DEPARTMENT OF ECONOMICS SEMESTER I 2013-2014

ECON 2025 Tutorial Sheet #1

1. Distinguish between mutually exclusive events and conditional probability making sure to
construct an example in each case.

2. Distinguish between statistically dependent events and statistically independent events. State
the generic form of the multiplication law of probability and generate the special case of this law
for mutually independent events.

3. Explain what you have understood by the following, making sure to construct an example in
each case:
a. Joint probability
b. Marginal probability.

4. Suppose three fair coins are tossed in succession. Let A be the event “at least two heads” and B
be the event “first coin is tails”.
a. Determine P(A), P(B), P(A ∩ B) and P(A | B)

5. A recent study looked into the amount of debt accumulated by recent college graduates. The
study found that, among those with student loans, 42% said working during college affected
their grades.
a. Convert this statement into a conditional probability, including a short description of
the associated sample space.
b. What percentage of students working during college have student loans? Can you
tell?

6. The probability that a tract has no gold (H), a minor gold reserve (M) or a major gold reserve (D)
are 0.45, 0.25 and 0.3 respectively. A test mine drilled in the tract will yield no gold (E), if none is
present and will yield gold (S) with probability 0.18 if a minor deposit is present and with
probability 0.87 if major deposit is present. Calculate the posterior probability that the tract has
a minor gold deposit (M) given that the test mine drilled in tract yielded gold (S). Hint: Use
Bayes Rule.

7. A recently installed assembly line has problems with intermittent breakdowns. Recently, it
seems that the equipment fails at some point during 15% of the eight-hour shifts that the plant
operates. Each day contains three consecutive shifts. State your assumptions. What is the
probability that the assembly line
a. Works fine throughout the three shifts on Monday?
b. Works fine on Monday but breaks down during the first shift on Tuesday?
c. Breaks down on a given day?

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 d. Breaks down during only one shift during a chosen day.

8. The local Automobile Association conducted a study of the incidences over a ten year period of
children under the age of 5 years who were involved in motor vehicle accidents that resulted in
at least one road fatality. The results for children who were not wearing seat belts at the time of
the accident are shown in the following table:

Age Survivors Fatalities Total

0 477 227 704
1 194 316 510
2 367 207 574
3 204 190 394
4 191 265 456
Tota 1433 1205 2638
i) l
Name the two random variables present in this table.
ii) Develop a joint probability table that summarises the results of the study.
iii) Construct the marginal probability distribution for the age variable. What is the probability
that a child is between 1 and 3 years old?
iv) Construct the marginal probability distribution for the other variable.
v) Compute the probability that a child dies in an accident given that the child
is either 1 or 4 years old.

9. Chebyshev's Theorem states that the probability that any random variable X will assume a value
within k standard deviations of the mean is at least equal to (1 - 1/k2).
a. Write out the mathematical form of this theorem.
b. Under what circumstances will you resort to using this theorem?
c. A random variable X has mean μ = 2750 and variance σ 2 = 625. Using Chebyshev's Theorem,
find estimates for
i). P( | X - 2750 | > 125) and
ii). the value of the constant c such that P( | X -2750 | > c) < 0.02777.
d. The daily production of overhauled starters at Advance Auto Tech averaged 224 with a
standard deviation of 20. What can be said about the fraction of days on which the
production level falls between 144 and 304 motors?

10. The average sale at a department store is $51.25, with a standard deviation of $8.50. Find the
smallest interval within which at least 90% of the store’s sales fall. [You may use Chebyshev’s]

11. Suppose that 20% clerical staff in an office smoke cigarettes. Research shows that 60% of
smokers and 15% of non-smokers suffer a breathing illness by age 65.
a. Do these percentages indicate that smoking and this breathing illness are
independent?
b. What’s the probability that a randomly selected 65-year-old employee who has this
breathing illness smoke?

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