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Pete Kaslik - Math in A Vibrant and Sustainable Society PDF
Pete Kaslik - Math in A Vibrant and Sustainable Society PDF
Sustainable Society
Sixth Draft
by Pete Kaslik
Pierce College, Fort Steilacoom
Math in a Vibrant and Sustainable Society
Sixth Draft
by Pete Kaslik
2016
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0
International License.
This license lets others remix, tweak, and build upon your work non-commercially, as long as
they credit you and license their new creations under the identical terms.
Photo Credit
Cover Photo of Gig Harbor, Washington and Mt. Rainier, by Jean Kaslik
Table of Contents
Chapter 3 Statistics…………………………………………………..….………….…………….……………………47
But with progress comes challenges. To achieve what we have so far, we have polluted the
planet, altered the climate, depleted resources, and burdened our country with considerable debt.
These problems combined hold the potential to interrupt the progress we have made and force changes
we may not like.
It is neither fun to dwell on the challenges humanity face nor easy to envision the many things
that can go wrong. It is far more comforting to think that life will continue as it is now. This is not unlike
an individual’s health. If we feel healthy now, it is difficult to imagine that we can face unexpected
health problems in the future, even though we know that is common for older people. The choice we
face with our own health is whether to be proactive or reactive. Being reactive means that you let your
health gradually deteriorate until something bad happens and then hope a doctor can fix it. Proactive
means that you recognize that health deteriorates with age but some effects can be mitigated through
diet, exercise, and other choices that can be made. Being proactive is the more logical plan, but not the
easiest.
It is conceivable that technological advances will ultimately solve all the problems that exist. It
is also conceivable that a complete world-wide collapse can happen as a result of an environment that
can no longer sustain us. Obviously, a combination of these is also possible. Humanity can also be
either proactive or reactive to these potential outcomes. Being reactive is the norm. We react to
economic booms and busts, changing climate, populations, technologies, etc. But what is a proactive
choice that humanity could make? A common goal for humanity could serve as a guide for decision
making. One possibility of such a goal is to focus on the development of a healthy, vibrant and
sustainable world for everyone. A vibrant society is one in which people feel alive and energized.
Because people and cultures are diverse, there are a lot of things that can be considered energizing.
Some examples include art, contemplation, creating, dancing, debating, exploration, good food, good
health, inventing, learning, music, nature, singing, socializing, sports, theater, etc. These are all things
that create excitement and energy for individuals and are available to many people now. In contrast,
things such as authoritarianism, discrimination, injustice, violence, and war are anti-vibrant.
Sustainability
extends these concepts
to the broader society.
According to the US Environmental Protection Agency (EPA) “Sustainability is based on a simple
principle: Everything that we need for our survival and well-being depends, either directly or indirectly,
on our natural environment. Sustainability creates and maintains the conditions under which humans
and nature can exist in productive harmony, that permit fulfilling the social, economic and other
requirements of present and future generations.” 1 Sustainability is relevant for those who think
beyond their own life. In the same way that we have benefited from the efforts of prior generations, it
seems appropriate that we make choices that will ultimately benefit those who follow us. The challenge
then is to understand the choices we should make so that we can create a vibrant and sustainable
world. Essentially, the goal is to creating an exciting and energizing world without destroying it in the
process.
The objective of this book is to help you develop quantitative reasoning skills that will allow you
to analyze the world objectively so you can make wise choices. An objective view of the world benefits
from two different perspectives, one is a big picture view and the other is a reductionist view. The big
picture view is achieved by looking at interactive systems. The reductionist view is clarified using
statistics. Because it is still necessary to function in the existing world regardless of events beyond your
control, the final objective of this book is to help you understand personal finance.
In the end, we must keep in mind that the world is very complex and answering the questions
we face as a species, or as individuals, requires a combination of skills including mathematics, science,
and philosophy. Consider the following four questions.
Question 1. Is it acceptable for societies that consume massive amounts of resources to take
those resources from locations in the world that are home to less consumptive cultures, if the result is
that the latter culture is destroyed?
