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Department of Master of Business Administration

E-Content File

I MBA I Semester
Subject
RESEARCH METHODOLOGY AND STATISTICAL
ANALYSIS
Code: C1E05

Academic Year 2023-24

Regulations: MR22

3
MBA-I Semester Paper Code: AB105

Research Methodology and Statistical Analysis

UNIT – I

Meaning Of Research:

Research in simple terms refers to search for knowledge. It is a scientific and systematic
search for information on a particular topic orissue. It is also known as the art of scientific
investigation. Several social scientists have defined research in different ways.

In the Encyclopedia of Social Sciences, D. Slesinger and M. Stephension (1930) defined

research as “the manipulation of things, concepts or symbols for the purpose of generalizing
to extend, correct or verify knowledge, whether that knowledge aids in the construction of
theory or in the practice of an art”.

According to Redman and Mory (1923), research is a “systematized effort to gain new
knowledge”. It is an academic activity and therefore the term should be used in a technical sense.
According to Clifford Woody (kothari, 1988), research comprises “defining and redefining
problems, formulating hypotheses or suggested solutions; collecting, organizing

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 and evaluating data; making deductions and reaching conclusions; and finally,
carefully testing the conclusions to determine whether they fit the formulated
hypotheses”.

Thus, research is an original addition to the available knowledge, which

contributes to its further advancement. It is an attempt to pursuetruth
through the methods of study, observation, comparison and experiment. In
sum, research is the search for knowledge, using objective and systematic
methods to find solution to a problem.

Objectives Of Research:

The objective of research is to find answers to the questions by applying

scientific procedures. In other words, the main aim of researchis to find out
the truth which is hidden and has not yet been discovered. Although every
research study has its own specific objectives, the research objectives may be
broadly grouped as follows:

1. To gain familiarity with new insights into a phenomenon (i.e.,

formulative research studies);
2. To accurately portray the characteristics of a particular individual,
group, or a situation (i.e., descriptive research studies);
3. To analyse the frequency with which something occurs (i.e.,diagnostic
research studies); and
4. To examine the hypothesis of a causal relationship between two
variables (i.e., hypothesis-testing research studies).

Research Methods Versus Methodology:

Research methods include all those techniques/methods that are

adopted for conducting research. Thus, research techniques or methods are
the methods that the researchers adopt for conducting the research studies.

on the other hand, research methodology is the way in which research

problems are solved systematically. It is a science of studying how research is
conducted scientifically. Under it, the researcher acquaints himself/herself with
the various steps generally adopted to study a research problem, along with
the underlying logic behind them. Hence, it

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is not only important for the researcher to know the research techniques/ methods, but also
the scientific approach called methodology.

Research Approaches:

There are two main approaches to research, namely quantitative approach and qualitative
approach. The quantitative approach involves the collection of quantitative data, which are put
to rigorous quantitative analysis in a formal and rigid manner. This approach further includes
experimental, inferential, and simulation approaches to research. Meanwhile, the qualitative
approach uses the method of subjectiveassessment of opinions, behaviour and attitudes. Research
in such a situation is a function of the researcher’s impressions and insights. The results
generated by this type of research are either in non-quantitativeform or in the form which
cannot be put to rigorous quantitative analysis. Usually, this approach uses techniques like
indepth interviews, focus group interviews, and projective techniques.

Types Of Research:

There are different types of research. The basic ones are as follows.

1. Descriptive Versus Analytical:

Descriptive research consists of surveys and fact-finding enquiries of different types.

The main objective of descriptive research is describing the state of affairs as it prevails at the
time of study. The term ‘ex postfacto research’ is quite often used for descriptive research
studies in social sciences and business research. The most distinguishing feature of this method
is that the researcher has no control over the variables here. He/she has to only report what is
happening or what has happened. Majority ofthe ex post facto research projects are used for
descriptive studies in which the researcher attempts to examine phenomena, such as the
consumers’ preferences, frequency of purchases, shopping, etc. Despite the inability of the
researchers to control the variables, ex post facto studies may also comprise attempts by them to
discover the causes of the selected problem. The methods of research adopted in conducting
descriptive research are survey methods of all kinds, including correlational and comparative
methods.

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 Meanwhile in the Analytical research, the researcher has to use the
already available facts or information, and analyse them to make a critical
evaluation of the subject.

2. Applied Versus Fundamental:

Research can also be applied or fundamental in nature. An attempt to

find a solution to an immediate problem encountered by a firm, anindustry, a
business organisation, or the society is known as applied research. Researchers
engaged in such researches aim at drawing certain conclusions confronting a
concrete social or business problem.

On the other hand, fundamental research mainly concerns

generalizations and formulation of a theory. In other words, “Gathering
knowledge for knowledge’s sake is termed ‘pure’ or ‘basic’ research” (Young
in Kothari, 1988). Researches relating to pure mathematics or concerning some
natural phenomenon are instances of Fundamental Research. Likewise,
studies focusing on human behaviour also fall under the category of
fundamental research.

Thus, while the principal objective of applied research is to find a

solution to some pressing practical problem, the objective of basic research is
to find information with a broad base of application and add to thealready
existing organized body of scientific knowledge.

3. Quantitative Versus Qualitative:

Quantitative research relates to aspects that can be quantified or

can be expressed in terms of quantity. It involves the measurement ofquantity
or amount. Various available statistical and econometric methods are adopted
for analysis in such research. Which includes correlation, regressions and time
series analysis etc,.

On the other hand, Qualitative research is concerned with qualitative

phenomena, or more specifically, the aspects related to or involving quality or
kind. For example, an important type of qualitative research is ‘Motivation
Research’, which investigates into the reasons for certain human behaviour.
The main aim of this type of research isdiscovering the underlying motives
and desires of human beings by using
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in-depth interviews. The other techniques employed in such research are story completion
tests, sentence completion tests, word association tests, and other similar projective methods.
Qualitative research is particularly significant in the context of behavioural sciences, which
aim at discovering the underlying motives of human behaviour. Such research helps to analyse
the various factors that motivate human beings to behave in a certain manner, besides
contributing to an understanding of what makes individuals like or dislike a particular thing.
However, it is worth noting that conducting qualitative research in practice is considerably a
difficult task. Hence, while undertaking such research, seeking guidance from experienced
expert researchers is important.

4. Conceptual Versus Empirical:

The research related to some abstract idea or theory is known as Conceptual Research.
Generally, philosophers and thinkers use it for developing new concepts or for reinterpreting the
existing ones. Empirical Research, on the other hand, exclusively relies on the observation or
experience with hardly any regard for theory and system. Such researchis data based, which
often comes up with conclusions that can be verified through experiments or observation.
Empirical research is also known as experimental type of research, in which it is important to
first collect the facts and their sources, and actively take steps to stimulate the production of
desired information. In this type of research, the researcher first formulates a working
hypothesis, and then gathers sufficient facts to prove or disprove the stated hypothesis. He/she
formulates the experimental design, which according to him/her would manipulate the variables,
so as to obtain the desired information. This type of research is thus characterized by the
researcher’s control over the variables under study. In simple term, empirical research is most
appropriate when an attempt is made to provethat certain variables influence the other variables
in some way. Therefore, the results obtained by using the experimental or empirical studies are
considered to be the most powerful evidences for a given hypothesis.

5. Other Types Of Research:

The remaining types of research are variations of one or more ofthe afore-mentioned
type of research. They vary in terms of the purposeof research, or the time required to
complete it, or may be based on some

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other similar factor. On the basis of time, research may either be in the nature
of one-time or longitudinal time series research. While the research is
restricted to a single time-period in the former case, it is conducted over several
time-periods in the latter case. Depending upon the environment in which
the research is to be conducted, it can also be laboratory research or field-
setting research, or simulation research, besides being diagnostic or clinical
in nature. Under such research, in-depth approaches or case study method
may be employed to analyse the basic causal relations. These studies usually
undertake a detailed in-depth analysis of the causes of certain events of
interest, and use very small samples and sharp data collection methods. The
research may also be explanatory in nature. Formalized research studies consist
of substantial structure and specifichypotheses to be verified. As regards to
historical research, sources like historical documents, remains, etc. Are utilized
to study past events orideas. It also includes philosophy of persons and groups
of the past or any remote point of time.

Research has also been classified into decision-oriented and

conclusion-oriented categories. The decision-oriented research is always
carried out as per the need of a decision maker and hence, the researcher has no
freedom to conduct the research according to his/her own desires. On the
other hand, in the case of Conclusion-oriented research, the researcher is free
to choose the problem, redesign the enquiry as it progresses and even
change conceptualization as he/she wishes to. Operations research is a kind
of decision-oriented research, where in scientific method is used in providing
the departments, a quantitative basis for decision-making with respect to the
activities under their purview.

Importance Of Knowing How To Conduct Research:

The importance of knowing how to conduct research are listed below:

i. The knowledge of research methodology provides training to new

researchers and enables them to do research properly. It helps them to
develop disciplined thinking or a ‘bent of mind’ to objectively observe
the field;

ii. The knowledge of doing research inculcates the ability to evaluate

and utilize the research findings with confidence;

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 iii. The knowledge of research methodology equips the researcher with the tools that help
him/her to make the observations objectively;and

iv. The knowledge of methodology helps the research consumers to evaluate research and
make rational decisions.

Qualities Of A Researcher:

It is important for a researcher to possess certain qualities to conduct research. First and
foremost, he being a scientist should be firmly committed to the ‘articles of faith’ of the
scientific methods of research.This implies that a researcher should be a social science
person in the truest sense. Sir Michael Foster cited by (Wilkinson and Bhandarkar, 1979)
identified a few distinct qualities of a scientist. According to him, a true research scientist should
possess the following qualities:

(1) First of all, the nature of a researcher must be of the temperament that vibrates in
unison with the theme which he is searching. Hence, the seeker of knowledge must be truthful
with truthfulness of nature, which is much more important, much more exacting than what is
sometimes known as truthfulness. The truthfulness relates to the desire for accuracy of
observation and precision of statement. Ensuring facts is the principle rule of science, which is
not an easy matter. The difficulty may arise dueto untrained eye, which fails to see anything
beyond what it has the powerof seeing and sometimes even less than that. This may also be
due to thelack of discipline in the method of science. An unscientific individualoften remains
satisfied with the expressions like approximately, almost,or nearly, which is never what
nature is. A real research cannot see two things which differ, however minutely, as the same.

(2) A researcher must possess an alert mind. Nature is constantly changing and revealing
itself through various ways. A scientific researcher must be keen and watchful to notice such
changes, no matter how small or insignificant they may appear. Such receptivity has to be
cultivated slowly and patiently over time by the researcher through practice. An individual who
is ignorant or not alert and receptive during his research will notmake a good researcher. He
will fail as a good researcher if he has no keen eyes or mind to observe the unusual changes
behind the routine. Research

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demands a systematic immersion into the subject matter by the researcher grasp
even the slightest hint that may culminate into significant research problems.
In this context, Cohen and Negal cited by (Selltiz et al, 1965; Wilkinson and
Bhandarkar, 1979) state that “the ability to perceive in some brute experience
the occasion of a problem is not a common talent among men… it is a mark of
scientific genius to be sensitive to difficulties where less gifted people pass by
untroubled by doubt”.

(3) Scientific enquiry is pre-eminently an intellectual effort. It requires

the moral quality of courage, which reflects the courage of a steadfast
endurance. The process of conducting research is not an easytask. There
are occasions when a research scientist might feel defeated or completely lost.
This is the stage when a researcher would need immense courage and the sense
of conviction. The researcher must learn the art of enduring intellectual
hardships. In the words of Darwin, “It’s dogged that does it”.

In order to cultivate the afore-mentioned three qualities of a researcher,

a fourth one may be added. This is the quality of makingstatements cautiously.
According to Huxley, the assertion that outstrips the evidence is not only a
blunder but a crime (Thompson, 1975). A researcher should cultivate the habit
of reserving judgment when the required data are insufficient.

Significance Of Research:

According to a famous Hudson Maxim, “All progress is born of

inquiry. Doubt is often better than overconfidence, for it leads to inquiry, and
inquiry leads to invention”. It brings out the significance of research, increased
amount of which makes the progress possible. Research encourages scientific
and inductive thinking, besides promoting the development of logical habits of
thinking and organisation. The role of research in applied economics in the
context of an economy or business is greatly increasing in modern times.
The increasingly complex nature of government and business has raised the
use of research in solving operational problems. Research assumes significant
role in the formulation of economic policy for both, the government and
business. It provides the basis for almost all government policies of an
economic system. Government budget formulation, for example, depends
particularly on the

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analysis of needs and desires of people, and the availability of revenues, which requires research.
Research helps to formulate alternative policies,in addition to examining the consequences of
these alternatives. Thus, research also facilitates the decision-making of policy-makers,
although in itself is not a part of research. In the process, research also helps in the proper
allocation of a country’s scarce resources.

Research is also necessary for collecting information on the social and economic structure
of an economy to understand the process of change occurring in the country. Collection of
statistical information, though not a routine task, involves various research problems.
Therefore, large staff of research technicians or experts are engaged by the governmentthese
days to undertake this work. Thus, research as a tool of government economic policy
formulation involves three distinct stages of operation:
(i) investigation of economic structure through continual compilationof facts; (ii) diagnosis
of events that are taking place and analysis of the forces underlying them; and (iii) the prognosis
i.e., the prediction of future developments (Wilkinson and Bhandarkar, 1979).

Research also assumes significance in solving various operational and planning problems
associated with business and industry. In several ways, operations research, market research
and motivational researchare vital and their results assist in taking business decisions. Market
research refers to the investigation of the structure and development of a market for the
formulation of efficient policies relating to purchases, production and sales. Operational
research relates to the applicationof logical, mathematical, and analytical techniques to find
solution to business problems, such as cost minimization or profit maximization, or the
optimization problems. Motivational research helps to determine why people behave in the
manner they do with respect to market characteristics. More specifically, it is concerned with the
analysis of the motivations underlying consumer behaviour. All these researches are very useful
for business and industry, and are responsible for business decision-making.

Research is equally important to social scientists for analyzing the social relationships
and seeking explanations to various social problems. It gives intellectual satisfaction of
knowing things for the sakeof knowledge. It also possesses the practical utility for the social
scientistto gain knowledge so as to be able to do something better or in a more

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 efficient manner. The research in social sciences is concerned with both
knowledge for its own sake, and knowledge for what it can contribute to solve
practical problems.

1. Hypothesis-Testing Research Design:

Hypothesis-Testing Research Designs are those in which the researcher tests the
hypothesis of causal relationship between two or more variables. These studies require
procedures that would not only decrease bias and enhance reliability, but also facilitate
deriving inferences about the causality. Generally, experiments satisfy such requirements.
Hence, when research design is discussed in such studies, it often refers to the design of
experiments.

Hypothesis:

“Hypothesis may be defined as a proposition or a set of propositions set

forth as an explanation for the occurrence of some specified groupof
phenomena either asserted merely as a provisional conjecture to guide some
investigation in the light of established facts” (Kothari, 1988). A research
hypothesis is quite often a predictive statement, which is capableof being
tested using scientific methods that involve an independent and some
dependent variables. For instance, the following statements may be considered:

i. “Students who take tuitions perform better than the others who do
not receive tuitions” or,
ii. “The female students perform as well as the male students”.

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 These two statements are hypotheses that can be objectively verified and tested. Thus,
they indicate that a hypothesis states what one is looking for. Besides, it is a proposition that
can be put to test in order to examineits validity.

