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FINAL EXAMINATION
St Lucia Campus

Second Semester, 2008

ECON1310 - Quantitative Economic & Business Analysis A
PERUSAL TIME 10 mins. During perusal, write on the blank paper provided
WRITING TIME 2 Hours
EXAMINER Dr Averil Cook
This examination paper has _12_ pages (include title page and attachments) and printed on Double-Sided

THIS EXAMINATION PAPER MUST NOT BE REMOVED FROM THE EXAMINATION ROOM


Exam Type:

Closed Book - Specified materials permitted

Permitted Materials: Calculator - Yes - Casio FX82 Series with any letters
Dictionary - No
Other No electronic aids are permitted (e.g. laptops, phone)
Formula sheet and statistical tables are attached to this paper.

Answer: As instructed below
Answer ALL questions in Part A in the answer booklet, and ALL questions in
Part B on the MCQ sheet.

Number of Questions: Part A 4; Part B 25.

Weighting/Marks: 55%

Special Instructions: Students must comply with the General Award Rules 1A.7 and 1A.8 which
outline the responsibilities of students during an examination.



ECON1310 - Final Semester Examination, Semester Two 2008
Page 2 of 15
PART A

Answer ALL questions in Part A.
Questions carry marks as indicated.

A1. a. A flashlight battery is guaranteed to last for at least 40 hours. Tests indicate
that the length of life of these batteries is normally distributed with a mean of
50 hours and a variance of 16 hrs sqd. What percentage of batteries will fail to
meet the guarantee?
(3 marks)

b. A teacher gives a test to a large lecture class. It is known that the standard
deviation of the scores is 10. If a random sample of 40 is selected from the
class what is the probability that the sample mean will differ from the
population mean by more than 4 marks? Do we need to be told that the class
marks follow a normal distribution here? Explain.
(3 marks)

c. In a best-selling book the author claims that the average cost of a funeral is at
least $7000. To test this claim an investigator examined a random sample of
20 funerals and found the mean to be $6425 with a standard deviation of
$1080. Assume that funeral costs are normally distributed. Test the claim
using o = 5%. Do we need to be told here that funeral costs are normally
distributed? Explain.
(7 marks)



A2 a. An airline wants to determine the proportion of passengers that bring only
carry-on luggage. How large a sample is required if the airline wants their
estimate to be within 3% of the true proportion with 90% confidence?
(2 marks)

b. In a random sample of 200 customers, 44 have only carry-on luggage.
Estimate the true proportion with 92% confidence.
(3 marks)

c. The airline considers that a new cheap service that allows only carry-on
luggage would be profitable if the proportion of passengers currently in this
category is over 20%. Test whether the proportion is more than 20% at the
5% level of significance. Use the p-value approach and the sample information
in (b). Can they conclude that a new cheap service would be profitable?
(5 marks)
d. If it was later determined that the actual proportion was 30% what error, if any,
was made?
(2 marks)

ECON1310 - Final Semester Examination, Semester Two 2008
Page 3 of 15
A3. A pharmaceutical company researcher wants to test whether habitual coffee
drinkers (A), when given a cup of coffee just before bedtime, will take a shorter
time to fall asleep compared to occasional coffee drinkers (B). A study of 16
habitual and 10 occasional coffee drinkers gave the following average times
needed to fall asleep:

A
x = 29 minutes;
B
x = 56 minutes;
A
s = 22 minutes; and
B
s = 25 minutes.

a. Compute the standard error for the difference in average times between the
habitual and occasional coffee drinkers. (3 marks)

b. Compute the 99% confidence interval for the difference in average times
between the habitual and occasional coffee drinkers. Write an interpretation.
From this confidence interval can we conclude that occasional coffee drinkers
take longer to fall asleep than habitual coffee drinkers after drinking a cup of
coffee just before bedtime? (3 marks)

c. Test the hypothesis that drinking coffee before bedtime makes no difference to
the length of time it takes to fall asleep for the two groups. Use = 0.01. Does
the conclusion here agree with the conclusion in (b)? (5 marks)

d. One of the assumptions associated with the calculations above is that the two
samples are independent. Explain which calculation depends on this
assumption. (2 marks)


ECON1310 - Final Semester Examination, Semester Two 2008
Page 4 of 15
A4. An agent for a residential real estate company in a large city would like to be
able to predict the monthly rental cost ($) for apartments based on the size of
the apartment as defined by the number of square metres. A random sample
of 25 apartments was selected and a simple linear regression equation was
estimated. The printout is presented below.