1
http://www.epa.gov/sustainability/basicinfo.htm (viewed 10/19/14)
Question 4. What is the best way to structure a society so that everyone’s physiological and
safety needs can be met?
Question 2 does not require mathematics. It requires a physiologist with a good understanding
of the human body, although math and science were initially used to develop this understanding.
Question 3 requires math. In particular, there are formulas that can be used to calculate this
number. This is deterministic math. It is a problem that can be solved with algebra. Everyone who uses
the same inputs will get the same result, if done correctly.
Question 4 requires math as well, but there is no formula that can be used because there will be
considerable variation in the success of each society. The effectiveness can vary from one year to the
next or one location to the next. The randomness in the results makes this a stochastic problem. The
appropriate math for understanding this problem is statistics.
Before proceeding, there are a few mathematical concepts that will be used throughout the
book that will be introduced at this time. These concepts are units, dimensional analysis, formulas, and
proportional reasoning.
Units
Units are the words that give meaning and context to numbers. Units include such things as
gallons, meters, hours, watts, etc. In algebra, when you were given equations such as 3x – 4 = 5x + 2 to
solve, there were no units in the problem. It was strictly an exercise for understanding how to
manipulate mathematical symbols to find a solution. This understanding is necessary for making math
into a useful tool for understanding our world, but many students, particularly those in a non-STEM 2
class such as the one this book is written for, do not enjoy the world of x and y and other mathematical
symbols for its own sake and beauty. Rather, there is the feeling that if we are going to do math, then it
should be particularly useful. In this regard, useful math requires units, since it is how numbers are
given context.
2
STEM stands for Science, Technology, Engineering, and Mathematics
Units will play several roles throughout this text. One role is to make precise conversions
between different units. Imagine two international students who just moved to the US to attend
college. They decide to go out for lunch and want to know if they have enough money to buy lunch for
two people. One student with $10 asks the other student how much money she has. She replies 100.
This should be more than enough money for lunch. However, the second student did not include units
in her reply. In fact, she had 100 yen, which is Japanese money and approximately equivalent to 1 US
dollar. They will only be able to afford a small lunch.
A second role for units is to make sure that equations are properly structured. For example, if a
person is driving at 60 miles per hour for 15 minutes and we want to know how far they have driven,
substitution into the d=rt equation (distance = rate x time) using the given numbers will not yield the
correct answer because the rate has units of miles per hour, but the time has units of minutes. Time
would have to be converted to hours (or the rate to miles per minute) before the equation can be used.
In addition, we will be using computer technology to produce systems dynamics models. The software
program gives the opportunity to check units in these complex models.
In this book, we work with units for money, length, mass, volume, time, energy, and
combinations of these that produce rates. Rates are recognized because of the use of the word “per”,
such as miles per hour or dollars per month. There are various systems of units in the world. The most
common system is SI (Le Système international d'unités) which is also known as the metric system. The
United States is one of the last remaining countries to avoid international cooperation and tenaciously
continues to use the U.S. Customary System. The table below shows the common units for each of
these systems and the equivalence between units. The first column contains equivalencies between
U.S. Customary System units. The third column contains equivalencies between SI units. The middle
column bridges the two systems by showing equivalencies between the US units and the SI units.
