Statistics for Economists (Econ2042) 2024/2025

CHAPTER THREE

3. SPECIAL PROBABILITY DISTRIBUTIONS AND DENSITIES

3.1. Bernoulli and Binomial Distributions

Bernoulli distribution
Definition 2 Bernoulli distribution A random variable X is defined to have a Bernoulli
distribution if the discrete density function of X is given by
( ) ( ) ( )
Where the parameter p satisfies
If X has a Bernoulli distribution, then
( ) ( ) ( )
( )
Binomial distribution
Binomial distribution is one of the simplest and most frequently used discrete probability
distribution and is very useful in many practical situations involving either /or types of events.
Assumption of Binomial Experiment:
1. The procedure/experiments a fixed number of trials.
2. The trials must be independent. (The outcome of any individual trial doesn’t affect the
probabilities in the other trials.)
3. Each trial must have all outcomes classified into two categories. One of the outcomes is
labeled as Success and the other as Failure.
4. The probability of Success remains the same from trial to trial
The outcomes of the binomial experiment and the corresponding probability of these outcomes
are called Binomial distribution
Let X be the number of successes. Then X follows a binomial distribution with parameters n,
number of experiments performed andp, probability of success, and write as X~ Bin(n,p).
The probability mass function of Binomial distribution is given by:
P(X=xi) = ( ) ( ) ;x=0,1,2,3….n, Where p =is the probability of success
q=1-p is the probability of failure
n=is number of trials, x=is number of successes

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The binomial coefficient( ) represents the number of ways of arranging x successes and n −x
failures. The shape of the PMF of X(n) depends on the parameters n and p.
Properties of Binomial distribution
1. E(X) =np 3. Mx(t) ( )
2. Var(x) = npq
Note: notation of binomial expansion( ) ∑ ( )
Proof:First we can proof the moment generating function of the random variable X.
Mx(t)=E( ) =∑ ( ) ( ) =∑ ( )( )

=∑ ( )( ) ( )

From the moment generating function we find the expected values of r.v X and variance of X by
using the successively differentiating the Mx(t).
The mean and variance of the binomial distribution may be determined as

( ) ∑
( )

( )
∑
( ) ( )

( )
∑
( )

So that ( ) Var(X)= npq proof!!!

Exercise
1. Suppose a coin is tossed 10 times. What is the probability of getting?
A. Exactly 3 heads
B. At most 3 heads
C. At least 3 heads
D. More than 3 heads
E. No head

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F. Find the average and variance of the number of heads.

3.2. The Poisson distribution
The Poisson distribution is a discrete probability distribution that applies to occurrences of some
event over a specified interval. The random variable x is the number of occurrences of the event
in an interval. The interval can be time, distance, area, volume, or some similar unit.
A discrete random variable X is called a Poisson random variable with parameter λ, where λ>0, if
 
its PMF is given by: P(X=x)= ,x=0,1,2,3,……
The symbol stands for a constant approximately equal to 2.7183. It is a famous constant in
mathematics, named after the Swiss mathematician L. Euler, and it is also the base of theses-
called natural logarithm.
The Poisson distribution has the following requirements:
 The random variable x is the number of occurrences of an event over some interval.
 The occurrences must be random.
 The occurrences must be independent of each other.
 The occurrences must be uniformly distributed over the interval being used.

A Poisson distribution differs from a binomial distribution in these fundamental ways:

1. The binomial distribution is affected by the sample size n and the probability p, whereas
the Poisson distribution is affected only by the mean  .
2. In a binomial distribution, the possible values of the random variable x are 0, 1, . . . ,n,
but a Poisson distribution has possible x values of 0, 1, 2, . . . , with no upper limit.
The Poisson distribution has many applications in science and engineering. For example, the
number of telephone calls arriving at a switchboard during various intervals of time and the
number of customers arriving at a bank during various intervals of time are usually modeled by
Poisson random variables.
Poisson distribution applies for rare events. Some examples of random variables that usually
obey, to a good approximation, the Poisson probability law are:
1. The number of misprints on a page (or a group of pages) of a book.
2. The number of people in a community living to 100 years of age.
3. The number of wrong telephone numbers that are dialed in a day.
4. The number of transistors that fail on their first day of use.
5. In the case of Natural disaster ,like earth quake, flooding
6. In the case of accidents like car accident.
Properties of Poisson distribution
1. E(X) =
2. Var(x) =
( )
3. Mx(t)

