AIU Exam – Econometrics: Probability

School: Business & Economics

Major: Economics

Course title: Econometrics I: Probability

Credits for course: 3 credits
Description of course:
Based on the material in this primer you should be able to:
1. Explain the difference between a random variable and its values and give an example.
2. Explain the difference between discrete and continuous random variables and give
examples of each.
3. State the characteristics of a probability density function (pdf) for a discrete random
variable and give an example.
4. Compute probabilities of events, given a discrete probability function.
5. Explain the meaning of the following statement: ‘‘The probability that the discrete
random variable takes the value 2 is 0.3.’’
6. Explain how the pdf of a continuous random variable is different from the pdf of a
discrete random variable.
7. Show, geometrically, how to compute probabilities given a pdf for a continuous random
variable.
8. Explain, intuitively, the concept of the mean, or expected value, of a random variable.
9. Use the definition of expected value for a discrete random variable to compute
expectations, given a pdf f(x) and a function g(X) of X.
10. Define the variance of a discrete random variable and explain in what sense the
values of a random variable are more spread out if the variance is larger.
11. Use a joint pdf (table) for two discrete random variables to compute probabilities of
joint events and to find the (marginal) pdf of each individual random variable.
12. Find the conditional pdf for one discrete random variable given the value of another
and their joint pdf.
13. Work with single and double summation notation.
14. Give an intuitive explanation of statistical independence of two random variables and
state the conditions that must hold to prove statistical independence. Give examples
of two independent random variables and two dependent random variables.
15. Define the covariance and correlation between two random variables, and compute
these values given a joint probability function of two discrete random variables.
16. Find the mean and variance of a sum of random variables.
17. Use Table 1, Cumulative Probabilities for the Standard Normal Distribution, and your
computer software to compute probabilities involving normal random variables.

Book & chapter: Principles of Econometrics, Chapter 1 and Probability Primer,

pages 1 to 38
Link to book:

http://students.aiu.edu/submissions/profiles/resources/onlineBook/R5W9A5_principles-
of-econometrics-4th-edition.pdf
Bibliography of book:
Hill, R. Carter, et al. Principles of econometrics. 4th Edition. Hoboken, NJ: Wiley, 2011.

Link to Supplemental Book to use Excel to answer questions:

http://students.aiu.edu/submissions/profiles/resources/onlineBook/
H7Y2Q8_using_excel_for_principles_of_econometrics3e.pdf
Format of the assignment: Assignment must have an AIU cover page, introduction to
the topics of the chapter, answers to the questions below, conclusion about the exam
and the bibliography of book at end of assignment.
Instructions for Adding Course & Submitting Exam: Go to the top of your student
platform. On the left you will see a link to add a course called “Add Courses into Curriculum”.
Click there. Then you will see a button to add a new course. It will then ask you to give the
specific name of the course, which is given above on this exam.
Then you submit the assignment through another link at the top of the platform called “Submit
an assignment”. You choose the course name from the drop-down list. Then you choose to
send the assignment “offline”. Then you upload the file(s) for the course.
Please include questions with your answers, so that we can see the question being
answered.

Questions… Page 34
P.1 You are organizing an outdoor concert for next week and believe attendance will
depend on the weather. You consider the following possibilities are appropriate:

(a) Let X denote the attendance. Why is X a random variable?

(b) What is the expected attendance?
(c) Suppose that each ticket costs $5 and that the total cost of giving the concert
is a fixed $2,000. Let Y = profit = total sales revenue – total cost = 5X –
2000. What is the expected profit?
(d) If the variance of attendance is σ2X = 240,000, find the variance of profit Y.