Unit Equivalencies
USCS (US Customary System) USCS – Metric Metric or SI
Length
12 inches (in) = 1 foot (ft) 1 inch (in) = 2.54 centimeters (cm) 1000 millimeters (mm) = 1 meter (m)
3 feet (ft) = 1 yard (yd) 0.62 miles (mi) = 1 kilometer (km) 1000 meters (m) = 1 kilometer (km)
1760 yards (yd) = 1 mile (mi) 100 centimeters (cm) = 1 meter (m)
5280 feet (ft) = 1 mile (mi)
Area
1 square mile (mi2)= 640 acre (ac) 2.471 acre (ac) = 1 hectare (ha) 1 square kilometer (km2) = 100 hectare (ha)
1 acre = 43,560 square feet (ft2) 1 square mile (mi2) = 2.59 square 1 hectare = 10,000 square meters (m2)
kilometers (km2)
Volume
8 ounces (oz) = 1 cup (c) 1 quart (qt) = 0.946 liters (L) 1000 milliliters (ml) = 1 liter (L)
2 cups (c) = 1 pint (pt)
2 pints (pt) = 1 quart (qt) 1000 liters (L) = 1 cubic meter (m3)
4 quarts (qt) = 1 gallon (gal)
1 cubic foot (ft3)=7.481 gallons (gal)
Mass
16 ounces (oz) = 1 pounds (lb) 2.20 pounds (lb) = 1 kilogram (kg) 1000 milligrams (mg) – 1 gram (g)
2000 pounds (lb) = 1 ton 1000 grams (g) = 1 kilogram (kg)
1 pound (lb) = 453.6 grams (g)
1000 kilograms = 1 metric ton
Time
60 Seconds (s) = 1 minute (min)
60 minutes (min) = 1 hour (h)
24 hours (h) = 1 day (d)
365 days (d) = 1 year (y)
Length units are used to measure the distance from one point to another. There is only one
dimension. Area units are used for determining the number of squared units that can cover a two
dimensional region. The amount of floor space in a house is measured in area units (ft2 or m2) as is the
amount of forest land in the country (acres or hectares). Volume has three dimensions and is used to
measure the amount of air in a building or water in a lake. The units are cubic feet (ft3) or cubic meters
(m3) or gallons or liters.
Power and energy are related to each other by time. Energy = Power × Time. If power is in
kilowatts (kW) and time is in hours, then energy will have units of kilowatt hours (kWh). These are the
units in your electric bill. Calories are another way to measure energy. A calorie (with a lower case c) is
the amount of energy required to raise the temperature of one gram of pure liquid water from 14.5oC to
15.5oC 3. A food Calorie (with an upper case C) is equivalent to 1000 calories or 1 kilocalorie.
Dimensional Analysis
Dimensional analysis is an organized way to convert from one set of units to another. It
incorporates two fraction processes. The first is that fractions that have common factors in the
numerator and denominator can be simplified by cancelling the common factor. For example, the
12 2∙6
fraction can be shown with factors as . Since there is a factor of 2 in the top and bottom, it can be
10 2∙5
6 3𝑥𝑥
cancelled (since 2 divided by 2 equals 1), leaving a simplified fraction of . Likewise, a fraction of can
5 7𝑥𝑥
3
be simplified to because the x in the numerator cancels with the x in the denominator. The second
7
arithmetic process is that multiplication of fractions is done by multiplying all numerators and all
2 5 10
denominators (straight across). Thus ∙ = .
3 7 21
Dimensional analysis is used when it is necessary to convert from one set of units to another.
The process begins by writing the initial number with its units. Unit fractions are then created so that
the units of the original number can be cancelled. A unit fraction is a fraction in which the number and
unit combination in the numerator is equivalent to the number and unit combination in the
1 ℎ𝑜𝑜𝑜𝑜𝑜𝑜 60 𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚
denominator. For example, and are two examples of unit fractions. The units are
60 𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚 1 ℎ𝑜𝑜𝑜𝑜𝑜𝑜
different in the numerator and denominator, but the number and unit combinations are equivalent
since there are 60 minutes in one hour. Unit fractions are strategically chosen to enable the conversion
of units from the initial to the desired. One unit fraction may be sufficient or many unit fractions that
are connected may be required. The process of dimensional analysis combines these two skills of
cancelling and fraction multiplication.
Notice that hours can cancel because hours are in the numerator of the first term and the denominator
of the unit fraction.
Notice that both hours and minutes can cancel because one of each is in the numerator and the
denominator. The only term that cannot cancel is seconds, consequently the final answer has units of
seconds.
3
(Kotz & Purcell)
Sometimes the initial number is a rate, such as miles per hour. The word per indicates a division
60 𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚
bar. Thus 60 miles per hour is written as . The conversion of 60 miles per hour to feet per
1 ℎ𝑜𝑜𝑜𝑜𝑜𝑜
second will require converting both the distance units on top and the time units on the bottom. These
are done in sequence. Since multiplication is commutative, the sequence doesn’t really matter, but by
habit, the numerator units are often converted first, followed by the denominator units.
