Statistics for
Business and Economics
7th Edition
Chapter 3
Describing Data: Numerical
[Link] aloul.
Chap 3-1
Chapter Goals
When you have completed this chapter you will be able to:
I. Calculate the arithmetic mean, weighted mean, median, mode, and
geometric mean.
2. Explain the characteristics, uses, advantages, and disadvantages
of each measure of location.
3 . Identify the position of the mean, median, and mode for both
symmetric and skewed distributions.
4. Compute and interpret the range,. mean deviation, . variance, and
standard deviation.
5. Understand the characteristics, uses, advantages, and
disadvantages of each measure of dispersion.
[Link] aloul. Chap 3-2
Chapter Topics
Measures of central tendency, variation, and
shape
Mean, median, mode, geometric mean
Range, variance and standard deviation, coefficient
of variation
Symmetric and skewed distributions
[Link] aloul. Chap 3-3
Describing Data Numerically
Describing Data Numerically
Central Tendency Variation
Arithmetic Mean Range
Median Interquartile Range
Mode Variance
Standard Deviation
Coefficient of Variation
[Link] aloul. Chap 3-4
Measures of Central Tendency
Overview
Central Tendency
Mean Median Mode
x i
x i1
n
Arithmetic Midpoint of Most frequently
average ranked values observed value
[Link] aloul. Chap 3-5
Arithmetic Mean
The arithmetic mean (mean) is the most
common measure of central tendency
For a population of N values:
N
x i
x1 x 2 x N Population
μ
i1
values
N N
Population size
For a sample of size n:
n
x i
x1 x 2 x n Observed
x i1
values
n n
Sample size
[Link] aloul. Chap 3-6
EXAMPLE
[Link] aloul. Chap 3-7
[Link] aloul. Chap 3-8
Arithmetic Mean
(continued)
The most common measure of central tendency
Mean = sum of values divided by the number of values
Affected by extreme values (outliers)
0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10
Mean = 3 Mean = 4
1 2 3 4 5 15 1 2 3 4 10 20
3 4
5 5 5 5
[Link] aloul. Chap 3-9
Median
In an ordered list, the median is the “middle”
number (50% above, 50% below)
0 1 2 3 4 5 6 7 8 9 10 0 1 2 3 4 5 6 7 8 9 10
Median = 3 Median = 3
Not affected by extreme values
[Link] aloul. Chap 3-10
Finding the Median
The location of the median:
n 1
Median position position in the ordered data
2
If the number of values is odd, the median is the middle number
If the number of values is even, the median is the average of
the two middle numbers
n 1
Note that is not the value of the median, only the
2
position of the median in the ranked data
[Link] aloul. Chap 3-11
exaple
[Link] aloul. Chap 3-12
Mode
A measure of central tendency
Value that occurs most often
Not affected by extreme values
Used for either numerical or categorical data
There may be no mode
There may be several modes
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 0 1 2 3 4 5 6
No Mode
Mode = 9
[Link] aloul. Chap 3-13
Review Example
Five houses on a hill by the beach
$2,000 K
House Prices:
$2,000,000
500,000 $500 K
300,000 $300 K
100,000
100,000
$100 K
$100 K
[Link] aloul. Chap 3-14
Review Example:
Summary Statistics
House Prices:
Mean: ($3,000,000/5)
$2,000,000 = $600,000
500,000
300,000
100,000
100,000
Median: middle value of ranked data
Sum 3,000,000
= $300,000
Mode: most frequent value
= $100,000
[Link] aloul. Chap 3-15
Which measure of location
is the “best”?
Mean is generally used, unless
extreme values (outliers) exist
Then median is often used, since
the median is not sensitive to
extreme values.
Example: Median home prices may be
reported for a region – less sensitive to
outliers
[Link] aloul. Chap 3-16
For a symmetric, moundshaped
distribution, mean, median, and mode are equal .
[Link] aloul. Chap 3-17
[Link] aloul. Chap 3-18
[Link] aloul. Chap 3-19
Shape of a Distribution
Describes how data are distributed
Measures of shape
Symmetric or skewed
Left-Skewed Symmetric Right-Skewed
Mean < Median Mean = Median Median < Mean
[Link] aloul. Chap 3-20
[Link] aloul. Chap 3-21
The Geometric Mean
The geometric mean is useful in finding the average of percentages, ratios,
indexes, or growth rates.
It has a wide application in business and economics because we are often
interested in finding the percentage changes in sales, salaries, or economic
figures, such as the Gross Domestic Product, which compound or build on
each other.