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Note: ∑ = , it is called maculoria series or exponential expanetion

Proof: First we can proof the moment generating function of the random variable X.
( )
( ) ( ) =∑ ∑
 ( )
∑
( )

Exercise: From the moment generating function we find the expected values of r.v X and
variance of X by using the successively differentiating the Mx(t).
The mean and variance of the Poisson distribution easily determined as follows:
E( ) ∑ ∑
( )

= ∑ ⌈ ⌉
( )
=
Similarly; ( ) ∑ , since ( ) ( )
So that ( ) ( ) ( ( ))
Example: Messages arrive at a switchboard in a Poisson manner at an average rate of six per
hour. Find the probability for each of the following events:
A. Exactly two messages arrive within one hour.
B. No message arrives within one hour.
C. At least three messages arrive within one hour
Solution: let X be the random variable that denotes the message arrives at switchboard since the
mean of the message arrive E(x) =6 per hour
A. The probability that exactly three messages arrive within one hour
 
P(X=3)= = =18 =0.0446
B. The probability that No message arrives within one hour
 
P(X=0)= = =0.00248
C. The probability that At least three messages arrive within one hour
P(X ) = 1-P(x<3)
= 1-[P(x=0)+P(x=1)+P(x=2)]
=1-[ + =1-25 =0.938
3.3. Geometric Distribution
The geometric random variable is used to describe the number of Bernoulli trials until the first
success occurs. An experiment is said to be geometric experiment if it provides;
1. Each repetition is called trial.

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2. For each trial there are two mutually exclusive out comes, success or failure.
3. The trials are independent.
4. The probability of success is the same for each trail of the experiment.
5. We repeat the trials until we get the success.
Let X be a random variable that denotes the number of Bernoulli trials until the first success. If
the first success occurs on the xth trial, then we know that the first x − 1 trials resulted in failures.
Thus, the PMF of a geometric random variable, X, is given by P(X=x)=P(1-P)x-
1
,x=1,2,3,4,5,…
The Differences between the Geometric and the Binomial Distributions is:
1. The most obvious difference is that the geometric distribution does not have a set number
of observation, n
2. The 2nd most obvious difference is the question being asked:
 Binomial distribution asks for the probability of a certain number of successes.
 Geometric distribution asks for the probability of the first success.
Properties of Geometric distribution
1. E(x)= 3. Mx(t) =
2. Var(x)=
Note: ∑ =a+ + + +a +a +……. = , where |r|<1
From the moment generating function we find the expected values of r.v X and variance of X by
using the successively differentiating the Mx(t).
Exercise: find the expected values of random variable X and variance of X
 ( ) ∑ ∑
= ∑ ,Since

= ∑

= ⌈ ⌉

 ( ) ( ) ( ) ,since ∑ ( ) ∑

=∑ ( )
= ∑
=
Example:
1. A manufacturer uses electrical fuses in an electronic system. The fuses are purchased in large
lots and tested sequentially until the first defective fuse is observed. Assume that the lot
contains 5% defective fuses.
A. What is the probability that the first defective fuse will be one of the first five tested?

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B. Find the mean, variance, and standard deviation for X, the number of fuses tested until
the first defective fuse is observed.
Solution: Given: p=0.05, q=0.95
A. The probability that the first defective fuse will be one of the first five
P( ) ∑
= ( ) ( ) ( ) ( ) ( )
=
=
=0.226
B. The mean, variance, and standard deviation for X, the number of fuses tested until the
first defective fuse is observed is
( ) ( ) √ ( )