60 𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚 5280 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 1 ℎ𝑜𝑜𝑜𝑜𝑜𝑜 1 𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚
� �� �� � = 88 𝑓𝑓𝑓𝑓𝑓𝑓𝑓𝑓 𝑝𝑝𝑝𝑝𝑝𝑝 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠
1 ℎ𝑜𝑜𝑜𝑜𝑜𝑜 1𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚 60 𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚 60 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠
Notice that the miles cancel, hours cancel and minutes cancel. Only feet in the numerator and seconds
in the denominator don’t cancel. By the way, one interpretation of this problem is that if you are driving
at 60 miles per hour and glance away from the road to answer your phone or change the radio station,
you will have traveled 88 feet for each second your eyes aren’t on the road.
There are occasions when area or volume units must be converted. There are two ways to make
these conversions. One is by using linear conversion factors and the other is by using area or volume
conversion factors. For example, the Puget Sound covers an area of 1020 square miles 4. We can use
dimensional analysis to calculate its area to units of square kilometers. The first approach will use linear
conversion factors. The factors must be squared from the outside of the parentheses to create area
conversion factors.
The second approach uses area conversion units. No additional squaring is necessary.
Conversion of time units is sometimes necessary because we do not normally think in terms of
decimals with time. For example, if a trip takes 5 hours, 35 minutes and 15 seconds, how many hours
does it take? To determine this, we need to convert 35 minutes to hours and 15 seconds to hours then
add all the times. Keep in mind that you cannot simply put in a decimal point for the colons. 5:35:15 is
not equal to 5.3515 hours.
1 ℎ𝑜𝑜𝑜𝑜𝑜𝑜
36 𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚 � � = 0.6 hours
60 𝑚𝑚𝑚𝑚𝑛𝑛𝑢𝑢𝑢𝑢𝑢𝑢𝑢𝑢
1 𝑚𝑚𝑚𝑚𝑚𝑚 1 ℎ𝑜𝑜𝑜𝑜𝑜𝑜
15 𝑠𝑠𝑠𝑠𝑠𝑠 � �� � = 0.004 ℎ𝑜𝑜𝑜𝑜𝑜𝑜𝑜𝑜
60 𝑠𝑠𝑠𝑠𝑠𝑠 60 𝑚𝑚𝑚𝑚𝑚𝑚
Total time = 5:35:15 = 5 + 0.6 + 0.004 = 5.604 hours.
4
http://en.wikipedia.org/wiki/Puget_Sound (viewed 10/18/14)
Note: Use the exact equivalencies from the table and be precise in showing the process.
In problems 1, 2 and 3, the entire dimensional analysis problem has been provided; you only need to
calculate the answer. Multiply by numbers in the numerator and divide by numbers in the denominator to obtain
the converted value. Ignore the ones.
(1) 1. Lengths: In a normal home, the ceilings of a room are 8 feet above the floor. What is this distance in
meters?
12in 2.54cm 1m
8 ft = ________ meters hint (8·12·2.54/100)
1 ft 1in 100cm
(1) 2. Area: An average US home contains 2200 square feet. How many square meters is the house?
Remember to square the unit fractions.
12 𝑖𝑖𝑖𝑖 2 2.54 𝑐𝑐𝑐𝑐 2 1 𝑚𝑚 2
2,200 𝑓𝑓𝑓𝑓 2 � � � � � � = _________ 𝑚𝑚2 hint(2200·122·2.542/1002)
1 𝑓𝑓𝑓𝑓 1 𝑖𝑖𝑖𝑖 100 𝑐𝑐𝑐𝑐
(1) 3. Mixed: An acre of land can produce about 5000 kilocalories of plant-based food per day expressed
5000 𝑘𝑘𝑘𝑘𝑘𝑘𝑘𝑘
as � 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎∙𝑑𝑑𝑑𝑑𝑑𝑑 �. How many square miles are needed to feed a town of 10,000 people if the average person
consumes 2000 kcal of plant-based food per day.
