapter 1: Probability

1 1.1 Sample Spaces and Events

2 1.2 Interpretations of Probability

3 1.3 Addition Rules

4 1.4 Conditional Probability

5 1.5 Multiplication and Total Probability Rules

6 1.6 Independence

7 1.7 Bayes’ Theorem

2 / 36 Chapter 1: Probability
Chapter 1: Probability

1 1.1 Sample Spaces and Events

2 1.2 Interpretations of Probability

3 1.3 Addition Rules

4 1.4 Conditional Probability

5 1.5 Multiplication and Total Probability Rules

6 1.6 Independence

7 1.7 Bayes’ Theorem

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 Random Experiment
A random experiment is an action or process that leads to one of
several possible outcomes.

Example 1:
Experiment: Toss a coin.
Outcomes: Heads and tails.
Experiment: Record student evaluations of a course.
Outcomes: Poor, fair, good, very good, and excellent.

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 Sample Spaces
The set of all possible outcomes of a random experiment is
called the sample space of the experiment, denoted as S.
A sample space is often defined based on the objectives of the
study.

Example 2: Tossing a die. The sample space is

S = {1, 2, 3, 4, 5, 6}.

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 Example 3: Tossing a coin three times. If the objective of the
study is to consider whether the coin is heads or tails, the sample
space is

S = {HHH, HHT, HTH, THH, TTH, THT, HTT, TTT}.

If the objective of the study is to consider the number of heads

that appear, the sample space is

S = {0, 1, 2, 3}.

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 Events
An event is a subset of the sample space of a random
experiment.
Impossible event: ∅

Example 4: Tossing a coin 3 times. Let A denote the event that

exactly 2 heads are observed and B denote the event that at least
2 heads are observed.
A = {HHT, HTH, THH},
B = {HHH, HHT, HTH, THH}.

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 Basic Set Operations
The union of the two events A and B, denoted by A ∪ B, is
the event that consists of all outcomes that are in A or B.
The intersection of the two events A and B, denoted by
A ∩ B (or AB), is the event that consists of all outcomes that
are common to A and B.
The complement of the event A in the sample space S,
denoted by AC or A, is the set of outcomes in S that are not
in A.

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 Example 5: Let Ai , i = 1, 2, 3, denote the event that component
i is working. Express in terms of A1 , A2 , A3 the following events:
1) Only component 2 is working.
2) All three components are working.
3) None is working.
4) At least one is working.
5) Exactly two are working.

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 Mutually Exclusive Events
Two events A and B are called to be mutually exclusive if

A ∩ B = ∅.

A collection of events E1 , E2 , . . . , Ek is said to be mutually

exclusive if for all pairs,

Ei ∩ Ej = ∅.

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Chapter 1: Probability

1 1.1 Sample Spaces and Events

2 1.2 Interpretations of Probability

3 1.3 Addition Rules

4 1.4 Conditional Probability

5 1.5 Multiplication and Total Probability Rules

6 1.6 Independence

7 1.7 Bayes’ Theorem

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1.2.1 Classical Definition of Probability

Probability is used to quantify the chance that an outcome of

a random experiment will occur.
For a sample space consists of N possible outcomes that are
equally likely, the probability of an event A, denoted as
P (A), is defined by

The number of outcomes in A n(A)

P (A) = =
The number of possible outcomes N

Note: P (∅) = 0; P (S) = 1; 0 ≤ P (A) ≤ 1.

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 Example 6: If 3 books are picked at random from a shelf
containing 5 novels, 3 books of poems, and a dictionary, what is
the probability that
a) the dictionary is selected?
b) 2 novels and 1 book of poems are selected?

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1.2.2 Relative Frequency Definition of Probability

Consider a sequence of repetitions of the same experiment

under identical conditions. Let nA denote the number of
nA
occurrences of an event A. The ratio fn (A) = is called
n
the relative frequency of occurrences of the event A.
The probability of A is defined by

P (A) = lim fn (A).

n→∞

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Chapter 1: Probability

1 1.1 Sample Spaces and Events

2 1.2 Interpretations of Probability

3 1.3 Addition Rules

4 1.4 Conditional Probability

5 1.5 Multiplication and Total Probability Rules

6 1.6 Independence

7 1.7 Bayes’ Theorem

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 Addition Rules
P (A ∪ B) = P (A) + P (B) − P (AB).
P (A ∪ B ∪ C) = P (A) + P (B) + P (C) − P (AB)
−P (AC) − P (BC) + P (ABC).

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 Remark:
If A and B are mutually exclusive events, then

P (A ∪ B) = P (A) + P (B).

If E1 , E2 , . . . , Ek are mutually exclusive events, then

P (E1 ∪ E2 ∪ . . . ∪ Ek ) = P (E1 ) + P (E2 ) + . . . + P (Ek ).

P (A) + P (A) = 1.

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 Example 7: The probability that a person stopping at a gas
station will ask to have the tires checked is 0.12, the probability
that he or she will ask to have the oil checked is 0.29, and the
probability that he or she will ask to have them both checked is
0.07.
a) What is the probability that a person stopping at this gas
station will have the tires or the oil checked?
b) What is the probability that a person stopping at this gas
station will have neither the tires nor the oil checked?

18 / 36 Chapter 1: Probability
Chapter 1: Probability

1 1.1 Sample Spaces and Events

2 1.2 Interpretations of Probability

3 1.3 Addition Rules

4 1.4 Conditional Probability

5 1.5 Multiplication and Total Probability Rules

6 1.6 Independence

7 1.7 Bayes’ Theorem

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 Definition
The conditional probability of B given A, denoted as P (B|A), is
the probability that the event B occurs given that the event A
has already occurred.