The formula for the geometric mean is written:
[Link] aloul. Chap 3-22
As an example: suppose you receive a 5 percent increase in salary this
year and a 15 percent increase next year, What is the geometric mean rate
The average annual percent increase is 9.886
that a 5 percent increase in salary is 105 percent. We will write it as 1.05
GM = Y(1.05)(1.15) = 1.09886
This can be verified by assuming that your monthly earning was $3,000
to start and you received two increases of 5 percent and 15 percent.
Raise 1 = $3,000 (.05) = $150.00
Raise 2 = $3,150 (.15) = 472.50
Total $622.50
Your total salary increase is $622.50. This is equivalent to:
$3,000.00 (.09886) = $296.58
$3,296.58 (.09886) = 325.90
$622.48 is about $622.50
[Link] aloul. Chap 3-23
A second application of the geometric mean is to find an average percent
increase over a period of time. For example, if you earned $30,000 in
1995 and $50,000 in 2005,
what is your annual rate of increase over the period?
The rate of increase is determined from the following formula.
[Link] aloul. Chap 3-24
Example: During the decade of the 1990s, Las Vegas, Nevada, was the fastest-
growing metropolitan area in the United States. The population increased from
852,737 in 1990 to 1,563,282 in 2000. This is an increase of 710,545 people or an
83 percent increase over the 10-year period. What is the average annual increase?
Solution: There are 10 years between 1990 and 2000 so n = 10. Then formula
for the geometric mean as applied to this type of problem is:
The value of .0625 indicates that the average annual growth over the 10-year
period was 6.25 percent. To put it another way, the population of Las Vegas
increased at a rate of 6.25 percent per year from 1990 to 2000.
[Link] aloul. Chap 3-25
Measures of Dispersion
Variation
Range Interquartile Variance Standard Coefficient
Range Deviation of Variation
Measures of variation give
information on the spread
or variability of the data
values.
Same center,
different variation
[Link] aloul. Chap 3-26
Range
Simplest measure of variation
Range = Xlargest – Xsmallest
Example:
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Range = 14 - 1 = 13
[Link] aloul. Chap 3-27
Disadvantages of the Range
Ignores the way in which data are distributed
7 8 9 10 11 12 7 8 9 10 11 12
Range = 12 - 7 = 5 Range = 12 - 7 = 5
Sensitive to outliers
1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,5
Range = 5 - 1 = 4
1,1,1,1,1,1,1,1,1,1,1,2,2,2,2,2,2,2,2,3,3,3,3,4,120
Range = 120 - 1 = 119
[Link] aloul. Chap 3-28
Mean Deviation
[Link] aloul. Chap 3-29
example
The number of cappuccinos sold at the Starbucks
location in the Orange County Airport
between 4 P.M. and 7 P.M. for a sample of 5 days last
year were: 103, 97, 101, 106, and 103. Determine
the mean deviation and interpret.
[Link] aloul. Chap 3-30
SOLUTION
[Link] aloul. Chap 3-31
Variance and Standard Deviation
[Link] aloul. Chap 3-32
Population Variance
[Link] aloul. Chap 3-33
EXAMPLE & SOLUTION
[Link] aloul. Chap 3-34
POPULATION STANDERD DEVIATION
. The square root of 106.8 citations squared is 10.3 citations.
The square root of the population variance is called the
population standard deviation.
[Link] aloul. Chap 3-35
SAMPLE VARIANCE
[Link] aloul. Chap 3-36
EXAMPLE
The hourly wages for a sample of part-time employees at Frult
Packers: Inc. are: $12, It!. $20, $16, $18, and $19. What is the sample
variance?
[Link] aloul. Chap 3-37
Sample Standard Deviation
[Link] aloul. Chap 3-38
Example & solution
Example: The sample variance in the previous example involving hourly
wages was computed to be 10. What is the sample standard deviation?
Solution: The sample standard deviation is $3.16, found by v1D. Note
again that the sample variance is in terms of dollars squared, but taking the
square root of 10 gives us $3.16, which is in the same units (dollars) as the
original data.
[Link] aloul. Chap 3-39
Calculation Example:
Sample Standard Deviation
Sample
Data (xi) : 10 12 14 15 17 18 18 24
n=8 Mean = x = 16
(10 X )2 (12 x)2 (14 x)2 (24 x)2
s
n 1
(10 16)2 (12 16)2 (14 16)2 (24 16)2
8 1
126 A measure of the “average”
4.2426 scatter around the mean
7
[Link] aloul. Chap 3-40
Measuring variation
Small standard deviation
Large standard deviation
[Link] aloul. Chap 3-41
Comparing Standard Deviations
Data A
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = 3.338
Data B
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = 0.926
Data C
Mean = 15.5
11 12 13 14 15 16 17 18 19 20 21 s = 4.570
[Link] aloul. Chap 3-42