Characteristics Of Hypothesis:

A hypothesis should have the following characteristic features:-

i. A hypothesis must be precise and clear. If it is not precise and clear, then the inferences
drawn on its basis would not be reliable.

ii. A hypothesis must be capable of being put to test. Quite often, the research programmes fail
owing to its incapability of being subject to testing for validity. Therefore, some prior study
may be conducted by the researcher in order to make a hypothesis testable. A hypothesis
“is tested if other deductions can be made from it, which in turn canbe confirmed or
disproved by observation” (Kothari, 1988).

iii. A hypothesis must state relationship between two variables, in the case of relational
hypotheses.

iv. A hypothesis must be specific and limited in scope. This is because a simpler hypothesis
generally would be easier to test for the researcher. And therefore, he/she must formulate
such hypotheses.

v. As far as possible, a hypothesis must be stated in the simplest language,so as to make it

understood by all concerned. However, it should be noted that simplicity of a hypothesis
is not related to its significance.

vi. A hypothesis must be consistent and derived from the most knownfacts. In other
words, it should be consistent with a substantial bodyof established facts. That is, it
must be in the form of a statementwhich is most likely to occur.

vii. A hypothesis must be amenable to testing within a stipulated or reasonable period of time.
No matter how excellent a hypothesis, a researcher should not use it if it cannot be
tested within a givenperiod of time, as no one can afford to spend a life-time on collecting
data to test it.

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 viii. A hypothesis should state the facts that give rise to the necessity of looking
for an explanation. This is to say that by using the hypothesis, and other
known and accepted generalizations, a researcher must be able to derive
the original problem condition. Therefore, a hypothesis should explain
what it actually wants to explain, and for this it should also have an
empirical reference.

Concepts Relating To Testing Of Hypotheses:

Testing of hypotheses requires a researcher to be familiar with various

concepts concerned with it such as:

1) Null Hypothesis And Alternative Hypothesis:

In the context of statistical analysis, hypotheses are of two types

viz., null hypothesis and alternative hypothesis. When two methods A and
B are compared on their relative superiority, and it is assumed thatboth
the methods are equally good, then such a statement is called as thenull
hypothesis. On the other hand, if method A is considered relatively superior to
method B, or vice-versa, then such a statement is known as an alternative
hypothesis. The null hypothesis is expressed as H0, whilethe alternative
hypothesis is expressed as Ha. For example, if a researcher wants to test the
hypothesis that the population mean (μ) is equal to the hypothesized mean (H0)
= 100, then the null hypothesis should be stated as the population mean is
equal to the hypothesized mean 100. Symbolicallyit may be written as:-

H0: = μ = μ H0 = 100

If sample results do not support this null hypothesis, then it shouldbe

concluded that something else is true. The conclusion of rejecting thenull
hypothesis is called as alternative hypothesis H1. To put it in simple words, the
set of alternatives to the null hypothesis is termed as the alternative hypothesis.
If H0 is accepted, then it implies that Ha is being rejected. On the other hand, if
H0 is rejected, it means that Ha is being accepted. For H0: μ = μ H0 = 100, the
following three possible alternative hypotheses may be considered:

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 Alternative hypothesis To be read as follows
The alternative hypothesis is that the
H1: μ ≠ μ H0
population mean is not equal to 100, i.e., it
could be greater than or less than 100
The alternative hypothesis is that the
H1 : μ > μ H0
population mean is greater than 100
The alternative hypothesis is that the
H1 : μ < μ H0
population mean is less than 100

Before the sample is drawn, the researcher has to state the nullhypothesis and the
alternative hypothesis. While formulating the null hypothesis, the following aspects need to be
considered:

A. Alternative hypothesis is usually the one which a researcher wishesto prove, whereas
the null hypothesis is the one which he/she wishesto disprove. Thus, a null hypothesis is
usually the one which a researcher tries to reject, while an alternative hypothesis is the
onethat represents all other possibilities.

B. The rejection of a hypothesis when it is actually true involves great risk, as it

indicates that it is a null hypothesis because thenthe probability of rejecting it when it
is true is α (i.e., the level of significance) which is chosen very small.

C. Null hypothesis should always be specific hypothesis i.e., it shouldnot state about or
approximately a certain value.

2) The Level Of Significance:

In the context of hypothesis testing, the level of significance is a very important concept. It
is a certain percentage that should be chosen with great care, reason and insight. If for instance,
the significance level is taken at 5 per cent, then it means that H0 would be rejected when the
sampling result has a less than 0.05 probability of occurrence when H0 is true. In otherwords, the
five per cent level of significance implies that the researcher is willing to take a risk of five per
cent of rejecting the null hypothesis, when (H0) is actually true. In sum, the significance level
reflects the maximum value of the probability of rejecting H0 when it is actually true, and
whichis usually determined prior to testing the hypothesis.

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3) Test Of Hypothesis Or Decision Rule:

Suppose the given hypothesis is H0 and the alternative hypothesis

H1, then the researcher has to make a rule known as the decision rule.
According to the decision rule, the researcher accepts or rejects H0. For
example, if the H0 is that certain students are good against the H1 that all
the students are good, then the researcher should decide the number of
items to be tested and the criteria on the basis of which to accept or reject
the hypothesis.

4) Type I And Type II Errors:

As regards the testing of hypotheses, a researcher can make basically

two types of errors. He/she may reject H0 when it is true, or accept H0 when
it is not true. The former is called as Type I error and the latter is known as
Type II error. In other words, Type I error implies the rejection of a hypothesis
when it must have been accepted, while Type II error implies the acceptance
of a hypothesis which must have been rejected. Type Ierror is denoted by
α (alpha) and is known as α error, while Type II erroris usually denoted by
β (beta) and is known as β error.

5) One-Tailed And Two-Tailed Tests:

These two types of tests are very important in the context of hypothesis
testing. A two-tailed test rejects the null hypothesis, when the sample
mean is significantly greater or lower than the hypothesized value of the
mean of the population. Such a test is suitable when the null hypothesis is
some specified value, the alternative hypothesis is a valuethat is not equal
to the specified value of the null hypothesis.

Procedure Of Hypothesis Testing:

Testing a hypothesis refers to verifying whether the hypothesis is valid

or not. Hypothesis testing attempts to check whether to accept or not to accept
the null hypothesis. The procedure of hypothesis testing includes all the steps
that a researcher undertakes for making a choice between the two alternative
actions of rejecting or accepting a null hypothesis. The various steps involved
in hypothesis testing are as follows:

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1) Making a Formal Statement:

This step involves making a formal statement of the null hypothesis (H0) and the
alternative hypothesis (Ha). This implies that the hypotheses should be clearly stated within the
purview of the research problem. For example, suppose a school teacher wants to test the
understanding capacity of the students which must be rated more than 90 per cent in terms
of marks, the hypotheses may be stated as follows:

Null Hypothesis H0 : = 100 Alternative Hypothesis H1 : > 100

2) Selecting A Significance Level:

The hypotheses should be tested on a pre-determined level of significance, which should

be specified. Usually, either 5% level or 1% level is considered for the purpose. The factors
that determine the levelsof significance are: (a) the magnitude of difference between the sample
means; (b) the sample size: (c) the variability of measurements within samples; and (d) whether
the hypothesis is directional or non-directional (Kothari, 1988). In sum, the level of
significance should be sufficient inthe context of the nature and purpose of enquiry.

3) Deciding The Distribution To Use:

After making decision on the level of significance for hypothesis testing, the
researcher has to next determine the appropriate sampling distribution. The choice to be made
generally relates to normal distribution and the t-distribution. The rules governing the
selection of the correct distribution are similar to the ones already discussed with respect to
estimation.

4) Selection Of A Random Sample And Computing An AppropriateValue:

Another step involved in hypothesis testing is the selection of a random sample and then
computing a suitable value from the sample data relating to test statistic by using the appropriate
distribution. In other words, it involves drawing a sample for furnishing empirical data.

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5) Calculation Of The Probability:

The next step for the researcher is to calculate the probability that
the sample result would diverge as far as it can from expectations, under
the situation when the null hypothesis is actually true.

6) Comparing The Probability:

Another step involved consists of making a comparison of the

probability calculated with the specified value of α, i.e. The significance level.
If the calculated probability works out to be equal to or smallerthan the α
value in case of one-tailed test, then the null hypothesis is to be rejected. On
the other hand, if the calculated probability is greater, then the null
hypothesis is to be accepted. In case the null hypothesis H0 is rejected, the
researcher runs the risk of committing the Type I error. But,if the null
hypothesis H0 is accepted, then it involves some risk (which cannot be
specified in size as long as H0 is vague and not specific) of committing the
Type II error.

Sample Survey:

A sample design is a definite plan for obtaining a sample from a given

population (Kothari, 1988). Sample constitutes a certain portion of the
population or universe. Sampling design refers to the technique or the
procedure the researcher adopts for selecting items for the sample from
the population or universe. A sample design helps to decide the numberof
items to be included in the sample, i.e., the size of the sample. The sample
design should be determined prior to data collection. There are different kinds
of sample designs which a researcher can choose. Someof them are relatively
more precise and easier to adopt than the others. A researcher should prepare
or select a sample design, which must be reliable and suitable for the research
study proposed to be undertaken.

1.8.1 Steps In Sampling Design:

A researcher should take into consideration the following aspects while

developing a sample design:

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1) Type Of Universe:

The first step involved in developing sample design is to clearly define the number of
cases, technically known as the universe. A universe may be finite or infinite. In a finite universe
the number of items is certain, whereas in the case of an infinite universe the number of items is
infinite (i.e., there is no idea about the total number of items). For example, while the population
of a city or the number of workers in a factory comprisefinite universes, the number of stars
in the sky, or throwing of a dicerepresent infinite universe.

2) Sampling Unit:

Prior to selecting a sample, decision has to be made about the sampling unit. A sampling
unit may be a geographical area like a state, district, village, etc., or a social unit like a family,
religious community, school, etc., or it may also be an individual. At times, the researcher would
have to choose one or more of such units for his/her study.

3) Source List:

Source list is also known as the ‘sampling frame’, from which the sample is to be
selected. The source list consists of names of all the itemsof a universe. The researcher has to
prepare a source list when it is not available. The source list must be reliable, comprehensive,
correct, and appropriate. It is important that the source list should be as representativeof the
population as possible.

4) Size Of Sample:

Size of the sample refers to the number of items to be chosen from the universe to form
a sample. For a researcher, this constitutes a major problem. The size of sample must be
optimum. An optimum sample may be defined as the one that satisfies the requirements of
representativeness, flexibility, efficiency, and reliability. While deciding the size of sample,
a researcher should determine the desired precision and the acceptable confidence level for the
estimate. The size of the population variance should be considered, because in the case of a
larger variance generally a larger sample is required. The size of the population should be
considered,

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 as it also limits the sample size. The parameters of interest in a research study
should also be considered, while deciding the sample size. Besides, costs or
budgetary constraint also plays a crucial role in deciding the sample size.

(A) Parameters Of Interest:

The specific population parameters of interest should also be

considered while determining the sample design. For example, the researcher
may want to make an estimate of the proportion of persons with certain
characteristic in the population, or may be interested in knowing some average
regarding the population. The population may also consistof important sub-
groups about whom the researcher would like to make estimates. All such
factors have strong impact on the sample design the researcher selects.

(B) Budgetary Constraint:

From the practical point of view, cost considerations exercise amajor

influence on the decisions related to not only the sample size, butalso on
the type of sample selected. Thus, budgetary constraint could also lead to the
adoption of a non-probability sample design.

(c) Sampling Procedure:

Finally, the researcher should decide the type of sample or the

technique to be adopted for selecting the items for a sample. This technique or
procedure itself may represent the sample design. There are different sample
designs from which a researcher should select one for his/her study. It is
clear that the researcher should select that design which, for a given sample
size and budget constraint, involves a smaller error.

Introduction:

It is important for a researcher to know the sources of data whichhe requires for
different purposes. Data are nothing but the information. There are two sources of information
or data they are - Primary and Secondary data. The data are name after the source. Primary
data refersto the data collected for the first time, whereas secondary data refers tothe data
that have already been collected and used earlier by somebodyor some agency. For example,
the statistics collected by the Government
of India relating to the population is primary data for the Government of India since it has been
21
collected for the first time. Later when the samedata are used by a researcher for his study
of a particular problem, thenthe same data become the secondary data for the researcher. Both
the sources of information have their merits and demerits. The selection of a particular source
depends upon the
(a) purpose and scope of enquiry,
(b) availability of time,
(c) availability of finance,
(d) accuracy required,
(e) statistical tools to be used,
(f) sources of information (data), and (g) method of data collection.

(a) Purpose And Scope Of Enquiry:

The purpose and scope of data collection or survey should be clearly

set out at the very beginning. It requires the clear statement of the problem
indicating the type of information which is needed and the use for which it is
needed. If for example, the researcher is interested in knowing the nature of
price change over a period of time, it would be necessary to collect data of
commodity prices. It must be decided whether it would be helpful to study
wholesale or retail prices and the possible uses to which such information
could be put. The objective of an enquiry may be either to collect specific
information relating to a problem or adequate data totest a hypothesis.
Failure to set out clearly the purpose of enquiry is bound to lead to confusion
and waste of resources.

After the purpose of enquiry has been clearly defined, the next stepis
to decide about the scope of the enquiry. Scope of the enquiry means the
coverage with regard to the type of information, the subject-matter and
geographical area. For instance, an enquiry may relate to India as a wholeor
a state or an industrial town wherein a particular problem related to a particular
industry can be studied.

(b) Availability Of Time:

The investigation should be carried out within a reasonable period of

time, failing which the information collected may become outdated, and
would have no meaning at all. For instance, if a producer wants toknow
the expected demand for a product newly launched by him and the result of
the enquiry that the demand would be meager takes two yearsto reach
22
 him, then the whole purpose of enquiry would become useless
because by that time he would have already incurred a huge loss. Thus, in this respect the
information is quickly required and hence the researcherhas to choose the type of enquiry
accordingly.

(c) Availability Of Resources:

The investigation will greatly depend on the resources available like number of skilled
personnel, the financial position etc. If the number of skilled personnel who will carry out the
enquiry is quite sufficient and the availability of funds is not a problem, then enquiry can be
conducted over a big area covering a good number of samples, otherwise a small samplesize
will do.

(d) The Degree Of Accuracy Desired:

Deciding the degree of accuracy required is a must for the investigator, because absolute
accuracy in statistical work is seldom achieved. This is so because (i) statistics are based on
estimates, (ii) toolsof measurement are not always perfect and (iii) there may be unintentional
bias on the part of the investigator, enumerator or informant. Therefore, a desire of 100%
accuracy is bound to remain unfulfilled. Degree of accuracy desired primarily depends upon the
object of enquiry. For example, whenwe buy gold, even a difference of 1/10th gram in its weight
is significant, whereas the same will not be the case when we buy rice or wheat. However, the
researcher must aim at attaining a higher degree of accuracy, otherwise the whole purpose of
research would become meaningless.

(e) Statistical Tools To Be Used:

A well defined and identifiable object or a group of objects with which the measurements
or counts in any statistical investigation are associated is called a statistical unit. For example, in
socio-economic survey the unit may be an individual, a family, a household or a block of
locality.A very important step before the collection of data begins is to defineclearly the
statistical units on which the data are to be collected. In number of situations the units are
conventionally fixed like the physical units of measurement, such as meters, kilometers, quintals,
hours, days, weeks etc., which are well defined and do not need any elaboration or explanation.
However, in many statistical investigations, particularly relating to socio-

23
economic studies, arbitrary units are used which must be clearly defined. This
is a must because in the absence of a clear cut and precise definition of the
statistical units, serious errors in the data collection may be committed in the
sense that we may collect irrelevant data on the items, which should have, in
fact, been excluded and omit data on certain items which should have been
included. This will ultimately lead to fallacious conclusions.

(f) Sources Of Information (Data):

After deciding about the unit, a researcher has to decide about the
source from which the information can be obtained or collected. For any
statistical inquiry, the investigator may collect the data first hand or he
may use the data from other published sources, such as publications of the
government/semi-government organizations or journals and magazines etc.

(g) Method Of Data Collection:

There is no problem if secondary data are used for research.