2. A fair die is rolled repeatedly until a 6 appears.

A. What is the probability that the experiment stops at the fourth roll?
B. Given that the experiment stops at the third roll, what is the probability that sum of
all the three rolls are at least 12?
3. Suppose X has a geometric distribution with p = 0.1. Find:
A. P(X = 7)
B. P(X = 10)
C. P(X ≤3)
D. P(X > 5)
E. P(7 ≤X ≤10)
F. Mean of the r.v X
G. Variance of r.v X

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3.4. Uniform (Rectangular) distribution and Normal Distribution

3.4.1. Uniform (Rectangular) distribution
A continuous random variable X has a uniform distribution over an interval a tob (b >a) if it is
equally likely to take on any value in this interval. The probability density function (pdf) of X is
constant over interval (a, b) and has the form

( ) { ,

The probability that X lies in any subinterval of [a, b] is equal to the length of that subinterval
divided by the length of the interval [  , b]. This follows since when [a, b] is a subinterval of [c,
d]
1 b cd
P (c  X  d ) 
ba a
dx 
b 
The term “uniform” is justified by the fact that intervals of equal length in (a, b) are assigned the
same probability regardless of their location. The notation used for such a distribution is U (a, b)
or R (a, b), and the expected mean, variance and moment generating function of uniform
distribution are given by
( )
E(x) = Var(x) = and Mx(t) = ( )

Note: A uniform random variable X is often used where we have no prior knowledge of the
actual pdf and all continuous values in some range seem equally likely
Example: If X is uniformly distributed over the interval [0, 10], compute the probability that
A. 2 <X <9,B. 1 <X <4,C.X <5 D.X >6.
Answer: The respective answers are (a) 7/10, (b) 3/10, (c) 5/10, (d) 4/10.

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3.4.2. Normal Distribution

Let the random variable X denote the ideal symmetric distribution with mean μ and standard
deviation . This distribution is known as the normal distribution. Statisticians have found
that the probability density function of such a distribution is given by the function
( )
2
f(x)= , −∞ <x<∞and we write X~N(μ, ),
√

A normal distribution is a continuous probability distribution for a random variable x. The

graph of a normal distribution is called the normal curve. A normal distribution has the
following properties.
1. The mean, median, and mode are equal.
2. The normal curve is bell shaped and is symmetric about the mean.
3. The total are under the normal curve is equal to one.
4. The normal curve approaches, but never touches, the x-axis as it extends farther and
farther away from the mean.
5. Between and (in the center of curve) the graph curves downward. The graph
curves upward to the left of and to the right . The points at which the curve
changes from curving upward to curving downward are called inflection points.
6. The Empirical Rule:
 Approximately 68% of the area under the normal curve is between and .
 Approximately 95% of the area under the normal curve is between and
.
 Approximately 99.7% of the area under the normal curve is between
and .
The normal density f (x) is a bell-shaped curve that is symmetric about μ and that attains its
maximum value at x= μ. In practice, many random phenomena obey, at least approximately,
a normal probability distribution. Because the normal probability density function is
symmetrical, the mean, median and mode coincide at x = μ.
Thus, the value of μ determines the location of the center of the distribution, and the value of
σ2determines its spread.

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An important fact about normal random variables is that if X is normal with mean μ and variance
σ2, then Y = αX + β is normal with mean αμ + β and variance α2 2.
The uses of normal distribution
 Many things actually are normally distributed, or very close to it. For example, height
and intelligence are approximately normally distributed; measurement errors also often
have a normal distribution
 The normal distribution is easy to work with mathematically. In many practical cases, the
methods developed using normal theory work quite well even when the distribution is not
normal.
 There is a very strong connection between the size of a sample N and the extent to which
a sampling distribution approaches the normal form. Many sampling distributions based
on large N can be approximated by the normal distribution even though the population
distribution itself is definitely not normal.
x
It follows from the foregoing that if X~N (μ, σ2) then Z  is a normal random variable with

mean 0 and variance 1. Such a random variable Z is said to have a standard, or unit, normal
distribution. The distribution function of the N (0, 1)-distribution is usually denoted by  ; i.e., if
x 1 t 2 2
Z~N(0, 1), then: P ( X  x)   ( x)   e dt , −∞ <x<∞
  2