Regression Statistics
Multiple R 0.75519
R Square
Standard Error 202.4378
Observations 22
ANOVA
df SS MS
Regression 1 1087861 1087861
Residual 20 819620.9 40981.05
Total 21 1907482

Coefficients
Standard
Error t Stat P-value
Lower
95%
Upper
95%
Intercept 259.26 215.28 1.20 0.24 -189.80 708.33
Size 9.89 1.92 5.15 0.00 5.88 13.89

Size Residual Plot
-600
-400
-200
0
200
400
600
50 70 90 110 130 150 170
Size
R
e
s
i
d
u
a
l
s


a. State the estimated simple linear regression equation for these data and
explain the variables. (2 marks)

b. Suppose you rented an apartment that was 5 sq metres larger than a basic
size. Use this model to identify how much extra on the basic price you would
expect to pay. (2 mark)

c. Predict the price for an apartment of area 180 sq m. Does this involve
extrapolation? Explain. (3 marks)

d. What fraction of the variations in rent can be attributed to the size of the
apartment? (2 marks)

e. From the printout state the 95% confidence interval for the slope of the
relationship in the population. Interpret. (3 marks)
ECON1310 - Final Semester Examination, Semester Two 2008
Page 5 of 15

PART B
MULTIPLE CHOICE QUESTIONS

Answer ALL questions in Part B.


B1. Consider the following statements:
A. The t distribution is a family of normal distributions all with mean zero.
B. The parameter for the t distribution is (n-1).
C. For larger sample sizes the t distribution is less spread out.

a. only A and B are true
b. only A and C are true
c. only B and C are true
d. A, B and C are all true


B2. When comparing the t distribution with the standard normal distribution

a. they are both bell-shaped and normal
b. they are both probability density functions and the probabilities for a
particular value of t or Z can be found in the tables
c. they both have the same mean but the t distribution has a smaller
standard deviation than the Z distribution
d. the t distribution has fatter tails than the Z distribution, and its standard
deviation is more than 1


B3. The central limit theorem assures us that the sampling distribution of the mean

a. is always normal
b. approaches normality as the sample size increases
c. none of the above
d. is always normal when np and nq > 5


B4. An artist visits 36 homes selling his paintings. He considered he had a 20%
chance of selling to any household. He managed to sell a painting to 10 of the
households he visited. This sample proportion is part of the sampling
distribution of the proportion of households (in a sample of 36) who buy, which

a. is a normal distribution with ) p ( E = 0.20
b. is a binomial distribution with p = 0.20
c. is a normal distribution with ) p ( E =0.27
d. none of the above


ECON1310 - Final Semester Examination, Semester Two 2008
Page 6 of 15
The next TWO questions use the following information
A random sample of 60 garden centres was selected to determine
the average number of fox-tail palms sold at the end-of-season
clearance sales. A 95% confidence interval (5.62 to 6.38) was
established based on the sample results.

B5. The confidence interval would be narrower if

a. the sample was larger
b. the confidence level was larger
c. the significance level was smaller
d. all the above are correct


B6. The confidence interval may be interpreted as

a. If all possible samples of 60 are drawn from the population, 95% of the
sample means will fall between 5.62 and 6.38
b. 95% of the garden centres have sold between 5.62 and 6.38 foxtail
palms
c. If all possible samples of 60 are taken from the population, 95% of the
intervals developed will include the population mean.
d. We are not totally certain (only 95%) that the true number of foxtail
palms sold is between 5.62 and 6.38.

B7. A market research company conducted a telephone survey of 765 households
on behalf of a chain of new car dealers to determine the proportion of
households seeking to purchase a new car in the next two years. An interval
estimate of 0.076 to 0.112 was found. Determine the level of confidence that
can be attached to this interval.

a. 8.7%
b. 95.6%
c 91.3%
d. 45.7%


B8. A research report stated that the mean return on invested capital was between
5.8% and 10.8% per year with a confidence coefficient of 95%. Which of the
following correctly interprets this interval estimate?

a. 95% of investors will get investment returns between 5.8% and 10.8%.
b. If many random samples were taken, 95% would have means between
5.8% and 10.8%.
c. An investor expects to get a return between 5.8% and 10.8%.
d. 95% of the population means will be between 5.8% and 10.8%.