However, if primary data are to be collected, a decision has to be taken whether
(i) census method or (ii) sampling technique is to be used for data
collection. In census method, we go for total enumeration i.e., allthe units
of a universe have to be investigated. But in sampling technique,we inspect
or study only a selected representative and adequate fraction of the
population and after analyzing the results of the sample data wedraw
conclusions about the characteristics of the population. Selection of a
particular technique becomes difficult because where populationor census
method is more scientific and 100% accuracy can be attained through this
method, choosing this becomes difficult because it is time taking, it requires
more labor and it is very expensive. Therefore, for a single researcher or
for a small institution it proves to be unsuitable. Onthe other hand, sample
method is less time taking, less laborious and less expensive but a 100%
accuracy cannot be attained through this method because of sampling and non-
sampling errors attached to this method. Hence, a researcher has to be very
cautious and careful while choosing a particular method.

24
Methods of Collecting Primary Data:

Primary data may be obtained by applying any of the following methods:

1. Direct Personal Interviews.

2. Indirect Oral Interviews.
3. Information from Correspondents.
4. Mailed Questionnaire Methods.
5. Schedule Sent Through Enumerators.

1. Direct Personal Interviews:

A face to face contact is made with the informants (persons from whom the information
is to be obtained) under this method of collecting data. The interviewer asks them questions
pertaining to the survey and collects the desired information. Thus, if a person wants to
collect dataabout the working conditions of the workers of the Tata Iron and Steel Company,
Jamshedpur, he would go to the factory, contact the workers and obtain the desired
information. The information collected in this manner is first hand and also original in character.
There are many merits and demerits of this method, which are discussed as under:

Merits:

1. Most often respondents are happy to pass on the information required from them when
contacted personally and thus response is encouraging.
2. The information collected through this method is normally more accurate because
interviewer can clear doubts of the informants about certain questions and thus obtain
correct information. In casethe interviewer apprehends that the informant is not giving
accurate information, he may cross-examine him and thereby try to obtain the information.
3. This method also provides the scope for getting supplementary information from the
informant, because while interviewing it is possible to ask some supplementary questions
which may be of greater use later.
4. There might be some questions which the interviewer would find difficult to ask directly,
but with some tactfulness, he can mingle such

25
 questions with others and get the desired information. He can twist
the questions keeping in mind the informant’s reaction. Precisely, a delicate
situation can usually he handled more effectively by a personal interview
than by other survey techniques.
5. The interviewer can adjust the language according to the status and
educational level of the person interviewed, and thereby can avoid
inconvenience and misinterpretation on the part of the informant.

Demerits:

1. This method can prove to be expensive if the number of informants is large

and the area is widely spread.
2. There is a greater chance of personal bias and prejudice under thismethod
as compared to other methods.
3. The interviewers have to be thoroughly trained and experienced; otherwise
they may not be able to obtain the desired information. Untrained or poorly
trained interviewers may spoil the entire work.
4. This method is more time taking as compared to others. This is because
interviews can be held only at the convenience of the informants. Thus,
if information is to be obtained from the working members of
households, interviews will have to be held in the evening or onweek
end. Even during evening only an hour or two can be used for interviews
and hence, the work may have to be continued for a longtime, or a
large number of people may have to be employed which may involve huge
expenses.

Conclusion:

Though there are some demerits in this method of data collection

still we cannot say that it is not useful. The matter of fact is that this
method is suitable for intensive rather than extensive field surveys. Hence, it
should be used only in those cases where intensive study of a limitedfield
is desired.

In the present time of extreme advancement in the communication

system, the investigator instead of going personally and conducting a faceto
face interview may also obtain information over telephone. A good number of
surveys are being conducted every day by newspapers and television channels
by sending the reply either by e-mail or SMS. This
26
method has become very popular nowadays as it is less expensive and the response is extremely
quick. But this method suffers from some serious defects, such as (a) those who own a phone or
a television only can be approached by this method, (b) only few questions can be asked over
phone or through television, (c) the respondents may give a vague and reckless answers because
answers on phone or through SMS would haveto be very short.

2. Indirect Oral Interviews:

Under this method of data collection, the investigator contacts third parties generally
called ‘witnesses’ who are capable of supplying necessary information. This method is
generally adopted when the informationto be obtained is of a complex nature and
informants are not inclinedto respond if approached directly. For example, when the researcher
istrying to obtain data on drug addiction or the habit of taking liquor, there is high probability
that the addicted person will not provide the desireddata and hence will disturb the whole
research process. In this situation taking the help of such persons or agencies or the neighbours
who know them well becomes necessary. Since these people know the person well,they can
provide the desired data. Enquiry Committees and Commissions appointed by the Government
generally adopt this method to get people’s views and all possible details of the facts related to
the enquiry.

Though this method is very popular, its correctness depends upon a number of factors such as

1. The person or persons or agency whose help is solicited must be of proven integrity;
otherwise any bias or prejudice on their part will not bring out the correct information and
the whole process of researchwill become useless.
2. The ability of the interviewers to draw information from witnesses by means of appropriate
questions and cross-examination.
3. It might happen that because of bribery, nepotism or certain other reasons those who are
collecting the information give it such a twist that correct conclusions are not arrived at.

Therefore, for the success of this method it is necessary that the evidence of one person
alone is not relied upon. Views from other persons

27
and related agencies should also be ascertained to find the real position
.Utmost care must be exercised in the selection of these persons because itis
on their views that the final conclusions are reached.

3. Information from Correspondents:

The investigator appoints local agents or correspondents in different

places to collect information under this method. These correspondents collect
and transmit the information to the central office where data are processed.
This method is generally adopted by news paper agencies. Correspondents who
are posted at different places supply information relating to such events as
accidents, riots, strikes, etc., to the head office. The correspondents are
generally paid staff or sometimes they may behonorary correspondents also.
This method is also adopted generally by the government departments in
such cases where regular information is to be collected from a wide area.
For example, in the construction ofa wholesale price index numbers regular
information is obtained from correspondents appointed in different areas. The
biggest advantage of this method is that, it is cheap and appropriate for
extensive investigation. Buta word of caution is that it may not always ensure
accurate results because of the personal prejudice and bias of the
correspondents. As stated earlier, this method is suitable and adopted in those
cases where the information is to be obtained at regular intervals from a wide
area.

4. Mailed Questionnaire Method:

Under this method, a list of questions pertaining to the surveywhich

is known as ‘Questionnaire’ is prepared and sent to the various informants by
post. Sometimes the researcher himself too contacts the respondents and gets
the responses related to various questions in the questionnaire. The
questionnaire contains questions and provides space for answers. A request
is made to the informants through a covering letter to fill up the questionnaire
and send it back within a specified time. The questionnaire studies can be
classified on the basis of:

i. The degree to which the questionnaire is formalized or structured.

ii. The disguise or lack of disguise of the questionnaire and
iii. The communication method used.

28
 When no formal questionnaire is used, interviewers adapt their questioning to each
interview as it progresses. They might even try to elicit responses by indirect methods, such as
showing pictures on which the respondent comments. When a researcher follows a prescribed
sequence of questions, it is referred to as structured study. On the other hand, when no
prescribed sequence of questions exists, the study is non-structured.

When questionnaires are constructed in such a way that the objective is clear to the
respondents then these questionnaires are knownas non- disguised; on the other hand, when the
objective is not clear, the questionnaire is a disguised one. On the basis of these two
classifications, four types of studies can be distinguished:

1. Non-disguised structured,
2. Non-disguised non-structured,
3. Disguised structured and
4. Disguised non-structured.

There are certain merits and demerits of this method of data collectionwhich are discussed
below:

Merits:

1. Questionnaire method of data collection can be easily adopted where the field of
investigation is very vast and the informants are spreadover a wide geographical area.
2. This method is relatively cheap and expeditious provided the informants respond in time.
3. This method has proved to be superior when compared to other methods like personal
interviews or telephone method. This is because when questions pertaining to personal nature
or the ones requiring reaction by the family are put forth to the informants, there is a chance
for them to be embarrassed in answering them.

Demerits:

1. This method can be adopted only where the informants are literatesso that they can
understand written questions and lend the answers in writing.

51
2. It involves some uncertainty about the response. Co-operation on the
part of informants may be difficult to presume.
3. The information provided by the informants may not be correct and it
may be difficult to verify the accuracy.

However, by following the guidelines given below, this method can be

made more effective:

The questionnaires should be made in such a manner that they

do not become an undue burden on the respondents; otherwise the
respondents may not return them back.

i. Prepaid postage stamp should be affixed

ii. The sample should be large
iii. It should be adopted in such enquiries where it is expected that
the respondents would return the questionnaire because of their
own interest in the enquiry.
iv. It should be preferred in such enquiries where there could be a
legal compulsion to provide the information.

5. Schedules Sent Through Enumerators:

Another method of data collection is sending schedules through the

enumerators or interviewers. The enumerators contact the informants, get
replies to the questions contained in a schedule and fill them in theirown
handwriting in the questionnaire form. There is difference between
questionnaire and schedule. Questionnaire refers to a device for securing
answers to questions by using a form which the respondent fills in him self,
whereas schedule is the name usually applied to a set of questions which
are asked in a face-to face situation with another person. This method is
free from most of the limitations of the mailed questionnaire method.

Merits:

The main merits or advantages of this method are listed below:

1. It can be adopted in those cases where informants are illiterate.

2. There is very little scope of non-response as the enumerators go
personally to obtain the information.
52
3. The information received is more reliable as the accuracy of statements can be checked by
supplementary questions wherever necessary.

This method too like others is not free from defects or limitations. Themain limitations are
listed below:

Demerits:

1. In comparison to other methods of collecting primary data, this method is quite costly as
enumerators are generally paid persons.
2. The success of the method depends largely upon the training imparted to the enumerators.
3. Interviewing is a very skilled work and it requires experience and training. Many
statisticians have the tendency to neglect this extremely important part of the data collecting
process and this resultin bad interviews. Without good interviewing most of the information
collected may be of doubtful value.
4. Interviewing is not only a skilled work but it also requires a greatdegree of politeness and
thus the way the enumerators conduct theinterview would affect the data collected. When
questions are askedby a number of different interviewers, it is possible that variations in
the personalities of the interviewers will cause variation in the answers obtained. This
variation will not be obvious. Hence, every effort mustbe made to remove as much of
variation as possible due to different interviewers.

Secondary Data:

As stated earlier, secondary data are those data which have already been collected
and analyzed by some earlier agency for its ownuse, and later the same data are used by a
different agency. According to W.A.Neiswanger, “A primary source is a publication in which
the data are published by the same authority which gathered and analyzed them. Asecondary
source is a publication, reporting the data which was gatheredby other authorities and for
which others are responsible.”

53
Sources Of Secondary Data:

The various sources of secondary data can be divided into twobroad

categories:
1. Published sources, and
2. Unpublished sources.

1. Published Sources:

The governmental, international and local agencies publishstatistical

data, and chief among them are explained below:

(a) International Bublications:

There are some international institutions and bodies like I.M.F,

I.B.R.D, I.C.A.F.E and U.N.O who publish regular and occasional reportson
economic and statistical matters.

(b) Official Publications of Central and State Governments:

Several departments of the Central and State Governments regularly

publish reports on a number of subjects. They gather additional information.
Some of the important publications are: The Reserve Bank of India Bulletin,
Census of India, Statistical Abstracts of States, Agricultural Statistics of India,
Indian Trade Journal, etc.

(c) Semi-Official Publications:

Semi-Government institutions like Municipal Corporations, District

Boards, Panchayats, etc. Publish reports relating to different matters of public
concern.

(d) Publications of Research Institutions:

Indian Statistical Institute (I.S.I), Indian Council of Agricultural

Research (I.C.A.R), Indian Agricultural Statistics Research Institute
(I.A.S.R.I), etc. Publish the findings of their research programmes.

(e) Publications of various Commercial and Financial Institutions

54
(f) Reports of various Committees and Commissions appointed by the Government as the Raj
Committee’s Report on Agricultural Taxation, Wanchoo Committee’s Report on Taxation and
Black Money, etc. Are also
important sources of secondary data.

(g) Journals and News Papers:

Journals and News Papers are very important and powerful sourceof secondary data.
Current and important materials on statistics and socio- economic problems can be obtained from
journals and newspapers likeEconomic Times, Commerce, Capital, Indian Finance, Monthly
Statistics of trade etc.

2. Unpublished Sources:

Unpublished data can be obtained from many unpublished sources like records
maintained by various government and private offices, the theses of the numerous research
scholars in the universities or institutions etc.

Precautions In The Use Of Secondary Data:

Since secondary data have already been obtained, it is highly desirable that a proper
scrutiny of such data is made before they are used by the investigator. In fact the user
has to be extra-cautious whileusing secondary data. In this context Prof. Bowley rightly points
out that “Secondary data should not be accepted at their face value.” The reason being that data
may be erroneous in many respects due to bias, inadequate size of the sample, substitution, errors
of definition, arithmetical errorsetc. Even if there is no error such data may not be suitable
and adequatefor the purpose of the enquiry. Prof. SimonKuznet’s view in this regard is also of
great importance. According to him, “the degree of reliability of secondary source is to be
assessed from the source, the compiler and his capacity to produce correct statistics and the users
also, for the most part, tend to accept a series particularly one issued by a government agency
at its face value without enquiring its reliability”.

Therefore, before using the secondary data the investigators should consider the following
factors:

55
4. The Suitability Of Data:

The investigator must satisfy himself that the data available aresuitable
for the purpose of enquiry. It can be judged by the nature andscope of
the present enquiry with the original enquiry. For example, if the object of the
present enquiry is to study the trend in retail prices, and if the data provide only
wholesale prices, such data are unsuitable.

(A) Adequacy Of Data:

If the data are suitable for the purpose of investigation then we must
consider whether the data are useful or adequate for the present analysis. It
can be studied by the geographical area covered by the original enquiry. The
time for which data are available is very important element. In theabove
example, if our object is to study the retail price trend of india, andif the
available data cover only the retail price trend in the state of bihar,then it
would not serve the purpose.

(b) Reliability Of Data:

The reliability of data is must. Without which there is no meaning in

research. The reliability of data can be tested by finding out the agency that
collected such data. If the agency has used proper methods in collection of data,
statistics may be relied upon.

It is not enough to have baskets of data in hand. In fact, data ina

raw form are nothing but a handful of raw material waiting for proper
processing so that they can become useful. Once data have been obtained from
primary or secondary source, the next step in a statistical investigation is to
edit the data i.e. To scrutinize the same. The chief objective of editingis to
detect possible errors and irregularities. The task of editing is a highly
specialized one and requires great care and attention. Negligencein this
respect may render useless the findings of an otherwise valuable study. Editing
data collected from internal records and published sourcesis relatively simple
but the data collected from a survey need excessive editing.
While editing primary data, the following considerations should be borne in
mind:
1. The data should be complete in every respect

56
 2. The data should be accurate
3. The data should be consistent, and
4. The data should be homogeneous.

Data to posses the above mentioned characteristics have to undergo thesame type of editing
which is discussed below:

5. Editing for Completeness:

while editing, the editor should see that each schedule and questionnaire is complete in
all respects. He should see to it that the answersto each and every question have been furnished.
If some questions are not answered and if they are of vital importance, the informants should be
contacted again either personally or through correspondence. Even after all the efforts it
may happen that a few questions remain unanswered. Insuch questions, the editor should
mark ‘No answer’ in the space provided for answers and if the questions are of vital
importance then the scheduleor questionnaire should be dropped.

(a) Editing for Consistency:

At the time of editing the data for consistency, the editor should see that the answers to
questions are not contradictory in nature. If they are mutually contradictory answers, he should
try to obtain the correct answers either by referring back the questionnaire or by contacting,
wherever possible, the informant in person. For example, if amongst others, two questions
in questionnaire are (a) Are you a student? (b) Which class do you study and the reply to the
first question is ‘no’ and to the latter ‘tenth’ then there is contradiction and it should be
clarified.

(b) Editing for Accuracy:

The reliability of conclusions depends basically on the correctnessof information. If

the information supplied is wrong, conclusions can never be valid. It is, therefore, necessary for
the editor to see that the information is accurate in all respects. If the inaccuracy is due to
arithmetical errors, it can be easily detected and corrected. But if the cause of inaccuracy is faulty
information supplied, it may be difficult to verify it and an example of this kind is information
relating to income, age etc.