In problems 4 and 5, use the Unit Equivalencies table to put in the numbers missing from the unit
fraction, then cancel units that are the same in the numerator and denominator and multiply or divide the
numbers, as appropriate.
(2) 4. Energy: Household energy consumption is calculated by multiplying the amount of power (kilowatts)
needed times the number of hours that it is used. Your electric bill is calculated based on the number of kilowatt
hours (kWh) that you use. The power requirements of most appliances are measured in watts, while the time
they are used is often measured in minutes, thus it is necessary to convert from watt minutes to kilowatt hours. If
you know the cost of energy, you can determine how much it costs to operate an appliance.
A 1250 watt microwave oven uses 1250 watts of power. If it is turned on for 24 minutes during the course of a
day, how much energy was used in units of kilowatt hours?
____ kW ____ h
1250W ⋅ 24 min = ______ kWh
____ W ____ min
(2) 5. Energy Costs: If a clothes dryer uses 4.5 kilowatts of power and the dryer is operated for 1 hour and
10 minutes how much does it cost to dry the clothes if the cost of energy is $0.08 per kilowatt hour.
____ hr $ _____
4.5kW ⋅ 70 min =$ __________
____ min kWh
In problems 6 to 8, do the entire problem yourself using dimensional analysis. In all cases, show the appropriate
dimensional analysis procedure as demonstrated above and then complete the multiplication.
(3) 6. Volume: A person is supposed to drink 64 ounces of water a day. How many liters is this?
(6) 7. Volume: Knowing the volume of water in your hot tub is important for putting in the correct amount
of chemicals. If a hot tub contains 1.7 cubic meters of water, what is the volume in gallons? Calculate this twice,
once with volume unit fractions, the other time with linear unit fractions.
(6) 8. Mixed: In the US, gasoline is purchased by the gallon. In Canada, gasoline is purchased by the liter and
distances are measured in kilometers. If a car gets 30 miles to the gallon, how many kilometers does it get per
liter of gas?
Formulas
A wide variety of formulas exist in different disciplines. These formulas show the relationship between
variables. Physics, chemistry, biology, economics, and engineering all use formulas to show these relationships.
An essential component of all formulas and equations is that the units of the terms on the left side of the
equation must be the same as the units on the right side. As a simple example, we will revisit the d=rt formula.
This formula says that distance equals the rate times the time. Most drivers are familiar with this formula in that
if a sign shows that your destination is in 60 miles and you are driving 60 miles per hour, you know you will reach
your destination in 1 hour, assuming driving conditions don’t change. A units equation can be written for this
𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚
formula. It is 𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚 = ℎ𝑜𝑜𝑜𝑜𝑜𝑜. Notice if hours cancel, then the final equation is miles = miles, which is
ℎ𝑜𝑜𝑜𝑜𝑟𝑟
consistent.
The primary formulas in this book are statistical or financial. Most of them are shown below.
𝑝𝑝�(1−𝑝𝑝�) s ∑(𝑥𝑥−𝑥𝑥̅ )2
𝑝𝑝̂ ± 2� 𝑛𝑛
x±2 𝑠𝑠 = � 𝑛𝑛−1
n
𝑟𝑟 𝑡𝑡𝑡𝑡 𝑟𝑟 𝑘𝑘
P t = P 0 (1+r)t 𝑃𝑃𝑡𝑡 = 𝑃𝑃0 �1 + � 𝐴𝐴𝐴𝐴𝐴𝐴 = �1 + � − 1
𝑘𝑘 𝑘𝑘
𝑟𝑟 12𝑡𝑡 𝑟𝑟
𝑑𝑑��1+ � − 1� 𝑃𝑃0 � �
rt r 12
Pt = P0e APY = e -1 𝑃𝑃𝑡𝑡 = 𝑟𝑟 𝑀𝑀 = 12
𝑟𝑟 −12𝑡𝑡
12 1−�1+ �
12
When using formulas, know what each variable represents and the expected units of each variable, then
substitute numbers for the variables and use the order of operation rules to simplify and the properties of
equality rules that you learned in algebra to solve for the unknown.