ECON1310 - Final Semester Examination, Semester Two 2008
Page 7 of 15
B9. When using small independent samples to estimate the difference between two
population means the sample variances are pooled. This pooling process
assumes

a. the sample standard deviations are equal
b. the sample variances are estimates of a common variance
c. there is no relationship between the samples
d. the populations are both normally distributed

B10. When determining the sample size necessary to estimate a population
proportion, if p is assumed to be 0.5 when in fact it does not equal 0.5, the
value for n found will

a. underestimate the sample size required
b. overestimate the sample size required
c. overestimate the sample size if the proportion is greater than 0.5
d. over- or under-estimate n depending on the true value of p

B11. The local newspaper claims that no more than 5% of the residents of the
community are on welfare. If you plan to test the claim by taking a random
sample from the community, the appropriate alternative hypothesis would be

a. p > 0.05
b. p < 0.05
c. p = 0.05
d. p s 0.05

B12. The approval process for selling life insurance is complex. The ability to deliver
approved policies to customers in a timely manner is critical to the profitability of
the firm. A random sample of 27 policies was selected and the processing time
in days was recorded. To test whether the average processing time is better
than 30 days the analyst should conduct.

a. a two tail test
b. a one tail test in the right tail
c. a one tail test in the left tail
d. no test - just find the sample average time

B13. Which of the following statements is TRUE in a hypothesis test?

a. The larger the level of confidence, the more likely you are to reject H
0
.
b. The level of significance is the probability of a Type I error.
c. The alternative hypothesis cannot ever be proven to be true since it is
always a very general statement.
d. The significance level is the probability of a Type II error.


ECON1310 - Final Semester Examination, Semester Two 2008
Page 8 of 15
B14. Which of the following is TRUE?

a. The alternative hypothesis represents the conclusion for which
evidence is sought.
b. The statement of the null hypothesis never contains an equality.
c. An increase in the risk of a Type I error also increases the risk of a
Type II error.
d. The computed test statistic is also known as 'the critical value'.


B15. The Queensland government is doing a survey on the popularity of daylight
savings. If more than 70% of the population are in favour then it will be
introduced as a permanent feature. Which of the following are the correct
hypotheses to test?

a. H
0
: p s 0.7 H
a
: p > 0.7
b. H
0
: p = 0.7 H
a
: p < 0.7
c. H
0
: p = 0.7 H
a
: p = 0.7
d. H
0
: p > 0.7 H
a
: p s 0.7

B16. A manufacturer of car batteries claims that his product will last at least 4 years
on average. A sample of 50 is taken and the mean and standard deviation are
found. The test statistic is calculated to be -1.656. Using a 5% significance
level, the conclusion would be:

a. There is insufficient evidence for the manufacturer's claim to be
considered correct.
b. There is insufficient evidence for the manufacturer's claim to be
considered incorrect.
c. There is sufficient evidence for the manufacturer's claim to be
considered correct.
d. There is sufficient evidence for the manufacturer's claim to be
considered incorrect.

B17. In the past 32% of all materials shipments to a large manufacturing company
were received late. The company believes that their new just-in-time system in
which suppliers are linked more closely to the manufacturing process, will be
an improvement. For the hypothesis test conducted, the critical value was
-1.75 and the calculated value was -1.86. The Null hypothesis would
_________ and the company would conclude that their new system is
_________.

a. not be rejected; successful
b. not be rejected; unsuccessful
c. be rejected; successful
d. be rejected; unsuccessful

ECON1310 - Final Semester Examination, Semester Two 2008
Page 9 of 15
B18. Which of the following is TRUE? If a ________ null hypothesis is _______ a Type II
error has been made.

a. true, rejected
b. true, not rejected
c. false, rejected
d. false, not rejected


B19. Given the null hypothesis H
0
: s 350, and the decision rule
Reject H
0
if Z
calc
> 1.85, a type II error will occur when

a. = 360, Z
calc
= 2.01
b. = 360,

Z
calc = 1.67

c. = 340,

Z
calc = 2.01

d. = 340, Z
calc = 1.67


B20. If a Null hypothesis is not rejected at the 5% level of significance it

a. will never be rejected at the 1% level
b. will always be rejected at the 1% level
c. will sometimes be rejected at the 1% level
d. there is insufficient information to say what will happen at the 1% level

B21. The least squares criterion is used

a. to calculate the coefficient of determination
b. to calculate the covariance between two variables
c. to obtain the scatter plot of the data
d. to obtain the sample regression constant and coefficient

B22. Suppose the estimated linear relationship between the circumference (C) of pumpkins
(cms) and their weight (kgs) was found to be W

= -2.6 + 0.08C. The observed

weight for a circumference of 51cms was 2.23kg. The calculated residual is

a. 750 gm
b. 1.72 kg
c. 0.37 kg
d. 2.42 kg


B23. It is the belief that there is a positive relationship between productivity growth and
employment growth. To test this belief data from twelve OECD countries were
obtained. The critical t value for testing this belief at the 1% level of significance
would be

a. 2.764
b. 3.106
c. 3.169
d. 2.718



ECON1310 - Final Semester Examination, Semester Two 2008
Page 10 of 15
B24. The Kaddstat output below is for a regression to estimate the number of goals
scored in AFL based on the number of kicks.