57
 (c) Editing For Homogeneity:

Homogeneity means the condition in which all the questions have

been understood in the same sense. The editor must check all the questions for
uniform interpretation. For example, as to the question of income, if some
informants have given monthly income, others annual income and still
others weekly income or even daily income, no comparison can be made.
Therefore, it becomes an essential duty of the editor to check up that the
information supplied by the various people is homogeneous and uniform.

Choice Between Primary and Secondary Data:

As we have already seen, there are a lot of differences in the methods of

collecting Primary and Secondary data. Primary data which is to be collected
originally involves an entire scheme of plan starting with thedefinitions of
various terms used, units to be employed, type of enquiryto be conducted,
extent of accuracy aimed at etc. For the collection of secondary data, a mere
compilation of the existing data would be sufficient. A proper choice between
the type of data needed for any particular statistical investigation is to be made
after taking into consideration the nature, objective and scope of the enquiry;
the time and the finances at the disposal of the agency; the degree of precision
aimed at and the status ofthe agency (whether government- state or central-
or private institution of an individual).

In using the secondary data, it is best to obtain the data from the primary
source as far as possible. By doing so, we would at least save ourselves from
the errors of transcription which might have inadvertently crept in the
secondary source. Moreover, the primary source will also provide us with
detailed discussion about the terminology used, statistical units employed, size
of the sample and the technique of sampling (if sampling method was used),
methods of data collection and analysis of results and we can ascertain
ourselves if these would suit our purpose.
Now-a-days in a large number of statistical enquiries, secondary data
are generally used because fairly reliable published data on a large number of
diverse fields are now available in the publications of governments, private
organizations and research institutions, agencies, periodicals and magazines
etc. In fact, primary data are collected only if there do not exist

58
any secondary data suited to the investigation under study. In some of theinvestigations both
primary as well as secondary data may be used.

Questionnaire
Nowadays questionnaire is widely used for data collection in social research. It is a
reasonably fair tool for gathering data from large, diverse, varied and scattered social groups.
The questionnaire is the media of communication between the investigator and the
respondents. According to Bogardus, a questionnaire is a list of questions sent to a number
ofpersons for their answers and which obtains standardized results that can be tabulated and
treated statistically. The Dictionary of Statistical Terms defines it as a “group of or sequence
of questions designed to elicitinformation upon a subject or sequence of subjects from
information.” A questionnaire should be designed or drafted with utmost care and caution so
that all the relevant and essential information for the enquiry may be collected without any
difficulty, ambiguity and vagueness. Drafting of a good questionnaire is a highly specialized job
and requires great care skill, wisdom, efficiency and experience. No hard and fast rule can be
laid down for designing or framing a questionnaire. However, in this connection, the following
general points may be borne in mind:

1. Size Of The Questionnaire Should Be Small:

A researcher should try his best to keep the number of questionsas

small as possible, keeping in view the nature, objectives and scope ofthe
enquiry. Respondent’s time should not be wasted by asking irrelevant and
unimportant questions. A large number of questions would involvemore work
for the investigator and thus result in delay on his part in collecting and
submitting the information. A large number of unnecessary questions may
annoy the respondent and he may refuse to cooperate. A reasonable
questionnaire should contain from 15 to 25 questions at large. If a still larger
number of questions are a must in any enquiry, then the questionnaire should
be divided into various sections or parts.

2. The Questions Should Be Clear:

The questions should be easy, brief, unambiguous, non-offending,

courteous in tone, corroborative in nature and to the point, so that much scope
of guessing is left on the part of the respondents.

3. The Questions Should Be Arranged In A Logical Sequence:

112
 Logical arrangement of questions reduces lot of unnecessary work
on the part of the researcher because it not only facilitates the tabulation work
but also does not leave any chance for omissions or commissions.For
example, to find if a person owns a television, the logical order of questions
would be: Do you own a television? When did you buy it? Whatis its make?
How much did it cost you? Is its performance satisfactory?Have you ever
got it serviced?
4. Questions Should Be Simple To Understand:

The vague words like good, bad, efficient, sufficient, prosperity, rarely, frequently,
reasonable, poor, rich etc., should not be used sincethese may be interpreted differently by
different persons and as such might give unreliable and misleading information. Similarly the
use of wordshaving double meaning like price, assets, capital income etc., should also be
avoided.

5. Questions Should Be Comprehensive & Easily Answerable:

Questions should be designed in such a way that they are readily comprehensible and
easy to answer for the respondents. They should not be tedious nor should they tax the
respondents’ memory. At the same time questions involving mathematical calculations like
percentages, ratios etc., should not be asked.

6. Questions Of Personal & Sensitive Nature Should Not BeAsked:

There are some questions which disturb the respondents and he/ she may be shy or
irritated by hearing such questions. Therefore, everyeffort should be made to avoid such
questions. For example, ‘do you cook yourself or your wife cooks?’ ‘Or do you drink?’ Such
questions will certainly irk the respondents and thus be avoided at any cost. If unavoidable then
highest amount of politeness should be used.

7. Types Of Questions:

Under this head, the questions in the questionnaire may be classified as follows:

(a) Shut Questions:

Shut questions are those where possible answers are suggested bythe framers of the
questionnaire and the respondent is required to tickone of them. Shut questions can further
be subdivided into the following forms:
113
 (i) Simple Alternate Questions:

In this type of questions the respondent has to choose from the two clear
cut alternatives like ‘Yes’ or ‘No’, ‘Right or Wrong’ etc. Such questions are also
called as dichotomous questions. This technique can be applied with
elegance to situations where two clear cut alternatives exist.

(ii) Multiple Choice Questions:

Many a times it becomes difficult to define a clear cut alternative

and accordingly in such a situation additional answers between Yes and
No, like Do not know, No opinion, Occasionally, Casually, Seldom etc.,
are added. For example, in order to find if a person smokes or drinks, the
following multiple choice answers may be used:

Do you smoke?

(a) Yes regularly [ ] (b) No never [ ]

(c) Occasionally [ ] (d) Seldom [ ]

Multiple choice questions are very easy and convenient for the
respondents to answer. Such questions save time and also facilitate tabulation.
This method should be used if only a selected few alternative answers exist to
a particular question.

8. Leading Questions Should Be Avoided:

Questions like ‘why do you use a particular type of car, say Maruti car’
should preferably be framed into two questions-

(i) which car do you use? (ii) why do you prefer it?

It gives smooth ride [ ]

It gives more mileage [ ]
It is cheaper [ ]
It is maintenance free [ ]
9 Cross Checks:
The questionnaire should be so designed as to provide internal checks on the accuracy
of the information supplied by the respondents by including some connected questions at least
114
 with respect to matters which are fundamental to the enquiry.

10 Pre Testing The Questionnaire:

It would be practical in every sense to try out the questionnaire on a small scale before
using it for the given enquiry on a large scale. Thishas been found extremely useful in
practice. The given questionnaire canbe improved or modified in the light of the drawbacks,
shortcomings and problems faced by the investigator in the pre test.

11 A Covering Letter:

A covering letter from the organizers of the enquiry shouldbe enclosed along
with the questionnaire for the purposes regarding definitions, units, concepts used in the
questionnaire, for taking the respondent’s confidence, self addressed envelop in case of mailed
questionnaire, mention about award or incentives for the quick response, a promise to send a
copy of the survey report etc.

SAMPLING

Though sampling is not new, the sampling theory has been developed recently. People
knew or not but they have been using the sampling technique in their day to day life. For
example a house wife testsa small quantity of rice to see whether it has been well-cooked
and givesthe generalized result about the whole rice boiling in the vessel. The result arrived at
is most of the times 100% correct. In another example, whena doctor wants to examine the
blood for any deficiency, takes only a few drops of blood of the patient and examines. The
result arrived at is mostof the times correct and represent the whole amount of blood available
inthe body of the patient. In all these cases, by inspecting a few, they simply believe that the
samples give a correct idea about the population. Most of our decision are based on the
examination of a few items only i.e. Sample studies. In the words of Croxton and Cowdon,
“It may be too expenor too time consuming to attempt either a complete or a nearly complete
coverage in a statistical study. Further to arrive at valid conclusions, itmay not be necessary
to enumerate all or nearly all of a population. Wemay study a sample drawn from the large
population and if that sample is adequately representative of the population, we should be able
to arrive at valid conclusions.”

According to Rosander, “The sample has many advantages over a census or complete
enumeration. If carefully designed, the sample is notonly considerably cheaper but may give
results which are just accurateand sometimes more accurate than those of a census. Hence a
carefully designed sample may actually be better than a poorly planned and executed census.”
115
 Merits:

It saves time:

Sampling method of data collection saves time because fewer items are collected and processed.
When the results are urgently required, this method is very helpful.

It reduces cost

Since only a few and selected items are studied in sampling, there is reduction in cost of money
and reduction in terms of man hours.
More reliable results can be obtained:

a) there are fewer chances of sampling statistical errors. If there is sampling error, it is possible
to estimate and control the results.(b) Highly experienced and trained persons can be employed for
scientific processing and analyzing of relatively limited data and they can use their high technical
knowledge and get more accurate and reliable results.
1. It provides more detailed information:

As it saves time, money and labor, more detail information can be collected in a sample
survey.

2. Sometimes only sampling method to depend upon:

Some times it so happens that one has to depend upon sampling method alone
because if the population under study is finite, sampling method is the only method to be used.
For example, if someone’s blood has to be examined, it will become fatal to take all the blood
out from the body and study depending upon the total enumeration method.

3. Administrative convenience:

The organization and administration of sample survey are easy for the reasons which
have been discussed earlier.

4. More scientific:

Since the methods used to collect data are based on scientific theory and results obtained

116
 can be tested, sampling is a more scientific method of collecting data.

It is not that sampling is free from demerits or shortcomings. There are certain
shortcomings of this method which are discussed below:

1. Illusory conclusion:

If a sample enquiry is not carefully planned and executed, the conclusions may be
inaccurate and misleading.

2. Sample Not Representative:

To make the sample representative is a difficult task. If arepresentative sample is taken

from the universe, the result is applicable to the whole population. If the sample is not
representative of the universe the result may be false and misleading.
Lack Of Experts:

As there are lack of experts to plan and conduct a sample survey, itsexecution and analysis, and
its results would be Unsatisfactory and not trustworthy.

Sometimes More Difficult Than Census Method:

Sometimes the sampling plan may be complicated and requiresmore money, labor and time than
a census method.

Personal Bias:
There may be personal biases and prejudices with regard to thechoice of technique and drawing
of sampling units.

Choice Of Sample Size:

If the size of the sample is not appropriate then it may lead to untrue characteristics of the
population.

Conditions Of Complete Coverage:

If the information is required for each and every item of the universe, then a complete
enumeration survey is better.

Essentials of sampling:
117
In order to reach a clear conclusion, the sampling should possessthe following essentials:

1. It must be representative:

The sample selected should possess the similar characteristics ofthe original universe from
which it has been drawn.
2. Homogeneity:

Selected samples from the universe should have similar nature and should have any
difference when compared with the universe.

3. Adequate samples:

In order to have a more reliable and representative result, a good number of items are to
be included in the sample.

4. Optimization:

All efforts should be made to get maximum results both in termsof cost as well as
efficiency. If the size of the sample is larger, there isbetter efficiency and at the same time
the cost is more. A proper size of sample is maintained in order to have optimized results in
terms of costand efficiency.

Test Of Significance For Small Samples

If the sample size is less than 30, then those samples may be regardedas small samples. As a rule,
the methods and the theory of large samplesare not applicable to the small samples. The small
samples are used intesting a given hypothesis, to find out the observed values, which could
have arisen by sampling fluctuations from some values given in advance.In a small sample, the
investigator’s estimate will vary widely from sample to sample. An inference drawn from a smaller
sample result is less precise than the inference drawn from a large sample result.

t-distribution will be employed, when the sample size is 30or less and the population standard
deviation is unknown.
The formula is

where,

118
( X - µ)
t = -------- x √n
σ

σ = √
∑(X –
X)2/n –
1

119
 Illustration:

The following results are obtained from a sample of 20 boxes of

mangoes:

Mean weight of contents = 490gms, Standard deviation of the weight =

9 gms.
Could the sample come from a population having a mean of 500
gms?

Solution:

Let us take the hypothesis that µ = 510 gms.

( X - µ)
t = ------- x √nσ

X = 500; µ = 510; σ = 10; n = 20.

500 – 510
t = ------------------√20
10

Df = 20 – 1 = 19 = (10/9) √20 = (10/9) x 4.47 = 44.7/9 = 4.96Df = 19, t0.01 = 3.25

The computed value is less than the table value. Hence, our null hypothesis
is accepted.

4. CHI-SQUARE TEST

F, t and Z tests are based on the assumption that the samples were drawn from normally
distributed populations. The testing procedure requires assumption about the type of population
or parameters, and these tests are known as ‘parametric tests’.

There are many situations in which it is not possible to make any rigid assumption about
the distribution of the population from which samples are being drawn. This limitation has
led to the development of a group of alternative techniques known as non-parametric tests.
Chi- square test of independence and goodness of fit is a prominent example of the use of non-
parametric tests.

120
 Though non-parametric theory developed as early as the middleof the nineteenth
century, it was only after 1945 that non-parametric tests came to be used widely in sociological
and psychological research. The main reasons for the increasing use of non-parametric tests in
business research are:-

i. These statistical tests are distribution-free

ii. They are usually computationally easier to handle and understandthan parametric tests;
and
iii. They can be used with type of measurements that prohibit the use ofparametric tests.

The χ2 test is one of the simplest and most widely used non- parametric tests in statistical
work. It is defined as:

121
 ∑(O– E)2 Χ2 = ------------
E

Where

O = the observed frequencies, and E = the expected frequencies.

Steps:

The steps required to determine the value of χ2are:

(i) Calculate the expected frequencies. In general the expected

frequency for any cell can be calculated from the following equation:

RXC
E = ------------
N

Where
E = Expected frequency, R = row’s total of the respective cell,
C = column’s total of the respective cell and N = the total number of
observations.

(ii) Take the difference between observed and expected frequencies

and obtain the squares of these differences. Symbolically, it can be represented
as (O – E)2

(iii) Divide the values of (O – E)2 obtained in step (ii) by the respective
expected frequency and obtain the total, which can be symbolically represented
by ∑[(O – E)2/E]. This gives the value of χ2 which can range from zero to
infinity. If χ2 is zero it means that the observed and expected frequencies
completely coincide. The greater the discrepancy between the observed and
expected frequencies, the greater shall be the value of χ2.

The computed value of χ2 is compared with the table value of χ2 for

given degrees of freedom at a certain specified level of significance. If at the
stated level, the calculated value of χ2 is less than the table value, the difference
between theory and observation is not considered as significant.

122
The following observation may be made with regard to the χ2 distribution:-
i. The sum of the observed and expected frequencies is always zero.
Symbolically, ∑(O – E) = ∑O - ∑E =N–N=0

ii. The χ2 test depends only on the set of observed and expected frequencies and on degrees of
freedom v. It is a non-parametric test.

iii. χ2 distribution is a limiting approximation of the multinomialdistribution.

iv. Even though χ2 distribution is essentially a continuous distribution it can be applied to

discrete random variables whose frequencies can be counted and tabulated with or without
grouping.

The Chi-Square Distribution

For large sample sizes, the sampling distribution of χ2 can be closely approximated by a
continuous curve known as the Chi-square distribution. The probability function of χ2
distribution is:

F(χ2) = C (χ2)(v/2 – 1)e – x2/2

Where
e = 2.71828, v = number of degrees of freedom, C = a constant
depending only on v.

The χ2 distribution has only one parameter, v, the number of degrees of freedom. As in
case of t-distribution there is a distributionfor each different number of degrees of freedom.
For very small numberof degrees of freedom, the Chi-square distribution is severely skewed
to the right. As the number of degrees of freedom increases, the curve rapidly becomes more
symmetrical. For large values of v the Chi-square distribution is closely approximated by the
normal curve.