pˆ (1 − pˆ )
Example. The formula pˆ ± 2 is used for determining a confidence interval. Perhaps you have heard poll
n
results just prior to an election in which they talk about a margin of error. They used this formula to get their
result. In this formula, 𝑝𝑝̂ is the proportion of their sample, n is the size of their sample. If the sample proportion is
0.45 (45%) and the sample size is 950, what is the confidence interval?
𝑝𝑝�(1−𝑝𝑝�)
Formula: 𝑝𝑝̂ ± 2� 𝑛𝑛
0.45(1−0.45)
Substitution: 0.45 ± 2� 950
𝑟𝑟
𝑃𝑃0 � �
Example. The formula 𝑀𝑀 = 12
𝑟𝑟 −12𝑡𝑡
is used to determine the amount of a monthly payment for repaying a
1−�1+ �
12
loan. P 0 is the amount of money that is borrowed, r is the interest rate, t is the number of years. What is the
monthly payment of a $20,000 loan with a 5.2% interest rate (0.052) if the term is 6 years?
𝑟𝑟
𝑃𝑃0 � �
Formula: 𝑀𝑀 = 12
𝑟𝑟 −12𝑡𝑡
1−�1+ �
12
0.052
20,000� �
Substitution: 𝑀𝑀 = 0.052
12
−12(6)
1−�1+ �
12
Solution: $323.96
𝑟𝑟 𝑡𝑡𝑡𝑡
Students: The formula 𝑃𝑃𝑡𝑡 = 𝑃𝑃0 �1 + � is used to determine the amount of money in an account in year t, with
𝑘𝑘
an initial investment of P 0 , a rate of r, k compounding periods in a year. How much will be in an account in six
years if $3000 is invested in an account that has an interest rate of 2.3% (0.023) , compounded quarterly (k = 4).
Formula:
Substitution:
Solution:
(3 pts) 1. The formula P t = P 0 (1+r)t is used for investments of money. P is the principal, so P 0 is the initial
principal and P t is the principle in year t. r is the interest rate, as a decimal. Find the amount in an account in 5
years if $2000 is invested at an interest rate of 3.2%.
pˆ (1 − pˆ )
(3 pts) 2. The formula pˆ ± 2 is used in statistics to show a confidence interval for a proportion. The
n
expression on the right of the plus or minus sign (±) is the margin of error. The symbol 𝑝𝑝̂ is a sample proportion.
Let 𝑝𝑝̂ = 0.42, and n = 850. Simplify the formula completely so that it shows the sample proportion plus or minus
the margin of error.
Proportional Reasoning
Measurements or counts can be expressed in absolute terms or relative terms. For example, if 1000
people were surveyed and 600 answered yes to a question, then we could simply say that there were 600 people
who answered yes. However, if 10,000 people were surveyed and 600 people answered yes, the absolute answer
would be the same, but the relative answer would be different. Relative answers can be expressed in a variety of
ways including as a proportion, percent, per capita, per 100,000, etc.
𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝
A proportion can be thought of as the part divided by the whole � �. In statistics, the proportion is
𝑤𝑤ℎ𝑜𝑜𝑜𝑜𝑜𝑜
𝑥𝑥
represent as � � where x is the number of items in one category and n is the total number of items being
𝑛𝑛
sampled. A proportion is often converted to a percent by multiplying the proportion by 100. Thus a percent is
𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 600
�𝑤𝑤ℎ𝑜𝑜𝑜𝑜𝑜𝑜� × 100. If the proportion of people who answered yes is 600 out of 1000, this is shown as �1000� = 0.6.
600
The percent of people who said yes is � �× 100 = 60%. Notice that when proportions or percents are used,
1000
the units in the numerator are the same as the units in the denominator.
