THE UNIVERSITY OF THE WEST INDIES

EXAMINATIONS OF DECEMBER 2012

Code and Name of Course: ECON 2006 - ECONOMIC STATISTICS Paper:

Date and Time: Duration: 2 Hours

INSTRUCTIONS TO CANDIDATES: This paper has eight (8) pages, one formula sheet and eight (8) questions.

This paper contains four (4) Sections.

Students are required to answer Five (5) Questions; TWO (2) Questions must be answered from
SECTION A and ONE (1) Question each from SECTIONS B, C and D of the paper.

Statistical Tables including Durbin Watson Tables are provided. Non-programmable calculators are permitted.

The University of the West Indies Course Code ECON2006 2012/12./…..

DO NOT WRITE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY

INSTRUCTIONS: Each page must be signed by the Examiners and where applicable, the University Examiner and/or the External
Examiner. Where the examination does not require a University Examiner, the form must be signed by the First and Second
Examiners. Completed forms should be handed to the Assistant Registrar (Examinations). The EXTERNAL EXAMINER is requested to
sign the question paper and return it with comments, if any, (on a separate sheet) , to the Assistant Registrar (Examinations).

……………………………………….. ……………………………………………..
First Examiner University Examiner

……………………………………….. ……………………………………………..
Second Examiner External Examiner (where applicable)

Date: 2011/……/… Date: 2011/……/……

 page 2
SECTION A (Answer ALL Questions)
1. Central Agri Enterprises, a popular small and medium enterprise in the agribusiness sector, sells two
fertilizers which we shall name Product W and Product H; both fertilizers tend to be applied as
substitutes by citrus farmers to young orange plants. If a customer buys Product W, he/she tends not to
buy Product H, and vice versa. The Manager of Central Agri Enterprises invited a business studies
graduate to look into the firm’s historical data on the sales of these two fertilizers. The data collected by
the graduate were summarised into a joint frequency distribution of sales of the products over a typical
month as shown below.

Sales of Product W (boxes)

  100 200 300 400
Sales of 50 15 40 50 35
Produc 100 30 80 75 25
tH 150 50 100 100 20
(boxes) 200 45 100 50 10
250 60 80 25 10

a. Compute the probability that 200 boxes of Product W will be sold next month. [2]

b. Compute the probability that the firm will sell less than 100 boxes of Product H next month. [2]

c. Will you advise the Manager of Central Agri Enterprises to take the chance to stock 400 boxes of
Product W and 250 boxes of Product H next month? Give reasons for your answer. [4]

d. What is the probability that sales of Product W will be less than 200 given that the sales of Product
H were known to be less than 200? [4]

2. a. The quantity of diesel distributed daily to retailers is known to follow a Uniform Probability
Distribution and ranges from 18,000 litres to 20,000 litres.

i. Assume that the random variable is discrete, compute the probability that the amount distributed on
Monday next week to retailers will lie between 18,500 and 19,250 litres inclusive. [4]

ii. What will the probability be if the random variable were continuous? [4]

b. Market Research Specialists Inc. has been hired to perform a study to determine if the market for a
new service will be good or poor. In similar studies performed in the past, whenever the market was
actually good, the market research study indicated that it would be good 85% of the time. On the
other hand, whenever the market was actually poor, the market research study incorrectly indicated
that it would be good 20% of the time.
Before the study is performed, the prevailing view among business persons is that there is a 70%
chance that the market will be good.
When Market Research Specialists Inc. performs the study for this planned service, the results
predict that the market will be good for the planned service. What is the probability that the market
for the service will actually be good? [12]

Question 3 on next page

The University of the West Indies Course Code ECON 2006 2012/12 /….

DO NOT WRITE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY

INSTRUCTIONS: Each page must be signed by the Examiners and where applicable, the University Examiner and/or the External
Examiner. Where the examination does not require a University Examiner, the form must be signed by the First and Second
Examiners. Completed forms should be handed to the Assistant Registrar (Examinations). The EXTERNAL EXAMINER is requested to
sign the question paper and return it with comments, if any, (on a separate sheet) , to the Assistant Registrar (Examinations).