123
 The following diagram gives χ2 distribution for 1, 5 and 10 degrees of
freedom:

F(x2)

v=1

v=5
v = 10

0 2 4 6 8 10 12 14 16 18 20
χ2 Distribution

It is clear from the given diagram that as the degrees of freedom

increase, the curve becomes more and more symmetric. The Chi-square
distribution is a probability distribution and the total area under the curve in
each Chi-square distribution is unity.

Properties of χ2 Distribution

The main properties of χ2 distribution are:-

(i) The mean of the χ2 distribution is equal to the number of degreesof

freedom,

i.e.,
X=v

(ii) The variance of the χ2 distribution is twice the degrees offreedom,

Variance = 2v

(iii) µ1 = 0,

(iv) µ2 = 2v,

124
 (v) µ3 = 8v,

(vi) µ4 = 48v + 12v2.µ32 64v2 8

(vii) β1 = --- = ------- = --
µ22 8v3 v

µ4 48v + 12v2 12
(v) β1µ3 = ------ = --------------- = 3 + ---
µ 22 4v2 v

The table values of χ2 are available only up to 30 degrees of freedom. For degrees of
freedom greater than 30, the distribution of χ2 approximates the normal distribution. For degrees
of freedom greater than 30, the approximation is acceptable close. The mean of the distribution
√2χ2 is
√2v – 1, and the standard deviation is equal to 1. Thus the application ofthe test is simple,
for deviation of √2χ2 from √2v – 1 may be interpreted asa normal deviate with units standard
deviation. That is,

Z = √2χ2 - √ 2v – 1 Alternative Method Of Obtaining The Value

of χ2

In a 2x2 table where the cell frequencies and marginal totals are as below:

a b (a+b)

c d (c+d)

(a+c) (b+d) N

N is the total frequency and ad the larger cross-product, the valueof χ2 can easily be
obtained by the following formula:

125
 N (ad – bc)2
χ2 = -------------------------------------- or
(a + c) (b + d) (c + d) (a + b)

With Yate’s corrections

N (ab – bc - ½N)2
χ2 = -----------------------------------
(a + c) (b + d) (c + d) (a + b)

Conditions for Applying χ2 Test:

The main conditions considered for employing the χ2 test are:

(i) N must be to ensure the similarity between theoretically correct

distribution and our sampling distribution of χ2.

(ii) No theoretical cell frequency should be small when the expected

frequencies are too small. If it is so, then the value of χ2 will be overestimated
and will result in too many rejections of the null hypothesis. To avoid making
incorrect inferences, a general rule is followed that expected frequency of less
than 5 in one cell of a contingency table is too small to use.When the table
contains more than one cell with an expected frequency of less than 5 then add
with the preceding or succeeding frequency so that the resulting sum is 5 or
more. However, in doing so, we reduce the number of categories of data and
will gain less information from contingency table.

(iii) The constraints on the cell frequencies if any should be linear, i.e., they
should not involve square and higher powers of the frequencies such as ∑O
= ∑E = N.

Uses of χ2 test:

The main uses of χ2 test are:

i. χ2 test as a test of independence. With the help of χ2 test, we can find out
whether two or more attributes are associated or not. Let’s assume that we
have n observations classified according to some attributes.

126
 We may ask whether the attributes are related or independent. Thus,we can find out
whether there is any association between skin colourof husband and wife. To examine
the attributes that are associated,we formulate the null hypothesis that there is no
association against an alternative hypothesis and that there is an association between the
attributes under study. If the calculated value of χ2 is less than thetable value at a certain
level of significance, we say that the result of the experiment provides no evidence for
doubting the hypothesis. On the other hand, if the calculated value of χ2 is greater than the
table valueat a certain level of significance, the results of the experiment do not support the
hypothesis.

ii. χ2 test as a test of goodness of fit. This is due to the fact that it enables us to ascertain how
appropriately the theoretical distributions such as binomial, Poisson, Normal, etc., fit
empirical distributions. When an ideal frequency curve whether normal or some other
type is fitted tothe data, we are interested in finding out how well this curve fits withthe
observed facts. A test of the concordance of the two can be made just by inspection, but
such a test is obviously inadequate. Precisioncan be secured by applying the χ2 test.

iii. χ2 test as a test of homogeneity. The χ2 test of homogeneity is an extension of the chi-square
test of independence. Tests of homogeneity are designed to determine whether two or more
independent random samples are drawn from the same population or from different
populations. Instead of one sample as we use with independence problem we shall now have
2 or more samples. For example, we may be interested in finding out whether or not
university students of various levels, i.e., middle and richer poor income groups are
homogeneous in performance in the examination.

Illustration:

In an anti-diabetes campaign in a certain area, a particular medicine, say x was

administered to 812 persons out of a total populationof 3248. The number of diabetes cases is
shown below:

127
Treatment Diabetes No Diabetes Total

Medicine x 20 792 812

No Medicine x 220 2216 2436

Total 240 3008 3248

Discuss the usefulness of medicine x in checking malaria.

Solution:

Let us take the hypothesis that quinine is not effective in checking

diabetes. Applying χ2 test :

(A) X (B) 240 x 812

Expectation of (AB) = ------------ = ------------ = 60
N 3248

Or E1, i.e., expected frequency corresponding to first row and first column is
60. The bale of expected frequencies shall be:

60 752 812
180 2256 2436
240 3008 3248

O E (O – E)2 (O – E)2/E

20 60 1600 26.667
220 180 1600 8.889
792 752 1600 2.218
2216 2256 1600 0.709

[∑(O – E)2/E] = 38.593

128
 χ2 = [∑(O – E)2/E] = 38.593

V = (r – 1) (c – 1) = (2 – 1) (2 – 1) = 1

For
v = 1, χ20.05 = 3.84

129
The calculated value of χ2 is greater than the table value. The hypothesisis rejected. Hence
medicine x is useful in checking malaria.

Illustration:

In an experiment on immunization of cattle from tuberculosis thefollowing results

were obtained:

Affected not affected

Inoculated 10 20
Not inoculated 15 5

Calculate χ2 and discuss the effect of vaccine in controlling susceptibilityto tuberculosis (5%
value of χ2 for one degree of freedom = 3.84).

Solution:

Let us take the hypothesis that the vaccine is not effective incontrolling susceptibility
to tuberculosis. Applying χ2 test:

N(ad – bc)2 50 (11x5 – 20x15)2

χ2 = -------------------------- = --------------------------- = 8.3

(a+b) (c+d)(a+c)(b+d) 30x20x25x25

Since the calculated value of χ2 is greater than the table value the hypothesis is not true. We,
therefore, conclude the vaccine is effective in controlling susceptibility to tuberculosis.

130
UNIT-IV
SIMPLE CORRELATION

Correlation

Correlation means the average relationship between two or more variables. When changes in the
values of a variable affect the values of another variable, we say that there is a correlation between
the two variables. The two variables may move in the same direction or in opposite directions.
Simply because of the presence of correlation between two variables, we cannot jump to the
conclusion that there is a cause-effect relationship between them. Sometimes, it may be due to
chance also.

Simple correlation

We say that the correlation is simple if the comparison involvestwo variables only.

TYPES OF CORRELATION

Positive correlation

If two variables x and y move in the same direction, we say thatthere is a positive correlation
between them. In this case, when the valueof one variable increases, the value of the other
variable also increases and when the value of one variable decreases, the value of the other
variablealso decreases. Eg. The age and height of a child.

Negative correlation

If two variables x and y move in opposite directions, we say that there is a negative correlation
between them. i.e., when the value of one variable increases, the value of the other variable
decreases and vice versa. Eg. The price and demand of a normal good.
The following diagrams illustrate positive and negative correlationsbetween x and y.

y y
 x x
Positive Correlation Negative Correlation

Perfect Positive Correlation

If changes in two variables are in the same direction and the changes are in equal
proportion, we say that there is a perfect positive correlation between them.

Perfect Negative Correlation

If changes in two variables are in opposite directions and the absolute values of changes
are in equal proportion, we say that there is a perfect negative correlation between them.

y y

x x
Perfect Positive Correlation Perfect Negative Correlation

132
Zero Correlation

If there is no relationship between the two variables, then the variables

are said to be independent. In this case the correlation betweenthe two
variables is zero.

x
Zero Correlation

Linear Correlation'

If the quantum of change in one variable always bears a constantratio to the quantum of change
in the other variable, we say that the two variables have a linear correlation between them.

Coefficient of Correlation

The coefficient of correlation between two variables X, Y is a measure of the degree of association
(i.e., strength of relationship) between them. The coefficient of correlation is usually denoted by
‘r’.

Karl Pearson’s Coefficient Of Simple Correlation:

Let N denote the number of pairs of observations of two variables X and Y. The correlation
coefficient r between X and Y is defined by

N  XY − ( X ) (Y )
r=
N X − X N Y − Y

130
This formula is suitable for solving problems with hand calculators. Toapply this formula,
we have to calculate ∑ X,∑Y, ∑XY, ∑X2, ∑Y2.

Properties Of Correlation Coefficient

Let r denote the correlation coefficient between two variables. r≥ isinterpreted using the
following properties:

1. The value of r ranges from – 1.0 to 0.0 or from 0.0 to 1.0

2. A value of r = 1.0 indicates that there exists perfect positive correlation between the two
variables.
3. A value of r = - 1.0 indicates that there exists perfect negativecorrelation between the two
variables.
4. A value r = 0.0 indicates zero correlation i.e., it shows that there is nocorrelation at all
between the two variables.
5. A positive value of r shows a positive correlation between the twovariables.
6. A negative value of r shows a negative correlation between the twovariables.
7. A value of r = 0.9 and above indicates a very high degree of positivecorrelation between
the two variables.
8. A value of - 0.9 ≥ r > - 1.0 shows a very high degree of negativecorrelation between
the two variables.
9. For a reasonably high degree of positive correlation, we require r tobe from 0.75 to 1.0.
10. A value of r from 0.6 to 0.75 may be taken as a moderate degree ofpositive correlation.

Problem 1

The following are data on Advertising Expenditure (in Rupees Thousand)and Sales (Rupees
in lakhs) in a company.

Advertising Expenditure : 18 19 20 21 22 23
Sales : 17 17 18 19 19 19
Determine the correlation coefficient between them and interpret theresult.

131
 Solution:

We have N = 6. Calculate ∑ X, ∑Y, ∑XY, ∑Y2, ∑Y2 as follows:

X Y XY X2 Y2

18 17 306 324 289

19 17 323 361 289
20 18 360 400 324
21 19 399 441 361
22 19 418 484 361
23 19 437 529 361

Total :123 109 2243 2539 1985

The correlation coefficient r between the two variables is calculated asfollows:

N  XY − ( X )(  Y )
r=
N X − X N Y − Y

6  2243 −123109
r=
6  2539 − 123 6 1985 − 109

= (13458 – 13407) / {√(15234- 15129) √(11910- 11881)}

=51/{√105 √29} = 51/ (10.247 x 5.365)
= 51/ 54.975
= 0.9277

Interpretation

The value of r is 0.92. It shows that there is a high, positive

correlation between the two variables ‘Advertising Expenditure’ and
‘Sales’. This provides a basis to consider some functional relationship
between them.

132
Problem 2

Consider the following data on two variables X and Y.

X : 12 14 18 23 24 27
Y : 18 13 12 30 25 10

Determine the correlation coefficient between the two variables andinterpret the result.

Solution:

we have N = 6. Calculate ∑ X, ∑Y, ∑XY, ∑X2, ∑Y2 as follows:

X Y XY X2 Y2
12 18 216 144 324
14 13 182 196 169
18 12 216 324 144
23 30 690 529 900
24 25 600 576 625
27 10 270 729 100

Total : 118 108 2174 2498 2262

The correlation coefficient between the two variables is r =

{6 x 2174 – (118 x 108)} / { √(6 x 2498 - 1182) √(6 x 2262 - 1082) }

= (13044 – 12744) / {√(14988- 13924) √(13572- 11664)}

=300 / {√1064 √1908} = 300 / (32.62 x 43.68)
= 300 / 1424.84
= 0.2105

Interpretation

The value of r is 0.21. Even though it is positive, the value of r is very less. Hence
we conclude that there is no correlation between the two variables X and Y. Consequently we
cannot construct any functional relational relationship between them.

133
Problem 3
Consider the following data on supply and price. Determine the correlation
Coefficient between the two variables and interpret the result.

Supply : 11 13 17 18 22 24 26 28
Price : 25 32 26 25 20 17 11 10

Determine the correlation coefficient between the two variables andinterpret

the result.

Solution:

We have N = 8. Take X = Supply and Y = Price.Calculate ∑ X, ∑Y,

∑XY, ∑X2, ∑Y2 as follows:

X Y XY X2 Y2

11 25 275 121 625

13 32 416 169 1024
17 26 442 289 676
18 25 450 324 625
22 20 440 484 400
24 17 408 576 289
26 11 286 676 121
28 10 280 784 100

Total: 159 166 2997 3423 3860

The correlation coefficient between the two variables is r =

{8 x 2997 – (159 x 166)} / { √(8 x 3423 - 1592) √(8 x 3860 - 1662) }

= (23976 – 26394) / {√(27384- 25281) √(30880- 27566)}

= - 2418 / {√2103 √3314}
= - 2418 / (45.86 x 57.57)
= - 2418 / 2640.16
= - 0.9159

134
Interpretation

The value of r is - 0.92. The negative sign in r shows that the two variables move in
opposite directions. The absolute value of r is 0.92 which is very high. Therefore we
conclude that there is high negative correlation between the two variables ‘Supply’ and
‘Price’.

Problem 4
Consider the following data on income and savings in Rs. Thousand.

Income : 50 51 52 55 56 58 60 62 65 66
Savings : 10 11 13 14 15 15 16 16 17 17

Determine the correlation coefficient between the two variables andinterpret the result.

Solution:
We have N = 10. Take X = Income and Y = Savings.Calculate ∑ X, ∑Y, ∑XY, ∑X2, ∑Y2
as follows:

X Y XY X2 Y2
50 10 500 2500 100
51 11 561 2601 121
52 13 676 2704 169
55 14 770 3025 196
56 15 840 3136 225
58 15 870 3364 225
60 16 960 3600 256
62 16 992 3844 256
65 17 1105 4225 289
66 17 1122 4356 289
Total: 575 144 8396 33355 2126

The correlation coefficient between the two variables is r =

{10 x 8396 – (575 x 144)} / {√(10 x 33355 - 5752) √(10 x 2126 - 1442)}
= (83960 – 82800) / {√(333550- 330625) √(21260- 20736)}
= 1160 / {√2925 √524}
= 1160 / (54.08 x 22.89)
= 1160 / 1237.89 = 0.9371135
Interpretation

The value of r is 0.93. The positive sign in r shows that thetwo variables move in the
same direction. The value of r is very high. Therefore we conclude that there is high
positive correlation betweenthe two variables ‘Income’ and ‘Savings’. As a result, we can
construct a functional relationship between them.

RANK CORRELATION

Spearman’s rank correlation coefficient

If ranks can be assigned to pairs of observations for two variables X and Y, then the correlation
between the ranks is called the rank correlation coefficient. It is usually denoted by the symbol
ρ (rho). It is given by the formula

6 D2
 = 1− 3
N −N

where
D = difference between the corresponding ranks of X and Y

= RX − RY

and N is the total number of pairs of observations of X and Y.

136
Problem 5

Alpha Recruiting Agency short listed 10 candidates for final selection. They were
examined in written and oral communication skills. They were ranked as follows:

Candidate’s
1 2 3 4 5 6 7 8 9 10
Serial no.
Rank in
written 8 7 2 10 3 5 1 9 6 4
communication
Rank in oral
communication 10 7 2 6 5 4 1 9 8 3

Find out whether there is any correlation between the written and oralcommunication skills of
the short listed candidates.

Solution:

Take X = Written Communication Skill and Y = Oral CommunicationSkill.