The concept of per capita (or per person) is used when the amount of a quantity is divided equally among
each person. For example, if 10 cups of coffee are consumed in a household of 4 people, then the per capita
10 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐
consumption of coffee in that household is � � = 2.5 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑝𝑝𝑝𝑝𝑝𝑝 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐. Notice in this case, the units in the
4 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝
numerator are different than the units in the denominator and that the units in the denominator are people.
Sometimes, the per-capita numbers are so small that they are changed to the number per 100,000 or per million.
For example, sports are often an important part of vibrant lives. One sport that is far more popular in Canada
than the United States is curling. According to Wikipedia, the number of curlers in the US is 16,500. That means
16,500 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐
that the number of curlers per capita in the US is � � = 0.000 052 9 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑝𝑝𝑝𝑝𝑝𝑝 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝. This is
320,000,000 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝
such a small number that to make it more understandable we multiply it by 100,000 so that we can say there are
16,500 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐
5.29 curlers per 100,000 people in the US. The calculation is �320,000,000 𝑝𝑝𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒𝑒� × 100,000 =
653,000 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐
5.16 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑝𝑝𝑝𝑝𝑝𝑝 100,000. By contrast, in Canada there are about � �× 100,000 =
35,000,000 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝
1865.7 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐 𝑝𝑝𝑝𝑝𝑝𝑝 100,0005 . Rare health problems and crime statistics are often expressed in units per
P
If the absolute number is desired when a rate is given, then the rate must be multiplied by the size of the
population to determine the absolute number. For example, according to the World Bank website, 6 Finland has 7,
482 researches working in R&D per million while the US has 3,979 per million. Does this mean that Finland has
more researchers? To find out, it is necessary to multiply the rate times the population 7.
7,482 3,979
Finland: ∙ 5,439,407 = 40,698 US: ∙ 316,128,839 = 1,257,877
1,000,000 1,000,000
This shows that Finland has more researchers in R&D relative to the size of its population even though the
US has more researchers.
5
www.curling.ca
6
http://data.worldbank.org/indicator/SP.POP.SCIE.RD.P6 (8/27/14)
7
http://countryeconomy.com/demography/population
Example. Adult athletic teams give adults the opportunity to stay fit and compete with others of their age,
thereby contributing to a vibrant life. There are 92 masters swimming teams in Western Washington. 8 If the
population of Western Washington is 5.3 million, how many masters swim teams are there per 100,000?
92
∙ 100,000 = 1.74 𝑠𝑠𝑠𝑠𝑠𝑠𝑠𝑠 𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 𝑝𝑝𝑝𝑝𝑝𝑝 100,000.
5,300,000
Students: There are 629 Public 4-year universities in the US 9. The US has a population of 320 million. How many
public universities are there per million population?
Example. The United States has 2.45 physicians per 1,000 population 10. If the US has a population of 320 million,
how many physicians are there in this country?
2.45 𝑝𝑝ℎ𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦
320,000,000 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝 = 784,000 𝑝𝑝ℎ𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦
1000 𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝𝑝
Students: Tanzania (East Africa) has 0.01 physicians per 1,000 population. If Tanzania has a population of 50
million, how many physicians are there in the country?
8
https://www.usms.org/placswim/placswimform.php?LMSCID=36 (4-17-15).
9
http://www.statisticbrain.com/college-enrollment-statistics/ (4-17-15).
10
https://www.cia.gov/Library/publications/the-world-factbook/fields/2226.html (4-17-15)
Parks are an important part of vibrant communities. Portland, OR, with a population of 566,143, has
13,864 acres of park within city limits which contains 85,964 acres. Seattle, with a population of 616,627 has
5476 acres of park land within the city limits which contains 53,677 acres. 11 Show Work.
(2 pts) 2. What is the number of acres of park per 1000 residents for each of these cities?
(2 pts) 4. How many times more acres of parks does Portland have than Seattle?
(2 pts) 5. What is the population density of each city in units of people per acre?
(2 pts) 6. Using the evidence above, which of these two communities has done a better job of providing parks?
Explain how the evidence informs your conclusion.