Regression and Correlation
Observations 16
R Square 0.1039
Standard Error 1.0899
Multiple R 0.3223
Coefficients
Standard
Error t value p value
Intercept 5.1253 6.9380 0.7387 0.4723
Kicks 0.0460 0.0361 1.2738 0.2235

The standard deviation of the points around the estimated regression line is
calculated to be

a. 0.0361
b. 6.9380
c. 0.3223
d. 1.0899


Econ1310 final exam
2008 sem 2

ANSWERS

Q1.a) variable X = length of life (hours)
= 50 hrs, o
2
= 16 o = 4
P(X < 40) = =
|
.
|

\
|
<
4
50 40
z P P(z < -2.5)
= 0.5 0.4938 = 0.0062

the percentage failing to meet the guarantee is 0.62% (3 marks)



b) o = 10 n = 40
area in middle:
( )
|
|
|
.
|

\
|
< <

= < <
40
10
4
z
40
10
4
P 4 X 4 P or could find 4 ) x ( P >
= P(-2.53 < z < 2.53) = 0.5 0.4943
= 0.4943 2 = 0.0057
= 0.9886 and double this
so probability of more than 4 marks difference = 1 0.9886 = 0.0114

NO we do not need to be told the marks follow a normal distribution because the sample of 40 is large
and so the Central Limit Theorem tells us that the Sampling Distribution of the mean will be normal
(and hence can do the calculations above)
(3 marks)
ECON1310 - Final Semester Examination, Semester Two 2008
Page 11 of 15

c) H
0
: > 7000 (claim = at least)
H
a
: < 7000
dec rule: reject H
0
if t
calc
< -t
.05(19)
= -1.729
t
calc
= =

=

20
1080
7000 6425
n
s
x
-2.38
reject H
0
Sufficient evidence at the 5% level of significance, to conclude that funeral costs are less than $7000 on
average.

YES we do need to be told that funeral costs are normally distributed because the test statistic t was used
(because only the sample standard deviation is known) and the sample size is small.
(7 marks)
Q2.a) 67 . 751
03 . 0
5 . 0 645 . 1
E
pq z
n
2
2 2
2
2
>

> >
At least 752 people are required in the sample for the sampling error
to be no more than 3%
(2 marks)

b) 22 . 0
200
44
p = =
92% confidence interval for p
200
78 . 0 22 . 0
75 . 1 22 . 0
n
q p
z p
04 . 0

= ] 0292916 . 0 [
p
= o
= 0.22 0.05126
0.168 < p < 0.271
true proportion of passengers who only bring carry-on luggage is estimated,
with 92% confidence, to be between 17% and 27%
(3 marks)

c)

H
0
: p s 20%= 0.2
H
a
: p > 0.2 (over 20%)
dec rule: reject H
0
if p-value < o = 0.05

z
calc
=
0282842 . 0
02 . 0
200
8 . 0 2 . 0
2 . 0 22 . 0
n
pq
p p
=

= 0.707

p-value = P(Z > 0.71) = 0.5 0.2611 = 0.2389 (not < 0.05)

Do not reject H
0

Insufficient evidence at the 5% level of significance to conclude the
proportion of passengers who take only carry-on luggage is more than 20%.
Cannot conclude the new cheap service would be profitable.
(5 marks)

d) if real proportion was 30% then the H
0
statement is false
a False H
0
was not rejected
so a Type II error was made.
(2 marks)
if students wrongly use
0.02929 for the st error
the Z value would be
0.6828 (incorrect)
ECON1310 - Final Semester Examination, Semester Two 2008
Page 12 of 15

Q3.a) 875 . 536
24
12885
2 10 16
25 ) 1 10 ( 22 ) 1 16 (
s iance var pooled
2 2
2
p
= =
+
+
= =
|
.
|

\
|
+ =
|
.
|

\
|
+ =
10
1
16
1
875 . 536
n
1
n
1
s difference for error st
2 1
2
p
= 87.242 = 9.34
(3 marks)

b) 99% confidence interval for
A

B

=
B x A x ) 24 ( 005 . 0 B A
s t x x 29 56 2.797 9.34
= 27 26.124
53.12 <
A

B
< 0.88 or 0.88 <
B

A
< 53.12

The average time taken to fall asleep for habitual coffee drinkers (A) is estimated with 99% confidence to be
between 0.88 and 53.12 minutes less than for occasional coffee drinkers.