RANK OF X: R1 RANK OF Y: R2 D=R1- R2 D2

8 10 - 2 4
7 7 0 0
2 2 0 0
10 6 4 16
3 5 - 2 4
5 4 1 1
1 1 0 0
9 9 0 0
6 8 -2 4
4 3 1 1
Total: 30

We have N = 10. The rank correlation coefficient isρ = 1 - {6 ∑ D2 / (N3 – N)}

= 1 – {6 x 30 / (1000 – 10)}

137
 = 1 – (180 / 990)
= 1 – 0.18
= 0.82
Inference:

From the value of r, it is inferred that there is a high, positive rank

correlation between the written and oral communication skills of the short
listed candidates.

Problem 6

The following are the ranks obtained by 10 workers in abc company on the
basis of their length of service and efficiency.

Ranking as
1 2 3 4 5 6 7 8 9 10
per service
Rank as
2 3 6 5 1 10 7 9 8 4
perefficiency

Find out whether there is any correlation between the ranks obtained by
the workers as per the two criteria.

Solution:
Take X = Length of Service and Y = Efficiency.
Rank of X: R1 RANK OF Y: R2 D= R1- R2 D2

1 2 -1 1
2 3 -1 1
3 6 -3 9
4 5 -1 1
5 1 4 16
6 10 -4 16
7 7 0 0
8 9 -1 1
9 8 1 1
10 4 6 36

138
Total 82

137
We have N = 10. The rank correlation coefficient isρ = 1 - {6 ∑ D2 / (N3 – N)}
= 1 – { 6 x 82 / (1000 – 10) }
= 1 – (492 / 990)
= 1 – 0.497
= 0.503

Inference:
The rank correlation coefficient is not high.

Problem 7 (conversion of scores into ranks)

Calculate the rank correlation to determine the relationship between equity shares and
preference shares given by the following dataon their price.

Equity
90.0 92.4 98.5 98.3 95.4 91.3 98.0 92.0
share
Preference
76.0 74.2 75.0 77.4 78.3 78.8 73.2 76.5
share

Solution:

From the given data on share price, we have to find out the ranks for equityshares and preference
shares.

Step 1.
First, consider the equity shares and arrange them in descending
order of their price as 1,2,…,8. We have the following ranks:

Equity
98.5 98.3 98.0 95.4 92.4 92.0 91.3 90.0
share
Rank 1 2 3 4 5 6 7 8

Step 2.
Next, take the preference shares and arrange them in descending
order of their price as 1,2,…,8. We obtain the following ranks:

139
 Preference
78.8 78.3 77.4 76.5 76.0 75.0 74.2 73.2
share
Rank 1 2 3 4 5 6 7 8

Step 3.
Calculation of D2:

Fit the given data with the correct rank. Take X = Equity share and Y =
Preference share. We have the following table:

Rank of Rank of Y:
X Y D=R1- R2 D2
X: R1 R2
90.0 76.0 8 5 3 9

92.4 74.2 5 7 -2 4

98.5 75.0 1 6 -5 25

98.3 77.4 2 3 -1 1

95.4 78.3 4 2 2 4

91.3 78.8 7 1 6 36

98.0 73.2 3 8 -5 25

92.0 76.5 6 4 2 4

Total 108

Step 4.
Calculation of ρ:

We have N = 8. The rank correlation coefficient is

ρ = 1 - { 6 ∑ D2 / (N3 – N)}
= 1 – { 6 x 108 / (512 – 8) }
= 1 – (648 / 504)
= 1 – 1.29
= - 0.29
140
Inference:
From the value of ρ, it is inferred that the equity shares and preference shares under
consideration are negatively correlated. However, the absolute value of ρ is 0.29 which is not
even moderate.

Problem 8

Three managers evaluate the performance of 10 sales persons in an organization and

award ranks to them as follows:

Sales Person 1 2 3 4 5 6 7 8 9 10

Rank Awarded
8 7 6 1 5 9 10 2 3 4
by Manager I

Rank Awarded
7 8 4 6 5 10 9 3 2 1
by Manager II
Rank Awarded
by 4 5 1 8 9 10 6 7 3 2
Manager III

Determine which two managers have the nearest approach in the evaluation of the performance
of the sales persons.

Solution:

Manager Manager Manager

Sales
I II III (R1-R2)2 (R1-R3)2 (R2-R3)2
Person
Rank: R1 Rank:R2 Rank:R3
1 8 7 4 1 16 9

2 7 8 5 1 4 9
3 6 4 1 4 25 9
4 1 6 8 25 49 4
5 5 5 9 0 16 16
6 9 10 10 1 1 0
7 10 9 6 1 16 9

141
 8 2 3 7 1 25 16
9 3 2 3 1 0 1
10 4 1 2 9 4 1
Total 44 156 74

We have N = 10. The rank correlation coefficient between mangers I andII

is
ρ = 1 - { 6 ∑ D2 / (N3 – N)}
= 1 – { 6 x 44 / (1000 – 10) }
= 1 – (264 / 990)
= 1 – 0.27
= 0.73

The rank correlation coefficient between mangers I and III is1 – { 6 x 156 /

(1000 – 10) }
= 1 – (936 / 990)
= 1 – 0.95
= 0.05

The rank correlation coefficient between mangers II and III is

1 – { 6 x 74 / (1000 – 10) }
= 1 – (444 / 990)
= 1 – 0.44
= 0.56
Inference:

Comparing the 3 values of ρ, it is inferred that Mangers I and ii

have the nearest approach in the evaluation of the performance of the sales
persons.

Repeated values: Resolving ties in ranks

When ranks are awarded to candidates, it is possible that certain

candidates obtain equal ranks. For example, if two or three, or four
142
 candidates secure equal ranks, a procedure that can be followed to resolve the ties is described
below.
We follow the Average Rank Method. If there are n items, arrange them in ascending
order or descending order and give ranks 1, 2, 3, …, n. Then look at those items which have
equal values. For such items, take the average ranks.

If there are two items with equal values, their ranks will be two consecutive integers, say
s and s + 1. Their average is { s + (s+1)} / 2. Assign this rank to both items. Note that we
allow ranks to be fractionsalso.

If there are three items with equal values, their ranks will be three consecutive integers,
say s, s + 1 and s + 2. Their average is { s + (s+1)
+ (s+2) } / 3 = (3s + 3) / 3 = s + 1. Assign this rank to all the three items.A similar procedure
is followed if four or more number of items has equal values.

Correction term for ρ when ranks are tied

Consider the formula for rank correlation coefficient. We have

6 D2
 = 1−
N3 − N

If there is a tie involving m items, we have to add

m3 - m12

to the term D2 in ρ. We have to add as many terms like (m3 – m) / 12 asthere are ties.

Let us calculate the correction terms for certain values of m. These areprovided in the
following table.

143
 Correction term
3 3
m m m -m 3
m -m
=
12

2 8 6 0.5

3 27 24 2

4 64 60 5

5 125 120 10

Illustrative examples:

If there is a tie involving 2 items, then the correction term is 0.5

If there are 2 ties involving 2 items each, then the correction term is0.5 + 0.5
=1

If there are 3 ties with 2 items each, then the correction term is0.5 + 0.5 +
0.5 = 1.5

If there is a tie involving 3 items, then the correction term is 2

If there are 2 ties involving 3 items each, then the correction term is 2 + 2
=4

If there is a tie with 2 items and another tie with 3 items, then the correction
term is 0.5 + 2 = 2.5

If there are 2 ties with 2 items each and another tie with 3 items, then the
correction term is 0.5 + 0.5 + 2 = 3

144
Problem 9 : Resolving ties in ranks

The following are the details of ratings scored by two popular insurance schemes.
Determine the rank correlation coefficient between them.

Scheme I 80 80 83 84 87 87 89 90
Scheme II 55 56 57 57 57 58 59 60

Solution:

From the given values, we have to determine the ranks.

Step 1.
Arrange the scores for Insurance Scheme I in descending order and
rank them as 1,2,3,…,8.

SchemeI
Score 90 89 87 87 84 83 80 80

Rank 1 2 3 4 5 6 7 8

The score 87 appears twice. The corresponding ranks are 3, 4. Their average is (3 +
4) / 2 = 3.5. Assign this rank to the two equal scoresin Scheme I.

The score 80 appears twice. The corresponding ranks are 7, 8. Their average is (7 +
8) / 2 = 7.5. Assign this rank to the two equal scoresin Scheme I.

The revised ranks for Insurance Scheme I are as follows:

SchemeI
Score 90 89 87 87 84 83 80 80

Rank 1 2 3.5 3.5 5 6 7.5 7.5

145
Step 2.
Arrange the scores for Insurance Scheme II in descending order
and rank them as 1,2,3,…,8.

SchemeII
Score 60 59 58 57 57 57 56 55

Rank 1 2 3 4 5 6 7 8

The score 57 appears thrice. The corresponding ranks are 4, 5, 6.

Their average is (4 + 5 + 6) / 3 = 15 / 3 = 5. Assign this rank to the three
equal scores in Scheme II.

The revised ranks for Insurance Scheme II are as follows:

Scheme
60 59 58 57 57 57 56 55
II Score

Rank 1 2 3 5 5 5 7 8

Step 3.
Calculation of D2: Assign the revised ranks to the given pairs of
values and calculate D2 as follows:

Scheme I Scheme II Scheme I Scheme II

D=R1- R2 D2
Score Score Rank: R1 Rank: R2
80 55 7.5 8 - 0.5 0.25
80 56 7.5 7 0.5 0.25
83 57 6 5 1 1
84 57 5 5 0 0
87 57 3.5 5 - 1.5 2.25
87 58 3.5 3 0.5 0.25
89 59 2 2 0 0
90 60 1 1 0 0
Total 4

146
Step 4.
Calculation of ρ:

We have N = 8.

Since there are 2 ties with 2 items each and another tie with 3 items, the correction term
is 0.5 + 0.5 + 2 .

The rank correlation coefficient is

ρ = 1 - [{ 6 ∑ D2 + (1/2) + (1/2) +2 }/ (N3 – N)}]
= 1 – { 6 (4.+0.5+0.5+2) / (512 – 8) } = 1 – (6 x 7 / 504) = 1 - ( 42/504 )
= 1 - 0.083 = 0.917

Inference:

It is inferred that the two insurance schemes are highly, positively correlated.

REGRESSION

In the pairs of observations, if there is a cause and effect relationshipbetween the variables
X and Y, then the average relationship between these two variables is called regression, which
means “stepping back” or “return to the average”. The linear relationship giving the best mean
value of a variable corresponding to the other variable is called a regression line or line
of the best fit. The regression of X on Y is different from the regression of Y on X. Thus, there
are two equations of regression and the two regression lines are given as follows:

Regression of Y on X: Y − Y = byx ( X − X )

Regression of X on Y: X − X = bxy (Y − Y )

Where X , Y are the means of X, Y respectively.

Result:
Let σx, σy denote the standard deviations of x, y respectively. Wehave the following
result.

147
 Y X
byx =r and bxy = r 


X Y

 r = b yxbxy
2
and so r = byxbxy

Result:
The coefficient of correlation r between X and Y is the square rootof
the product of the b values in the two regression equations. We can findr by
this way also.

Application

The method of regression is very much useful for business forecasting.

PRINCIPLE OF LEAST SQUARES

Let x, y be two variables under consideration. Out of them, let xbe

an independent variable and let y be a dependent variable, depending on x.
We desire to build a functional relationship between them. For this purpose,
the first and foremost requirement is that x, y have a high degree of
correlation. If the correlation coefficient between x and y is moderate or less,
we shall not go ahead with the task of fitting a functional relationship between
them.

Suppose there is a high degree of correlation (positive or negative)

between x and y. Suppose it is required to build a linear relationship between
them i.e., we want a regression of y on x.

Geometrically speaking, if we plot the corresponding values of x

and y in a 2-dimensional plane and join such points, we shall obtain a straight
line. However, hardly we can expect all the pairs (x, y) to lie ona straight
line. We can consider several straight lines which are, to some extent, near all
the points (x, y). Consider one line. An observation (x1, y1) may be either above
the line of consideration or below the line. Project this point on the x-axis. It
will meet the straight line at the point (x1, y1e). Here the theoretical value (or
the expected value) of the variable is y1e while the
148
 observed value is y1. When there is a difference between the expected and observed values, there
appears an error. This error is E1 = y1 –y1 . This is positive if (x1, y1) is a point above the line and
negative if (x1, y1) is a point below the line. For the n pairs of observations, we have the following
n quantities of error:

E1 = y1 – y1 ,E2 = y2 – y2 ,

En = yn – yn .

Some of these quantities are positive while the remaining ones arenegative. However,
the squares of all these quantities are positive.

(X1, Y1)

e1
e2
(X2, Y2)

O
X

i.e.,
E21 = (y1 – y1 )2 ≥ 0, E22 = (y2 –y2)2 ≥ 0, …, E2n = (yn –yn )2 ≥ 0.

Hence the sum of squares of errors (SSE) = E21 + E22 + … + E2n

= (y1 –y2 )2 + (y2 –y2 )2 + … + (yn –yn)2 ≥ 0.

149
 Among all those straight lines which are somewhat near to thegiven
observations
(x1, y1), (x2, y2), …, (xn , yn) , we consider that straight line as the ideal one
for which the sse is the least. Since the ideal straight line giving regression
of y on x is based on this concept, we call this principle as the Principle of
least squares.

Normal equations

Suppose we have to fit a straight line to the n pairs of observations (x1,

y1), (x2, y2), …, (xn , yn). Suppose the equation of straight line finally comes as
Y=a+bX (1)

Where
a, b are constants to be determined. Mathematically speaking, when
we require finding the equation of a straight line, two distinct points on
the straight line are sufficient. However, a different approach is followed here.
We want to include all the observations in our attempt to build a straight line.
Then all the n observed points (x, y) are required to satisfythe relation

(1). Consider the summation of all such terms. We get

∑ y = ∑ (a + b x ) = ∑ (a .1 + b x ) = ( ∑ a.1) + ( ∑ b x ) = a ( ∑ 1 ) + b ( ∑ x).
i.e.
∑ y = an + b (∑ x) (2)

To find two quantities a and b, we require two equations. We have

obtained one equation i.e., (2). We need one more equation. For this purpose,
multiply both sides of (1) by

x. We obtain
x y = ax + bx2 .

Consider the summation of all such terms. We get

∑ x y = ∑ (ax + bx2 ) = (∑ a x) + ( ∑ bx2)

150
 i.e.,
∑ x y = a (∑ x ) + b (∑ x2).................... (3)

Equations (2) and (3) are referred to as the normal equations associatedwith the regression
of y on x. Solving these two equations, we obtain

X2 Y- a=    X XY 2

n  X 2 - (X)

and b=
n XY -  X  Y

 X2 - (  X )
2
n

Note:
For calculating the coefficient of correlation,we require ∑X, ∑Y, ∑ Xy, ∑ X2, ∑Y2.

For calculating the regression of y on x, we require ∑X, ∑Y, ∑ XY, ∑ X2. Thus, tabular
column is same in both the cases with the difference that
∑Y2 is also required for the coefficient of correlation.

Next, if we consider the regression line of x on y, we get the equationX = a + b y. The

expressions for the coefficients can be got by interchangingthe roles of X and Y in the previous
discussion. Thus, we obtain

Y2 X- a=    Y XY 2

n Y 2 - (  Y )

And b=
n XY -  X  Y

Y 2 - ( Y)
2
n

151
Problem 10

Consider the following data on sales and profit.

X 5 6 7 8 9 10 11

Y 2 4 5 5 3 8 7

Determine the regression of profit on sales.

Solution:

We have N = 7. Take X = Sales, Y = Profit.

Calculate ∑ X, ∑y, ∑XY, ∑X2 as follows:

X Y XY X2
5 2 10 25
6 4 24 36
7 5 35 49
8 5 40 64
9 3 27 81
10 8 80 100
11 7 77 121
Total: 56 34 293 476

a = {(∑ x2) (∑ y) – (∑ x) (∑ x y)} / {n (∑ x2) – (∑ x)2}

= (476 x 34 – 56 x 293) / ( 7 x 476 - 562 )

= (16184 – 16408 ) / ( 3332 – 3136 )

= - 224 / 196

= – 1.1429

152
 b = {n (∑ x y) – (∑ x) (∑ y)} / {n (∑ x2) – (∑ x) 2}

= (7 x 293 – 56 x 34)/ 196 = (2051 – 1904)/ 196

= 147 /196

= 0.75

The regression of Y on X is given by the equation

Y=a+bX
I.e.,
Y = – 1.14 + 0.75 X

Problem 11

The following are the details of income and expenditure of 10households.