……………………………………….. ……………………………………………..
First Examiner University Examiner

……………………………………….. ……………………………………………..
Second Examiner External Examiner (where applicable)

Date: 2012/……/… Date: 2012/……/……

 page 3

SECTION B (Answer ONE Question)

3. As purchasing agent for the BAC Distributing, you have the primary responsibility for securing high
quality raw materials at the best price. One material that BAC Distributing has a high demand for is
aluminium. After careful study, you have been able to reduce the prospective vendors to two. It is
unclear whether these two vendors produce aluminium that is equally durable.
In order to compare durability, the recommended procedure is to put pressure on the aluminium until it
cracks. The vendor whose aluminium requires the greatest average pressure will be judged to be the one
that provides the most durable product.
To carry out the test, 14 pieces from Vendor #1 and 14 pieces from Vendor #2 are selected at random.
The following results in pounds per square inch (psi) were recorded:

Vendor #1 Vendor #2
n1 = 14 n2 = 14
sample mean = 2,345 psi sample mean = 2,411 psi
sample std. deviation = 300 sample std. deviation = 250

a. Name the available point estimator for the ratio of the variances in durability from the two vendors
[2]

b. What are the properties of this estimator? Give reasons for your answer. [4]

c. Construct a 98% confidence interval estimate for the ratio of the variances in durability from the
two vendors [6]

d. What are the assumptions for this test? [2]

e. Hence, use the data provided to you as Manager to make a conclusion about the equality of the
variances in durability in the product supplied by the two vendors. [6]

4. a. List and define two principles that guide the selection of estimators for an unknown population
parameter. [5]

b. Historical data indicate that the standard deviation of the completion time for a manufacturing process
is 6.3 minutes. A recent random sample of size 28 completed items was selected from the production
line. Develop a 90% confidence interval estimate for the variance of the sample. [6]

c. Carefully interpret the confidence interval derived in part b. above. [3]

d. If the sample in part b. above yielded a sample variance of 66.2 min 2, test the hypothesis that the
variance of the process has increased. [6]

Question 5 on the next page

The University of the West Indies Course Code ECON 2006 2012/12 /….

DO NOT WRITE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY

INSTRUCTIONS: Each page must be signed by the Examiners and where applicable, the University Examiner and/or the External
Examiner. Where the examination does not require a University Examiner, the form must be signed by the First and Second
Examiners. Completed forms should be handed to the Assistant Registrar (Examinations). The EXTERNAL EXAMINER is requested to
sign the question paper and return it with comments, if any, (on a separate sheet) , to the Assistant Registrar (Examinations).

……………………………………….. ……………………………………………..
First Examiner University Examiner

……………………………………….. ……………………………………………..
Second Examiner External Examiner (where applicable)

Date: 2012/……/… Date: 2012/……/……

 page 4
SECTION C (Answer ONE Question)

5. Power Brake Inc. manufactures brake systems for small automobiles. Power Brakes’ Research and
Development Unit recently tested four brake systems to determine if there is a difference in the average
stopping distance among them. The Unit arranged for 40 identical small cars to be driven on a test track;
10 cars were fitted with Brake A, 10 cars were fitted with Brake B, 10 cars were fitted with Brake C and
10 cars were fitted with Brake D. A remote switch was used to apply the brakes at the same point on the
track. The number of feet required to bring the car to full stop was recorded for each car.

The data were analysed with the help of MINITAB. The output of the analysis is as shown below.

SUMMARY
Average
Brand Count Sum (ft) (ft) Variance(sq ft)
Brake
A 10 2723.6  272.36 49.9
Brake B 10 2713.3  271.33 61.86
Brake C 10 2623.1  262.31 21.74
Brake
D 10 2652.4  265.24 106.44

ANOVA

a. Source of Comment on the

Variation SS df MS F p-value summary above.
Between Groups 699.16        
Within Groups 2159.37         [2]
 2858.5
b. Define Total 3         completely the null
and alternative
hypotheses for the
ANOVA Test.[3]

c. State the assumptions of this test. [3]

d. Complete the cells in the ANOVA table. [5]

e. What is the conclusion of the test? [4]

f. Undertake the Tukey-Kramer Procedure to determine which brands have different means.[7]

Question 6 on the next page

6. a. Discuss two significant differences between Additive Time Series and Multiplicative Time
The University of the West Indies Course Code ECON 2006 2012/12 /….