Yes - we can conclude that on average occasional coffee drinkers take longer to fall asleep than habitual coffee
drinkers after drinking a cup of coffee just before bedtime because the upper and lower values of the
confidence interval both have the same sign which indicates that
B
is larger than
A

(3 marks)

c) H
0
:
B

A
= 0
H
a
:
B

A
= 0
dec rule: Reject H
0
if |t
calc
| > t
0.005(24)
=2.797
t
calc
=
34 . 9
0 27
S
) ( ) X X (
B x A x
B B A B
=

= 2.89

Reject H
0

Sufficient evidence at the 1% level of significance to conclude that there is a difference in the average
time taken for habitual and occasional coffee drinkers to fall asleep after drinking a cup of coffee at
night.

YES this test shows rejection in the right tail, so we can surmise that the average time for B (occasional ) is
greater than for A (habitual). The confidence interval also showed that the average time for B was
always greater than for A so same conclusion.
(5 marks)

d) The calculation of the st error for the difference does not include any covariance so is only relevant if
the samples are independent.
(2 marks)
Q4.a. X 89 . 9 26 . 259 Y

+ = where X = Size of the apartment (sq m)

Y = monthly rental cost ($)
(2 marks)

b) Since coeff 9.89 indicates the increase in rental cost for a one sq m increase in size
if X = 5 expected extra price would be 5* 9.89 = $49.45
(2 marks)

c) Y

= 259.26 + 9.89 180 = 2039.46

ie monthly rental predicted to be $2039.46

Since the maximum value of X on the residual plot is about 150, the value 180 lies outside the range in
the sample so YES it is an example of Extrapolation
(3 marks)
ECON1310 - Final Semester Examination, Semester Two 2008
Page 13 of 15

d) r
2
= 5703 . 0
1907482
1087861
SST
SSR
= =
57% of variations in rent can be attributed to the size of the apartment
(2 marks)

e) 95% confidence interval for
1
from printout is 5.88 <
1
< 13.89
[or calculated from
1 b ) 20 ( 025 . 0 1
S t b = 9.89 2.086 1.92]

Interpretation: The slope of the linear relationship in the population between the size of apartments and
the monthly rental cost is estimated, with 95% confidence, to be between 5.88 and 13.89.

(2 marks)

PART B


1. C
2. D
3. B
4. A
5. A
6. C

7. C
8. no correct answer
9. B
10. B
11. A
12. C
13. B
14. A
15. A
16. B
17. C
18. D
19. B
20. A
21. D
22. A
23. A
24. D
25. D

ECON1310 - Final Semester Examination, Semester Two 2008
Page 14 of 15
B25. The following residual plot was obtained from a regression relating demand to
the difference in prices between two competitors' products.
PriceDif Residual Plot
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
0.8
1
-0.20 0.00 0.20 0.40 0.60 0.80
PriceDif
R
e
s
i
d
u
a
l
s

The plot indicates that

a. no assumptions have been violated
b. the assumption of independence between the error terms has been
violated
c. a problem of homoscedasticity exists
d. the assumption of constant error variance has been violated




END OF PAPER

ECON1310 - Final Semester Examination, Semester Two 2008
Page 15 of 15
Econ1310 Semester 2 2008
FORMULA SHEET

NORMAL AND SAMPLING DISTRIBUTIONS

for the appropriate distribution: test statistic (Z or t) =
error dard tan s
parameter
population
statistic
sample

STANDARD ERRORS for
(i) Distribution of the (ii) Distribution of the
sample mean x sample proportion p

n
=
x
o
o
n
pq
=
p o


(iii) Distribution of difference between means (with pooling)

2 - n + n
1)s - (n + 1)s - (n
= s here w
n
1
+
n
1
s = s
2 1
2
2 2
2
1 1 2
p
2 1
2
p x x
2 1 |
|
.
|

\
|

ESTIMATION and HYPOTHESIS TESTING

Confidence interval estimate =
error
dard tan s
statistic
test
statistic
sample


Determining sample size: mean
2
E
z
n
2
|
|
.
|

\
| o
>
o
; proportion n >
2
2
E
pq z
2
o
;

SIMPLE LINEAR REGRESSION
Coefficient
xx
xy
1
SS
SS
= b constant x b y = b
1 0

SS
xx
=
n
) x (
x = ) x x (
2
2 2



(similarly for SS
yy
) ) y y )( x x ( = SS
xy

SST = SS
yy
= SSR + SSE SSR =
xx
2
1
SS b
Standard errors:
2 n
SSE
= s
e

SS
s
= S
xx
e
b
1

Coefficient of Determination :
yy yy
2
SS
SSE
1
SS
SSR
= r =