Calculations of probabilities of the form P(a <X <b) for −∞ ≤ a ≤ b <∞ are done through two
steps: First, turn the r.v. X~N(μ, σ2) into a N(0, 1)-distributed r.v., or, as we say, standardize it,
and then use available tables,the Normal tables. For instance, to obtain P{X <b}, we note that X
will be less than b if and only if (X − μ)/σ is less than (b − μ)/σ, and so

x b b  

P ( x  b)  P     
      
Similarly, for any a <b,

( ) ( ) ( )

( ) ( ) ( ) ( )

While the normal table tabulates  (x) only for nonnegative values of x, we can also obtain  (−x)
from the table by making use of the symmetry (about 0) of the standard normal probability
density function. That is, for x>0, if Z represents a standard normal random variable, then
 ( x)  P( Z   x)  P( Z  x) By symmetry

 1   ( x ) Thus, for instance,

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P{Z <−1} =  (−1) = 1 −  (1) = 1 − .8413 = .1587

The mean, variance and moment generating function of the Normal distribution
If X~N(μ, σ2) then;

E(X) = μ Var(X) = σ2 Mx(t)=

Example
1. If X is a normal random variable with mean μ = 3 and varianceσ2= 16, find
A.P{X <11};B.P{X >−1};C.P{2 <X <7}
Answer:A.P{X <11} =  (2) = .9772 B. P{X >−1}=P{Z >−1}= P{Z <1}= .8413
C.P {2 <X <7}=  (1) −  (−1/4) =  (1) − (1 −  (1/4)) = .8413 + .5987 − 1 = .4400
7. Find the area the normal distribution curve
A. P(0<Z<2.34) D. P(Z<-1.93)
B. P(-1.75<Z<0) E. P(-1.37<Z<1.68)
C. P(Z>1.11) F. P(2<Z<2.47)
Answer A.0.4904 B.0.4599 C.0.1335 D. 0.0268 E.0.8682 F. 0.0160
8. Find the Za-values such that the area of under normal distribution curve
A. P(0<Z<Za)=0.2123
B. P(0<Z<Za) = 0.45
Answer A. Za=0.56B.Za=1.645
3.5. Exponential distribution
A continuous random variable whose probability density function is given, for someλ > 0, by
f ( x )   e  x , x ≥ 0
is said to be an exponential random variable (or, more simply, is said to be exponentially
distributed) with parameter λ.
The cumulative distribution function F (x) of an exponential random variable is given by
F ( x)  P X  x    e y dy  1  e x
x

0 ,x≥0
The exponential distribution often arises, in practice, as being the distribution of the amount of
time until some specific event occurs. For instance, the amount of time (starting from now) until
an earthquake occurs, or until a new war breaks out, or until a telephone call you receive turns
out to be a wrong number are all random variables that tend in practice to have exponential
distributions.
The mean, variance and moment generating function of the exponential distributions are
1 1
E( X )  Var ( X )  
 2 Mx(t) =


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Example:
1. Assume that the length of phone calls made at a particular telephone booth is exponentially
distributed with a mean of 3 minutes. If you arrive at the telephone booth just as Chris was
about to make a call, find the following:
A. The probability that you will wait more than 5 minutes before Chris is done with the
call.
B. The probability that Chris’ call will last between 2 minutes and 6 minutes
Solution: Let X be a random variable that denotes the length of calls made at the telephone
booth.
Since the mean length of calls is 1/λ = 3, we have that the PDF of X is given by

A. The probability that you will wait more than 5 minutes is the probability thatX is greater
than 5 minutes, which is givenby

B. The probability that the call lasts between 2 and 6 minutes is given by

2. The lifetime of an automobile battery is described by ar.v. X having the Exponential

1

distribution with parameter 3 . Then:
A. Determine the expected lifetime of the battery and the variation around this mean.
B. Calculate the probability that the lifetime will be between 2 and 4 time units.
Answer: (a) E(x)=3 and Var(x)=9
P(2  x  4)  P( x  4)  P( x  2)  F (4)  F (2)  1  e 3   1  e 3   0.252
4 2

(b)    

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