DO NOT WRITE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY

INSTRUCTIONS: Each page must be signed by the Examiners and where applicable, the University Examiner and/or the External
Examiner. Where the examination does not require a University Examiner, the form must be signed by the First and Second
Examiners. Completed forms should be handed to the Assistant Registrar (Examinations). The EXTERNAL EXAMINER is requested to
sign the question paper and return it with comments, if any, (on a separate sheet) , to the Assistant Registrar (Examinations).

……………………………………….. ……………………………………………..
First Examiner University Examiner

……………………………………….. ……………………………………………..
Second Examiner External Examiner (where applicable)

Date: 2012/……/… Date: 2012/……/……

 page 5
Series. [2]

b. What do you understand by the term Decomposition of a time series. [2]

Table 1 below lists a demand data set and Figure 1 is the graph of the time series.

Table 1
Quarter 2009 2010 2011 2012
st
1 qtr 205 230 272 296
nd
2 qtr 96 105 110 130
3rd qtr 194 245 255 270
4th qtr 102 120 114 140p
p = provisional

Figure 1
350

300

250

200

150

100

50

0
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Table 2 below presents some rows of the output from a technique for computing the seasonal component.

Table 2
4 Pt
4 Pt Moving 2Pt x 4Pt Seasonal Seasonal
Period Xt
Moving Averag Moving Variation Index
Total e Average
2009: 1st
205        
qtr
         
nd
2 qtr 96        
    725 181.25    
3rd qtr 194   168.75 1.14963
    625 156.25    
4th qtr 230   174.875 1.315225

Question 6 continues on the next page

The University of the West Indies Course Code ECON 2006 2012/12 /….

DO NOT WRITE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY

INSTRUCTIONS: Each page must be signed by the Examiners and where applicable, the University Examiner and/or the External
Examiner. Where the examination does not require a University Examiner, the form must be signed by the First and Second
Examiners. Completed forms should be handed to the Assistant Registrar (Examinations). The EXTERNAL EXAMINER is requested to
sign the question paper and return it with comments, if any, (on a separate sheet) , to the Assistant Registrar (Examinations).

……………………………………….. ……………………………………………..
First Examiner University Examiner

……………………………………….. ……………………………………………..
Second Examiner External Examiner (where applicable)

Date: 2012/……/… Date: 2012/……/……

 page 6
i. Based on your visual scan, describe the components present in this data? [3]

ii. Name the method used in Table 2. [1]

iii. Is the time series additive or multiplicative? Give a reason for your answer. [2]

iv. Which components of the Time Series are contained in the 4 Pt. Moving Average? How are these
linked (by addition or by multiplication)? [3]

v. Which components of the Time Series are contained in the Seasonal Variation? How are these
linked (by addition or by multiplication)? [3]

vi. Describe the approach used to compute the Seasonal Indices from the Seasonal Variation. [4]

Question 7 on the next page

The University of the West Indies Course Code ECON 2006 2012/12 /….

DO NOT WRITE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY

INSTRUCTIONS: Each page must be signed by the Examiners and where applicable, the University Examiner and/or the External
Examiner. Where the examination does not require a University Examiner, the form must be signed by the First and Second
Examiners. Completed forms should be handed to the Assistant Registrar (Examinations). The EXTERNAL EXAMINER is requested to
sign the question paper and return it with comments, if any, (on a separate sheet) , to the Assistant Registrar (Examinations).