Income 40 70 50 60 80 50 90 40 60 60

Expenditure 25 60 45 50 45 20 55 30 35 30

Determine the regression of expenditure on income and estimate theexpenditure when the
income is 65.

Solution:

We have N = 10. Take X = Income, Y = ExpenditureCalculate ∑ X, ∑y, ∑Xy, ∑X2 as

follows:

X Y XY X2

40 25 1000 1600

70 60 4200 4900

50 45 2250 2500

153
 60 50 3000 3600

80 45 3600 6400

50 20 1000 2500

90 55 4950 8100

40 30 1200 1600

60 35 2100 3600
60 30 1800 3600

Total: 600 395 25100 38400

a = {(∑ x2) (∑ y) – (∑ x) (∑ x y)} / {n (∑ x2) – (∑ x) 2}

= ( 38400 x 395 - 600 x 25100 ) / (10 x 38400 - 6002)

= (15168000 – 15060000) / (384000 – 360000)

= 108000 / 24000

= 4.5

b = {n (∑ x y) – (∑ x) (∑ y)} / {n (∑ x2) – (∑ x) 2}

= ( 10 x 25100 – 600 x 395) / 24000

= (251000- 237000) / 24000

= 14000 / 24000

= 0.58

The regression of y on x is given by the equation

Y=a+bX
i.e.,
Y = 4.5 + 0.583 X
154
To estimate the expenditure when income is 65:

Take X = 65 in the above equation. Then we getY = 4.5 + 0.583 x 65

= 4.5 + 37.895

= 42.395

= 42 (approximately).

Problem 12

Consider the following data on occupancy rate and profit of a hotel.

Occupancy
40 45 70 60 70 75 70 80 95 90
rate

Profit 50 55 65 70 90 95 105 110 120 125

Determine the regressions of

(i) profit on occupancy rate and

(ii) occupancy rate on profit.

Solution:

We have N = 10. Take X = Occupancy Rate, Y = Profit.

Note that in Problems 10 and 11, we wanted only one regressionline and so we did
not take ∑Y2 . Now we require two regression lines. Therefore,

155
Calculate ∑ X, ∑Y, ∑XY, ∑X2, ∑Y2.
X Y XY X2 Y2

40 50 2000 1600 2500

45 55 2475 2025 3025
70 65 4550 4900 4225
60 70 4200 3600 4900
70 90 6300 4900 8100
75 95 7125 5625 9025
70 105 7350 4900 11025
80 110 8800 6400 12100
95 120 11400 9025 14400
90 125 11250 8100 15625
Total: 695 885 65450 51075 84925

The regression line of Y on X:

Y=a+bX
Where
a ={(∑ x2) (∑ y) – (∑ x) (∑ x y)} / {n (∑ x2) – (∑ x) 2}
and
b ={n (∑ x y) – (∑ x) (∑ y)} / {n (∑ x2) – (∑ x) 2}

We obtain
a = (51075 x 885 – 695 x 65450) / (10x51075 - 6952)

= (45201375 – 45487750)/ (510750 – 483025)

= - 286375 / 27725

= - 10.329
b = (10 x 65450 – 695 x 885) / 27725

= (654500 – 615075) / 27725

= 39425 / 27725
156
= 1.422

157
So, the regression equation is Y = - 10.329 + 1.422 X

Next, if we consider the regression line of X on Y,

We get the equation X = a + b Y where

a = {(∑ y2) (∑ x) – (∑ y) (∑ x y)} / {n (∑ y2) – (∑ y) 2}

And
b = {n (∑ x y) – (∑ x) (∑ y)} / {n (∑ y2) – (∑ y) 2}.
We get

a = (84925 x 695 – 885 x 65450) / (10 x 84925 – 8852)

= (59022875 – 57923250) / ( 849250 – 783225)

= 1099625 / 66025

= 16.655,

b = (10 x 65450 – 695 x 885) / 66025

= (654500 – 615075) / 66025

= 39425 / 66025

= 0.597

So, the regression equation is X = 16.655 + 0.597 Y

Note:
For the data given in this problem, if we use the formula for r, we
get

N  XY − ( X ) (Y )
r=
NX − X N Y − Y

158
= (10 x 65450 – 695 x 885) / { √ (10 x 51075 - 6952 ) √ (10 x 84925 - 8852 ) }

= (654500 – 615075) / (√ 27725 √ 66025 )

= 39425 / 166.508 x 256.95

= 39425 / 42784.23

= 0.9214

However, once we know the two b values, we can find the coefficient of
correlation r between X and Y as the square root of the product of the two
b values.Thus we obtain

r = √ (1.422 x 0.597)
= √ 0.848934
= 0.9214.
Note that this agrees with the above value of r.

ANALYSIS OF VARIANCE (ANOVA)

Introduction

For managerial decision making, sometimes one has to carry out

tests of significance. The analysis of variance is an effective tool for this
purpose. The objective of the analysis of variance is to test the homogeneity of
the means of different samples.

Definition

According to R.A. Fisher, “analysis of variance is the separation of

variance ascribable to one group of causes from the variance ascribable to other
groups”.

Assumptions of ANOVA

The technique of ANOVA is mainly used for the analysis and

interpretation of data obtained from experiments. This technique is based on

159
three important assumptions, namely

1. The parent population is normal.

2. The error component is distributed normally with zero mean andconstant

variance.

3. The various effects are additive in nature.

The technique of ANOVA essentially consists of partitioning the total

variation in an experiment into components of different sources of variation.
These sources of variations are due to controlled factors and uncontrolled
factors. Since the variation in the sample data is characterized by means of
many components of variation, it can be symbolically represented in the
mathematical form called a linear model for the sample data.

160
 One-way classified data

When the set of observations is distributed over different levels ofa

single factor, then it gives one-way classified data.

ANOVA for One-way classified data

Let y denote the jth observation corresponding to the ith level of

factor A and Yij the corresponding random variate.

Define the linear model for the sample data obtained from the
experiment by the equation

y =  +a +e  i = 1, 2,..., k 
 j = 1, 2,..., n 
ij i ij

 i 

Where µ represents the general mean effect which is fixed and which
represents the general condition of the experimental units, ai denotes the
fixed effect due to ith level of the factor A (i=1,2,…,k) andhence the
variation due to ai (i=1,2,…,k) is said to be control.
The last component of the model eij is the random variable. It is called the error
component and it makes the Yij a random variate. The variation in eij is due
to all the uncontrolled factors and eij is independently, identically and
normally distributed with mean zero and constant variance σ2 .

For the realization of the random variate Yij, consider yij defined
by

y =  +a +e  i = 1, 2,..., k 
 j = 1, 2,..., n 
ij i ij

 i 

161
 The expected value of the general observation yij in the experimentalunits is given by
E( yij ) = i for all i = 1, 2,..., k

With yij=µi+eij , where eij is the random error effect due touncontrolled factors (i.e.,
due to chance only).

Here we may expect µi=µ for all i=1,2,. ... ,k , if there is no variation
due to control factors. If it is not the case, we have

i   for all i = 1, 2,..., k

i.e., i −   0 for all i = 1, 2,..., k

Suppose i −   ai .

Then we have i   + ai for all i = 1, 2,..., k

On substitution for µi in the above equation, the linear modelreduces to

y =  + a + e  i = 1, 2,..., k  (1)
 
ij i
ij
j = 1, 2,..., n

 i 

The objective of ANOVA is to test the null hypothesis

Ho : i =  for all i = 1, 2,..., k or Ho : ai = 0 for all i = 1, 2,..., k . For

carrying out this test, we need to estimate the unknown parameters µ

ai for all i = 1, 2,..., k , by the principle of least squares. This can be done
by minimizing the residual sum of squares defined by

E = e2
ij
ij
=  ( y −  − a )2 ,
ij i
ij

Using (1). The normal equations can be obtained by partially

164
 differentiating E with respect to µ and ai for all i = 1, 2,..., k
and equating

the results to zero. We obtain

G = N  +  ni ai (2)
i

163
 and Ti = ni µ + ni ai, i = 1,2,…,k (3)

Where N = nk. We see that the number of variables (k+1) is more than
the number of independent equations (k). So, by the theorem on a system of
linear equations, it follows that unique solution for this systemis not possible.

i
However, by making the assumption that n ai i
= 0 , we can get a

unique solution µ for and ai (i = 1,2,…,k). Using this condition in equation(2),

we get

G = N
G
i.e.  =
N

µ= G

Therefore the estimate of µ is given by (1)
N

Again from equation (2), we have

Ti

=  + ai
i n

Ti
Hence, ai = −
ni

Therefore, the estimate of ai is given by

T µ
aµ= i − 
i
ni

i.e.,

T G
aµ= i − (2)
i

ni N

Substituting the least square estimates of µ and µi in the residualsum

of squares, we get

164
 µ− $a i )2
−
E =  ( yij
ij

163
 After carrying out some calculations and using the normal equations (2)and (3) we obtain

 G

2
 T2 G2 

E =   y2ij −  − i − (3)

N n N
 ij   i i 

The first term in the RHS of equation (6) is called the corrected

ij y
2
total sum of squares while ij is called the uncorrected total sum of
squares.

for measuring the variation due to treatment (controlled factor),we consider the null
hypothesis that all the treatment effects are equal.

i.e.,

Ho : 1 = 2 = ... = k = 
i.e., Ho : i =  for all i =  k

i.e., Ho : i −  = 0 for all i =  k

i.e., Ho : ai = 0

Under Ho , the linear model reduces to

y =  +e  i = 1, 2,..., k 
 j = 1, 2,..., n 
ij ij

 i 

Proceeding as before, we get the residual sum of squares for thishypothetical model
as

 2 G2
E1 =   yij  − (4)
N
 ij 
166
 Actually, E1 contains the variation due to both treatment and
error. Therefore a measure of variation due to treatment can be obtained
by “ E1 − E ”. Using (6) and (7), we get

165
 k
T2 G2
E1 − E =  i
− (5)

i=1 ni N

The expression in (8) is usually called the corrected treatment sum

k
T2
of squares while the term  i
is called uncorrected treatment sum

i=1 ni

G 2
of squares. Here it may be noted that is a correction factor (also
N

called a correction term). Since E is based on N-K free observations, it has

N - K degrees of freedom (df). Similarly, since E1 is based on N -1 free
observation, E1 has N -1 degrees of freedom. So E1 − E has K -1 degrees
of freedom.

When actually the null hypothesis is true, if we reject it on the basis of

the estimated value in our statistical analysis, we will be committingType
– I Error. The probability for committing this error is referred to as
the denoted by α. The testing of the null hypothesis Ho may be carried
out by F test. For given α, we have

Trss
TrMSS dF : F
F= = k −1, N −k
EMSS Ess
dF

i.e., It follows F distribution with degrees of freedom K-1 and N-K.

All these values are represented in the form of a table called ANOVA
table, furnished below.

166
 ANOVA table for one-way classified data

Sourceof Degrees Sumof variance

Mean Squares
Variation of Squares(SS) ratio
(MS)
Freedom F

Between the
level of the
factor (Treat k-1 E1 − E = QT QT MT
M = F = :
ment) k
T 2 G2
T
k −1 T
ME
i
i n − N Fk −1, N −k
i

QE
Within the
level of
N-k By subtrac QE -
factor ME =
tion N −k
(error)

Total N-1 - -
G2
Q =  yij −
ij N

167
Variance ratio

The variance ratio is the ratio of the greater variance to the smaller
variance. It is also called the F-coefficient. We have

F = greater variance / smaller variance.

We refer to the table of F values at a desired level of significanceα.

In general, α is taken to be 5 %. The table value is referred to as the theoretical
value or the expected value. The calculated value is referred toas the observed
value.

Inference

If the observed value of F is less than the expected value of F (i.e.,

Fo < Fe) for the given level of significance α , then the null hypothesis Ho
is accepted. In this case, we conclude that there is no significant difference
between the treatment effects.

On the other hand, if the observed value of F is greater than the

expected value of F (i.e., ) for the given level of significance α , then the
null hypothesis Ho is rejected. In this case, we conclude that all the
treatment effects are not equal.

Note:
If the calculated value of F and the table value of f are equal, we can
try some other value of α .

Problem 1

The following are the details of sales effected by three sales personsin
three door-to-door campaigns.

Sales person Sales in door – to – door campaign

A 8 9 5 10
B 7 6 6 9

C 6 6 7 5

168
 Construct an ANOVA table and find out whether there is anysignificant difference in
the performance of the sales persons.

Solution:

Method I (Direct method) :

 A = 8 + 9 + 5 +10 = 32
 B = 7 + 6 + 6 + 9 = 28
 C = 6 + 6 + 7 + 5 = 24

32
Sample mean for A : A = =8
4

28
Sample mean for B : B = =7
4

24
Sample mean for C : C = =6
4

Total number of sample items = No. of items for A + No. of itemsfor B + No. of items
for C

= 4 + 4 + 4 = 12

32 + 28 + 24 84
Mean of all the samples X = = =7
12 12

169
Sum of squares of deviations for A:

A A− A = A−8 ( A − A)
2

8 0 0

9 1 1

5 -3 9

10 2 4

14

Sum of squares of deviations for B:

B − B = B −7 (B − B)
B 2

7 0 0

6 -1 1

6 -1 1
9 2 4
6

Sum of squares of deviations for C:

C C −C = C −6 (C − C )
2

6 0 0
6 0 0
7 -1 1
5 -1 1
2

170
Sum of squares of deviations within

 ( A − A) +  ( B − B ) +  (C − C )
2 2 2
Varieties =

= 14 + 6 + 2

= 22

Sum of squares of deviations for total variance:

Sales - X = sales
Sales person sales
( Sales − 7 )
2
–7

A 8 1 1

A 9 2 4

A 5 -2 4

A 10 3 9

B 7 0 0

B 6 -1 1

B 6 -1 1

B 9 2 4

C 6 -1 1

C 6 -1 1

C 7 0 0

C 5 2 4

30

171
ANOVA Table

Source of Degrees of Sum of squares

Variance
variation freedom of deviations

Between varieties 3–1= 2 8 8

=4
2

Within varieties 12 – 3 = 9 22 22
= 2.44
9

Total 12 – 1 = 11 30

Calculation of F value:

Greater Variance 4.00

F= = = 1.6393
Smaller Variance 2.44

Degrees of freedom for greater variance (df1 ) = 2Degrees of freedom for

smaller variance (df1 ) = 9

Let us take the level of significance as 5%The

table value of F = 4.26

Inference:

The calculated value of F is less than the table value ofF. Therefore, the
null hypothesis is accepted. It is concluded that there is no significant
difference in the performance of the sales persons, at 5% level of significance.

Method II (Short cut Method):

∑ A = 32, ∑ B = 28, ∑ C = 24.

T= Sum of all the sample items

172
 =  A +  B + C
= 32 + 28 + 24
= 84

N = Total number of items in all the samples = 4 + 4 + 4 =12

T2 842
Correction Factor = = = 588
N 12

Calculate the sum of squares of the observed values as follows:

Sales Person X X2

A 8 64
A 9 81
A 5 25
A 10 100
B 7 49
B 6 36
B 6 36

B 9 81

C 6 36

C 6 36

C 7 49

C 5 25
618

Sum of squares of deviations for total variance =  X 2 - correction

factor
= 618 – 588 = 30.

