ECO72INTRODUCTIONTOECONOMICSTATISTICS

Topic2 Measuresof CentralTendency

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MeasuresofCentralTendency
Thischapterlooksatthreedifferentconceptsofhowwe describeatypicalelementofadataset. Mean Median Mode

Thereisnoonebestconceptforallcases;wewill discusstheadvantagesanddisadvantagesofeach.

Mean

Themeaniswhatismost commonlycalledthe average. Ifapopulationisfinite,of sizeN,wecanwritethe populationmeanas

EXAMPLE:

Therearethreecountriesin NorthAmerica(N=3) Theirlandareasare: Canada 9,093,507km2 Mexico 1,923,040km2 U.S. 9,161,923km2 Total 2,017,840km2 Averagelandarea: 2,017,840/3=6,726,157km2
Source:2005CIAWorldFactbook

i= N

X i X 1 X 2 X N N= N i=1

Meansamplemean

Forasampleofsize n,wecanwritesample meanas

Example:

Tenpeopleareaskedhow manyhoursofTVthey watchedlastnight. Theirresponsesare1,2,.5, 0,4,0,2,1.5,0,3. Mean: 1+2+0.5+4+2+1.5+3 =1.4 10

X i X 1 X 2 X n n= n i=1

i=n

Advantagesofthesamplemean
1. Ittakesallvaluesinthesampleintoaccount. 2. Itisunique:Eachsampleandpopulationhasonly onemean. 3. ThesumofXminusthemeaniszero,sothe meanactsasabalancingpoint.

DisadvantagesoftheMean
1.Itonlyexistsforquantitativedata
Whatisthemeanbetweengood,fair,poor? Betweenred,yellow,andblue?

2.Itcanbeaffectedstronglybyoutliers.
Example:InWhoville,thereare10peoplewhoearn $10,000ayearandonepersonwhoearns$1,000,000 Whatisthemean?Isitatypicalincome?

WeightedMean
Weightedmeansoccurwhenwehavesome observationsthatwewishtoplacemoreimportanceon thanothers.

Theyrequireaweightingvariablethatindicatesthe importancetoplaceonagivenobservation.

WedenotetheoriginalvariablebyXiandtheweighting

variablebyWi.

WeightedMeanFormula
Formulafortheweightedmean:

W i Xi
i =1

i =n

Wi
i =1

i =n

W 1 X 1 W 2 X 2 W n X n W 1W 2 W n

WeightedMeanExample
LifeExpectancyinagroupofnorthernAfricancountries:
Country Algeria Egypt Libya Morocco Nigeria Sudan Tunisia Sum Mean LifeExpectancy 68 66 73 67 41 55 72 442 442/7=63.14

WeightedMeanExample(cont'd)
LifeExpectancyinagroupofnorthernAfricancountries:
Country Algeria Egypt Libya Morocco Nigeria Sudan Tunisia Sum Mean LifeExpectancy 68 66 73 67 41 55 72 442 442/7=63.14 Population(mil) 31 70 5 29 126 31 10 302

WeightedMeanExample(cont'd)
LifeExpectancyinagroupofnorthernAfricancountries:
Country Algeria Egypt Libya Morocco Nigeria Sudan Tunisia Sum Mean WeightedMean: LifeExpectancy 68 66 73 67 41 55 72 442 442/7=63.14 16627/302=55.05 Population(mil) 31 70 5 29 126 31 10 302 LExPopn 2108 4620 365 1943 5166 1705 720 16627

Median

Looksatmidpointofdatawhentheyaresorted fromhighesttolowest. Ifevennumberofobservations,takeaverageof twomidpoints. Example:Hoursoftelevisionwatched,sorted: 0,0,0,.5,1,1.5,2,2,3,4

Median

Looksatmidpointofdatawhentheyaresorted fromhighesttolowest. Ifevennumberofobservations,takeaverageof twomidpoints. Example:Hoursoftelevisionwatched,sorted: 0,0,0,.5,1,1.5,2,2,3,4 Median:(1+1.5)/2=1.25

AdvantagesofMedian
1.

Worksonordereddataaswellasquantitative data. Example:20OpinionsofHillwoodCafe

Excellent: Good: Fair: Poor: 3 6 7 4

Pickmidpointfrom:Poor,Poor,Poor,Poor,Fair,Fair,Fair,Fair,Fair, Fair,Fair,Good,Good,Good,Good,Good,Good,Excellent, Excellent,Excellent.

AdvantagesofMedian(cont'd)
2.

Medianisunaffectedbyoutliers:
Thereare11peopleinWhoville;tenmake$10,000per yearandonemakes$1millionperyear.Whatisthe medianincome?

3. Medianisunique:Asamplehasonlyone.

DisadvantageofMedian
Disadvantage:Notaffectedbychangesindataaway fromcenter.

Example:InWhoville,whatwouldhappentothe medianincomeifthemillionairesuddenlystarted makingonly$25,000?

Mode

Askswhichvalueisobservedmost. Example:20OpinionsofHillwoodCafe
Excellent: Good: Fair: Poor: 3 6 7 4

Here,Fairisthemostcommonresponse.

ModeAdvantage

Advantage:Worksoncategorydata. Example:EthnicgroupsinEthiopia(millions)
Amharic/Tigray Oromo Shankella Sidamo Somali Other
Source:2005CIAWorldFactbook

22.6 28.2 4.2 6.3 4.2 4.9

DisadvantagesofMode

Maynotbeunique.Considerthefollowingsample of10people FavoriteFlavorofIceCream Vanilla Chocolate Strawberry Coffee #ofpeople 1 4 4 1

DisadvantagesofMode(cont'd)

Maynotevenexistinameaningfulwayon continuousdata.Considerlifeexpectancydata:
LifeExpectancy 68 66 73 67 41 55 72

Country Algeria Egypt Libya Morocco Nigeria Sudan Tunisia

Onecouldsaythateveryvalueisamode,orthat noneis.

DisadvantagesofMode(cont'd)

Maynotlienearthecenterofthedataatallin ordereddata.Considerouranswersabouthow manyhoursoftelevisionpeoplewatchedlast night: 0,0,0,.5,1,1.5,2,2,3,4

Themodalresponseisnotatypicalone.

GeometricMean

Usedwhenlookingatgrowthrates. Forexample,economicgrowth,interestrates, populationgrowth. Askswhatgrowthrate,ifitwereconstanteach year,wouldgetyoufromstartingvaluetoending value Wewon'tuseitinthisclass,butkeepitinmindif you'reworkingwithtimeseriesdatasuchas financialdata