……………………………………….. ……………………………………………..
First Examiner University Examiner

……………………………………….. ……………………………………………..
Second Examiner External Examiner (where applicable)

Date: 2012/……/… Date: 2012/……/……

 page 7
SECTION D (Answer ONE Question)

7. A local bank is facing a gender discrimination suit. The charge is that its female employees receive
substantially smaller salaries than its male employees. In preparing for the court proceedings the bank
undertook an analysis of its staff database. From the database, values to the following variables were
identified for each of its 208 employees:

 EducLev – education level ; this is a categorical variable with categories 1 (finished high school),
2 (finished some college courses), 3 (obtained a Bachelor’s degree), 4 (took some graduate
courses), and 5 (obtained a graduate degree)
 JobGrade - a categorical variable indicating the current job level; the possible levels being 1 to 6
(6 is the highest)
 YrHired – year employee was hired. From this variable, YrsEmployed, the number of years that
the employee has been employed by the Bank is computed
 YrBorn – year employee was born. From this variable the Age of the employee is derived.
 Gender – a categorical variable with values of “Female’ and “Male”
 YrsPrior – number of years of work experience at another bank prior to working at this bank
 PCJob – a categorical variable with values Yes/No depending on whether the employee’s current
job is computer-related
 Salary – current annual salary in thousands of dollars.

A multiple regression was undertaken in which Salary was modelled as a linear combination of the
remaining variables. The regression output is shown in the table on the next page.

a. Write out the generic linear form of the function for forecasting Salaries in the Bank. [1]
b. Explain what is meant by a Correlation Matrix and indicate how it can be used in this analysis.[4]
c. List the assumptions of the OLS Regression Model. [3]
d. Write out the OLS estimate of the function for forecasting salaries. [1]
e. Is the overall regression equation statistically significant? Give reasons for your answer. [3]
f. Explain what is meant by multicollinearity? [2]
g. Describe two consequences of multicollinearity in a data set. [2]
h. Is there evidence of multicollinearity in the regression model above? [4]

Question 7 continues on the next page

The University of the West Indies Course Code ECON 2006 2012/12 /….

DO NOT WRITE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY

INSTRUCTIONS: Each page must be signed by the Examiners and where applicable, the University Examiner and/or the External
Examiner. Where the examination does not require a University Examiner, the form must be signed by the First and Second
Examiners. Completed forms should be handed to the Assistant Registrar (Examinations). The EXTERNAL EXAMINER is requested to
sign the question paper and return it with comments, if any, (on a separate sheet) , to the Assistant Registrar (Examinations).

……………………………………….. ……………………………………………..
First Examiner University Examiner

……………………………………….. ……………………………………………..
Second Examiner External Examiner (where applicable)

Date: 2012/……/… Date: 2012/……/……

 page 8

RESULTS OF OLS REGRESSION

Dependent Variable : Salary

Method : Least Squares
Sample : Staff of the Bank
Included Observations : 208
Variable Coefficient Std. Error t-Statistic Prob.
Constant 29.6899 2.4900 11.9236 0.0000
EducLev 2.6908 1.6209 1.6601 0.0985
JobGrade 8.5948 1.4960 5.7451 0.0000
YrsEmployed 0.5156 0.0980 5.2621 0.0000
Age -0.0090 0.0577 -0.1553 0.8767
Gender -2.5545 1.0120 -2.5242 0.0124
YrsPrior 0.1677 0.1404 1.1943 0.2338
PCJob 4.9228 1.4738 3.3402 0.0010
R-square 0.7652 S.E. of Regression 5.6481
Adj. R-square 0.7482 Durbin Watson Test 1.538
Statistic
F-statistic 44.9390 Prob(F-statistic) <0.001

END OF EXAMINATION PAPER

The University of the West Indies Course Code ECON 2006 2012/12 /….

DO NOT WRITE ON THE BACK OF THIS SHEET: USE ONE SIDE ONLY

INSTRUCTIONS: Each page must be signed by the Examiners and where applicable, the University Examiner and/or the External
Examiner. Where the examination does not require a University Examiner, the form must be signed by the First and Second
Examiners. Completed forms should be handed to the Assistant Registrar (Examinations). The EXTERNAL EXAMINER is requested to
sign the question paper and return it with comments, if any, (on a separate sheet) , to the Assistant Registrar (Examinations).

……………………………………….. ……………………………………………..
First Examiner University Examiner

……………………………………….. ……………………………………………..
Second Examiner External Examiner (where applicable)

Date: 2012/……/… Date: 2012/……/……