173
 Sum of squares of deviations for variance between samples

(  A) (  B ) (  C )
2 2 2

= + + − CF
N1 N2 N3
322 282 242
= + + − 588
4 4 4

1024 784 576

= + + − 588
4 4 4
= 256 +196 +144 − 588
=8

ANOVA Table

Source of Degrees of Sum of squares

Variance
variation freedom of deviations

Bet
3-1 = 2 8 8
ween varieties =4
2

Within varieties 12 – 3 = 9 22 22
= 2.44
9

Total 12 – 1 = 11 30

It is to be noted that the ANOVA tables in the methods I and IIare

one and the same. For the further steps of calculation of F value and drawing
inference, refer to method I.

174
Problem 2

The following are the details of plinth areas of ownership apartment flats offered by 3
housing companies A,B,C. Use analysis of variance to determine whether there is any significant
difference in the plinth areas of the apartment flats.

H o u s i n g
Plinth area of apartment flats
Company
A 1500 1430 1550 1450

B 1450 1550 1600 1480

C 1550 1420 1450 1430

Use analysis of variance to determine whether there is any significant difference in the
plinth areas of the apartment’s flats.

Note:
As the given figures are large, working with them will be difficult.
Therefore, we use the following facts:

i). Variance ratio is independent of the change of origin.ii.) Variance ratio is

independent of the change of scale.

In the problem under consideration, the numbers vary from 1420to 1600. So we
follow a method called the coding method. First, let us subtract 1400 from each item. We get
the following transformed data:

Company Transformed measurement

A 100 30 150 50
B 50 150 100 80
C 150 20 50 30

Next, divide each entry by 10.

175
 The transformed data are given below.

Company Transformed measurement

A 10 3 15 5

B 5 15 10 8

C 15 2 5 3

We work with these transformed data. We have

 A=10+3+15+5=33
 B =5+15+10+8=38
C=15+2+5+3=25
T =  A +  B +  C
= 33 + 38 + 25
= 96

N = Total number of items in all the samples = 4 + 4 + 4 = 12

2 2
Correction factor = T = 96 = 768

N 12

Calculate the sum of squares of the observed values as follows:

Company X X2
A 10 100
A 3 9
A 15 225
A 5 25
B 5 25
B 15 225
B 10 100
B 8 64
C 15 225
176
 C 2 4
C 5 25
C 3 9
1036

Sum of squares of deviations for total variance = X2 - correction

factor
= 1036 – 768 = 268

Sum of squares of deviations for variance between samples

(  A) (  B ) (  C )
2 2 2

= + + − CF
N1 N2 N3
332 382 252
= + + − 768
4 4 4

1089 1444 625

= + + − 768
4 4 4
= 272.25 + 361+156.25 − 768
= 789.5 − 768
= 21.5

ANOVA Table

Source of Degrees of Sum of squares

Variance
variation freedom of deviation

Between varieties 3-1 = 2 21.5 21.5

= 10.75
2

Within varieties 12 – 3 = 9 264.5 24.65

= 27.38
9

177
Total 12 – 1 = 11 268

178
 Calculation of F value:

Greater Variance 27.38

F= = = 2.5470
Smaller Variance 10.75

Degrees of freedom for greater variance (df1 ) = 9

Degrees of freedom for smaller variance (df2 ) =2

The table value of f at 5% level of significance = 19.38Inference:

Since the calculated value of F is less than the table value of F, the null
hypothesis is accepted and it is concluded that there is no significant difference
in the plinth areas of ownership apartment flats offered by the three companies,
at 5% level of significance.

Problem 3

A finance manager has collected the following information on the

performance of three financial schemes.

Sum of squares of
Source of variation Degrees of freedom
deviations
Treatments 5 15
Residual 2 25
Total (corrected) 7 40

Interpret the information obtained by him.

Note: ‘Treatments’ means ‘Between varieties’.

‘Residual’ means ‘Within varieties’ or ‘Error’.

179
 Solution:

Number of schemes = 3 (since 3 – 1 = 2)

Total number of sample items = 8 (since 8 – 1 = 7)Let us calculate the variance.

15
Variance between varieties = = 7.5
2

25
Variance between varieties = =5
5

Greater Variance 7.5

F= = = 1.5
Smaller Variance 5

Degrees of freedom for greater variance

(df1 ) =2

Degrees of freedom for smaller variance

(df1 ) =5

The total value of F at 5% level of significance

= 5.79

Inference:

Since the calculated value of F is less than the table value of Fwe accept the null-
hypothesis and conclude that there is no significantdifference in the performance of the three
financial schemes.

180
I. PARTIAL CORRELATION

Simple correlation is a measure of the relationship between a dependent variable and

another independent variable. For example, if the performance of a sales person depends
only on the training that he has received, then the relationship between the training and the
sales performance is measured by the simple correlation coefficient r. However, a dependent
variable may depend on several variables. For example, the yarn produced in a factory may
depend on the efficiency of the machine,the quality of cotton, the efficiency of workers, etc.
It becomes necessary to have a measure of relationship in such complex situations. Partial
correlation is used for this purpose. The technique of partial correlation proves useful when one
has to develop a model with 3 to 5 variables.

Suppose Y is a dependent variable, depending on n other variables X1, X2, …, Xn.. Partial
correlation is a measure of the relationship betweenY and any one of the variables X1, X2,…,Xn,
as if the other variables have been eliminated from the situation.

181
 The partial correlation coefficient is defined in terms of simple correlation
coefficients as follows:

Let r12. 3 denote the correlation of X1 and X2 by eliminating the effect of

X3.

Let r12 be the simple correlation coefficient between X1 and X2. Let r13

be the simple correlation coefficient between X1 and X3. Let r23 be the

simple correlation coefficient between X2 and X3.

Then we have

r12 − r13 r 23
r12.3 =

Similarly,

r13 − r12 r32

r13.2 =

and r32.1 =

182
Problem 1

Given that r12 = 0.6, r13 = 0.58, r23 = 0.70 determine the partialcorrelation coefficient
r12.3

Solution:

We have

0.6 −0.58 x 0.70

=

0.194
=

0.194
=
0.8146 x 0.7141

0.194
=
0.5817

= 0.3335

183
 Problem 2

If r12 = 0.75, r13 = 0.80, r23 = 0.70, find the partial correlation
coefficient r13.2

Solution:

We have

r13 − r12 r32

r13.2 =

0.8 − 0.75 X 0.70

=

0.8 − 0.525
=
(1− 0.5625) (1− 0.49)

0.275
=
(0.4375) (0.51)

0.275
=
0.6614 X 0.7141

0.275
=
0.4723
= 0.5823

II. MULTIPLE CORRELATION

When the value of a variable is influenced by another variable, the

relationship between them is a simple correlation. In a real life situation, a
variable may be influenced by many other variables. For example, the sales
achieved for a product may depend on the income of the consumers, the price,
the quality of the product, sales promotion techniques, the channels of
distribution, etc. In this case, we have to consider the joint influence
184
of several independent variables on the dependent variable. Multiplecorrelations arise in this
context.

Suppose Y is a dependent variable, which is influenced by n other variables X1, X2, …,Xn.
The multiple correlation is a measure of the relationship between Y and X1, X2,…, Xn considered
together.

The multiple correlation coefficients are denoted by the letter R.The dependent
variable is denoted by X1. The independent variables are denoted by X2, X3, X4,…, etc.

Meaning of notations:

R1.23 denotes the multiple correlation of the dependent variable X1 with two
independent variables X2 and X3 . It is a measure of the relationship that X1 has with X2 and X3 .

R2.13 is the multiple correlation of the dependent variable X2 with two independent
variables X1 and X3.

R3.12 is the multiple correlation of the dependent variable X3 with two independent
variables X1 and X2.

R1.234 is the multiple correlation of the dependent variable X1 with three independent
variables X2 , X3 and X4.

Coefficient Of Multiple Linear Correlations

The coefficient of multiple linear correlation is given in terms ofthe partial correlation
coefficients as follows:

r2 12 + r2 13 - 2 r12 r13 r23

R1.23 =

r2 21 + r2 23 - 2 r21 r23 r13

R2.13 =
1 - r213

185
 r2 31 + r2 32 - 2 r31 r32 r12
R3.12 =
1 - r212

Properties Of The Coefficient Of Multiple Linear Correlations:

1. The coefficient of multiple linear correlations R is a non-negative

quantity. It varies between 0 and 1.

2. R1.23 = R1.32R2.13 = R2.31

R3.12 = R3.21, etc.

3. R1.23 ≥ |r12|,

R1.32 ≥ |r13|, etc.

Problem 3

If the simple correlation coefficients have the values r12 = 0.6, r13 =
0.65, r23 = 0.8, find the multiple correlation coefficient R1.23

Solution:

We have

r2 12 + r2 13 - 2 r12 r13 r23

R1.23 =

186
 0.36+ 0.4225- 0.624
=
1 - 0.64

0.7825- 0.624
=
0.36

0.1585
=
0.36

= 0.4403

= 0.6636

Problem 4

Given that r21 = 0.7, r23 = 0.85 and r13 = 0.75, determine R2.13

Solution:

r2 21 + r2 23 - 2 r21 r23 r13

We have R2.13 =
1 - r213

=
1 - (0.75)2

0.49+ 0.7225- 0.8925

=
1 - 0.5625

=
187
=0.8552

188
UNIT-V

INDEX NUMBERS

Introduction:
Index numbers are meant to study the change in the effects of such factors which cannot be
measured directly. According to Bowley, ―Index numbers are used to measure the changes in
some quantity which we cannot observe directly‖. For example, changes in business activity in a
country are not capable of direct measurement but it is possible to study relative changes in
business activity by studying the variations in the values of some such factors which affect
business activity, and which are capable of direct measurement.

Index numbers are commonly used statistical device for measuring the combined fluctuations in
a group related variables. If we wish to compare the price level of consumer items today with
that prevalent ten years ago, we are not interested in comparing the prices of only one item, but
in comparing some sort of average price levels. We may wish to compare the present agricultural
production or industrial production with that at the time of independence. Here again, we have to
consider all items of production and each item may have undergone a different fractional
increase (or even a decrease). How do we obtain a composite measure? This composite measure
is provided by index numbers which may be defined as a device for combining the variations that
have come in group of related variables over a period of time, with a view to obtain a figure that
represents the ‗net‗ result of the change in the constitute variables.

189
Index numbers may be classified in terms of the variables that they are intended to measure. In
business, different groups of variables in the measurement of which index number techniques are
commonly used are (i) price, (ii) quantity, (iii) value and (iv) business activity. Thus, we have
index of wholesale prices, index of consumer prices, index of industrial output, index of value of
exports and index of business activity, etc. Here we shall be mainly interested in index numbers
of prices showing changes with respect to time, although methods described can be applied to
other cases. In general, the present level of prices is compared with the level of prices in the past.
The present period is called the current period and some period in the past is called the base
period.

Index Numbers:

Index numbers are statistical measures designed to show changes in a variable or group of
related variables with respect to time, geographic location or other characteristics such as
income, profession, etc. A collection of index numbers for different years, locations, etc., is
sometimes called an index series.

Simple Index Number:

A simple index number is a number that measures a relative change in a single variable with
respect to a base.

Composite Index Number:

A composite index number is a number that measures an average relative changes in a group of
relative variables with respect to a base.

Types of Index Numbers:

Following types of index numbers are usually used:

190
Price index Numbers:

191
Price index numbers measure the relative changes in prices of a commodities between two
periods. Prices can be either retail or wholesale.

Quantity Index Numbers:

These index numbers are considered to measure changes in the physical quantity of goods
produced, consumed or sold of an item or a group of items.

Uses

This index number is a useful number that helps us quantify changes in our field. It is easier to
see one value than a thousand different values for each item in our field.

Take the stock market, for example. It is comprised of thousands of different public companies.
We could, of course, look at the stock value of each of these companies to see how the
companies are doing as a whole, or we can look at just one number, the stock index, to get a
general feel for how the companies are doing.

The same goes for the cost of goods. We could look at the cost of each item and compare it to its
cost from last year. But that would mean looking at the cost of millions of items. Or we could
look at the cost of goods index, just one number, to see whether prices have increased or
decreased over the past year.

We can say that the index number is one simple number that we can look at to give us a general
overview of what is happening in our field. Let's take a look at two real world index numbers.

Line of Best Fit (Least Square Method)

A line of best fit is a straight line that is the best approximation of the given set of data.
It is used to study the nature of the relation between two variables. (We're only considering the
two-dimensional case, here.)

192
A line of best fit can be roughly determined using an eyeball method by drawing a straight line
on a scatter plot so that the number of points above the line and below the line is about equal
(and the line passes through as many points as possible).

A more accurate way of finding the line of best fit is the least square method.
Use the following steps to find the equation of line of best fit for a set of ordered pairs
(x1,y1),(x2,y2),...(xn,yn)(x1,y1),(x2,y2),...(xn,yn).

Step 1: Calculate the mean of the xx-values and the mean of the yy-values.
X¯¯¯=∑i=1nxinY¯¯¯=∑i=1nyinX¯=∑i=1nxinY¯=∑i=1nyin

Step 2: The following formula gives the slope of the line of best fit:
m=∑i=1n(xi−X¯¯¯)(yi−Y¯¯¯)∑i=1n(xi−X¯¯¯)2m=∑i=1n(xi−X¯)(yi−Y¯)∑i=
1n(xi−X¯)2

Step 3: Compute the yy-intercept of the line by using the formula:

b=Y¯¯¯−mX¯¯¯b=Y¯−mX¯

Step 4: Use the slope mm and the yy-intercept bb to form the equation of the line.

Example:

Use the least square method to determine the equation of line of best fit for the data. Then plot
the line.

x 8 22 111 6 5 44 121 9 6 11
x 8 1 6 5 2 9 6
y 3 101 33 6 8 121 11 4 9 141
y 3 0 6 8 2 4 9 4

193
 Solution:
Plot the points on a coordinate plane.

Calculate the means of the xx-values and the yy-values.

X¯¯¯=8+2+11+6+5+4+12+9+6+110=6.4Y¯¯¯=3+10+3+6+8+12+1+4+9+1410=7X¯=8+2+11+6
+5+4+12+9+6+11 0=6.4Y¯=3+10+3+6+8+12+1+4+9+1410=7

Now calculate xi−X¯¯¯xi−X¯, yi−Y¯¯¯yi−Y¯, (xi−X¯¯¯)(yi−Y¯¯¯)(xi−X¯)(yi−Y¯), and

(xi−X¯¯¯)2(xi−X¯)2 for each ii.

194
 ii xix i yiy i x i−X¯ y i−Y¯ (xi−X¯)(yi−Y¯) (xi−X¯¯¯)2
11 88 33 1.61.6 −4−4 −6.4−6.4 2.562.56

22 22 10 −4.4−4.4 33 −13.2−13.2 19.3619.3

33 11 33 4.64.6 −4−4 −18.4−18.4 21.1621.1

44 66 66 −0.4−0.4 −1−1 0.40.4 0.160.16

55 55 88 −1.4−1.4 11 −1.4−1.4 1.961.96

66 44 12 −2.4−2.4 55 −12−12 5.765.76

77 12 11 5.65.6 −6−6 −33.6−33.6 31.3631.3

88 99 44 2.62.6 −3−3 −7.8−7.8 6.766.76

99 66 99 −0.4−0.4 22 −0.8−0.8 0.160.16

10 11 14
−5.4−5.4 77 −37.8−37.8 29.1629.1

Calculate the slope.

m=∑i=1n(xi−X¯¯¯)(yi−Y¯¯¯)∑i=1n(xi−X¯¯¯)2=−131118.4≈−1.1m=∑i=1n(xi−X¯)(yi
−Y¯)∑i=1n(xi− X¯)2=−131 118.4≈−1.1

Calculate the yy-intercept.

Use the formula to compute the yy-intercept.

b=Y¯¯¯−mX¯¯¯ =7−(−1.1×6.4) =7+7.04 ≈14.0b=Y¯−mX¯ =7−(−1.1×6.4) =
7+7.04 ≈14.0 Use the slope and yy-intercept to form the equation of the line of
best fit.
The slope of the line is −1.1−1.1 and the yy-
intercept is 14.014.0.Therefore, the equation is
y=−1.1x+14.0y=−1.1x+14.0.
Draw the line on the scatter plot.
250