Example 8: A batch of 500 containers for frozen orange juice

contains five that are defective. Two are selected, at random,
without replacement from the batch. What is the probability that
the second one selected is defective given that the first one was
defective?

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 Formula for Conditional Probability
If P (A) > 0, then
P (AB)
P (B|A) =
P (A)

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 Example 9: It is thought that 30 % of all people in the United
States are obese, that 3 % suffer from diabetes, and 31 % are
obese or suffer from diabetes. What is the probability that a
randomly selected person
a) Have both obese and diabetes?
b) Is diabetic given that he/she is obese?
c) Is diabetic but is not obese?
d) Is diabetic given that he/she is not obese?

22 / 36 Chapter 1: Probability
Chapter 1: Probability

1 1.1 Sample Spaces and Events

2 1.2 Interpretations of Probability

3 1.3 Addition Rules

4 1.4 Conditional Probability

5 1.5 Multiplication and Total Probability Rules

6 1.6 Independence

7 1.7 Bayes’ Theorem

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1.5.1 Multiplication Rule

Multiplication Rule
P (AB) = P (A)P (B|A) = P (B)P (A|B)
P (A1 A2 . . . An ) = P (A1 )P (A2 |A1 ) . . . P (An |A1 A2 . . . An−1 )

Example 10: Suppose that P (A|B) = 0.4 and P (B) = 0.5.

Determine the following:
(a) P (A ∩ B),
(b) P (A ∩ B).

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 Example 11: Suppose that 29% of Internet users download
music files, and 67% of downloaders say they do not care if the
music is copyrighted. What is the probability that an Internet
user downloads music and does not care about copyright?

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1.5.2 Total Probability Rule

Total Probability Rule (two events)

For any events A and B,

P (B) = P (A)P (B|A) + P (A)P (B|A)

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 Example 12: Suppose 2% of cotton fabric rolls and 3% of nylon
fabric rolls contain flaws. Of the rolls used by a manufacturer,
70% are cotton and 30% are nylon. What is the probability that a
randomly selected roll used by the manufacturer contains flaws?

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 Definition
A collection of events E1 , E2 , . . . , Ek is said to be exhaustive if

E1 ∪ E2 ∪ . . . ∪ Ek = S

Total Probability Rule (multiple events)

If E1 , E2 , . . . , Ek are k mutually exclusive and exhaustive events,
then

P (B) = P (E1 )P (B|E1 ) + P (E2 )P (B|E2 ) + . . . + P (Ek )P (B|Ek )

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 Example 13: In a certain assembly plant, three machines, B1,
B2, and B3, make 30%, 45%, and 25%, respectively, of the
products. It is known from past experience that 2%, 3%, and 2%
of the products made by each machine, respectively, are defective.
Now, suppose that a finished product is randomly selected. What
is the probability that it is defective?

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Chapter 1: Probability

1 1.1 Sample Spaces and Events

2 1.2 Interpretations of Probability

3 1.3 Addition Rules

4 1.4 Conditional Probability

5 1.5 Multiplication and Total Probability Rules

6 1.6 Independence

7 1.7 Bayes’ Theorem

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 Independence (two events)
Two events A and B are independent if any one of the following
equivalent statements is true:
(1) P (A|B) = P (A)
(2) P (B|A) = P (B)
(3) P (A ∩ B) = P (A)P (B)

Remark:
Two events are independent if the probability of one event is
not affected by the occurrence of the other event.
If A and B are independent events, then so are events A and
B, events A and B, and events A and B.

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 Independence (multiple events)
The events E1 , E2 , . . . , En are independent if and only if for any
subset of these events Ei1 , Ei2 , . . . , Eik ,

P (Ei1 ∩ Ei2 ∩ . . . ∩ Eik ) = P (Ei1 )P (Ei2 ) . . . P (Eik )

Example 14: Approximately 10% of people are left-handed. If

two people are selected at random, what is the probability of the
following events?
a) Both are left-handed.
b) One is right-handed and the other is left-handed.
c) At least one is right-handed.

32 / 36 Chapter 1: Probability
Chapter 1: Probability

1 1.1 Sample Spaces and Events

2 1.2 Interpretations of Probability

3 1.3 Addition Rules

4 1.4 Conditional Probability

5 1.5 Multiplication and Total Probability Rules

6 1.6 Independence

7 1.7 Bayes’ Theorem

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 Bayes’ Theorem
If E1 , E2 , . . . , Ek are mutually exclusive and exhaustive events and
B is any event, then

P (Ei )P (B|Ei )
P (Ei |B) =
P (E1 )P (B|E1 ) + P (E2 )P (B|E2 ) + . . . + P (Ek )P (B|Ek )

for P (B) > 0.

P (Ei )P (B|Ei )
Remark: P (Ei |B) =
P (B)

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 Example 15: Customers are used to evaluate preliminary
product designs. In the past, 95% of highly successful products
received good reviews, 60% of moderately successful products
received good reviews, and 10% of poor products received good
reviews. In addition, 40% of products have been highly successful,
35% have been moderately successful, and 25% have been poor
products.
(a) What is the probability that a product attains a good review.
(b) If a new design attains a good review, what is the probability
that it will be a highly successful product?

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Exercises for Chapter 1

6.5, 6.8, 6.9, 6.10, 6.11, 6.12 (page 159)

6.32, 6.36, 6.46, 6.50 (page 167-169)

6.68, 6.74, 6.78, 6.82 (page 178, 179)

6.93, 6.94, 6.108, 6.118 (page 190-193)

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