11
https://www.tpl.org/sites/default/files/cloud.tpl.org/pubs/ccpe-city-park-facts-2011.pdf (viewed 10-19-14)
Chapter 1 Homework
1. The Columbia River begins in Canada and eventually flows into the Pacific between Washington and
Oregon. According to Wikipedia, it is 1243 miles long 12. What is the length in units of kilometers? Show
the dimensional analysis.
2. Mt. Rainier National Park has an area of 369 square miles 13. Convert this area to square kilometers
using linear conversion factors. Show the dimensional analysis.
3. Olympic National Park has an area of 3,734 square kilometers. Convert this area to square miles
using area conversion factors. Show the dimensional analysis.
4. If a person drives an average of 10,000 miles a year in cars with an average fuel economy of 25 miles
per gallon (mpg) and the average price for a gallon of gas they buy is $3.50, then how much is spent on
gasoline during a lifetime if they drive for 60 years of their life? Use dimensional analysis.
5. A football field measures 100 yards by 160 feet, not including the end zones. How many acres is a
football field? How many hectares? Use dimensional analysis.
6. The formula P t = P 0 (1+r)t is used to determine the amount of money in an account (P t ), based on an
initial investment of P 0 , and annual interest rate r and a time t. Determine the amount of money in the
account if P 0 = 1000, r = 0.021 and t = 8 years.
12
http://en.wikipedia.org/wiki/Columbia_River (3-15-15)
13
http://en.wikipedia.org/wiki/Mount_Rainier_National_Park (3-15-15)
r
12 t
d 1 + − 1
7. The formula Pt =
12 is used to determine the amount of money in an account (P ),
t
r
12
based on a regular monthly deposit, d and an annual interest rate r. Determine the amount in the
account if t = 20, d = $25 and r = 0.019.
pˆ (1 − pˆ )
8. The formula 2 is used to determine the margin of error for the proportion of a population,
n
based on the proportion of a sample that is selected from that population. 𝑝𝑝̂ is the sample proportion.
The size of the sample is n. Determine the margin of error if 𝑝𝑝̂ = .52 and n = 800.
10. In 2015, the national debt was about 18.6 trillion dollars. There were approximately 320 million
people in the US in that year. What is the per capita amount of debt? What is the amount of debt per
10,000 people?
11. If you’ve ever heard an older individual tell you how cheap something was in the olden days then
you may also have wondered how much they earned at the time too. According
to http://thecostofliving.com, in 1940, the average cost of a new car was $850. The average annual
wage was $1,286. In 2011, the average cost of a new car was 28,150 with the average annual wage
being $44,670. For each year, find the ratio of the cost of a car to the annual wage. In which year is the
ratio more favorable for the consumer?
To appreciate the need for the complexity assumption, consider that the world consists of many
different elements such as people, cultures, other living organisms, minerals, water, land masses,
energy, etc. There are many interconnections between these elements and because of these
interconnections, it is not usually easy to see all the effects that result from changing a single element.
As an example, consider all the consequences of the invention of gasoline-powered cars. It is unlikely
that the inventors and early users of the car envisioned all consequences, including: creation of
suburbs, traffic jams, deliveries, emergency vehicles, auto racing, air pollution, climate change, wars
over oil, road kill, the deaths of over 30,000 people a year in auto accidents, DUIs, jobs for those who
build, service and maintain cars, destruction of native cultures to obtain resources, and government
bailouts.
To help you appreciate the many different aspects of our world that are interrelated and to help
you understand the importance of graphs, the class will participate in a Quantitative Assessment of the
World activity.
The table below contains a list of 35 topics that are of importance when creating a vibrant and
sustainable society. The goal of this project is to find graphic evidence of the current state of each topic
and how it has changed over time. Each student will select one of these topics, so that collectively, the
class will be able to see, and evaluate, all of them.
Your responsibility for this activity is to find one or two graphs that will help the class
understand the issue. Look for a behavior-over-time (time series) graph. An ideal graph will show the
status of the issue today as well as historically. In this context, today means during the last 1 to 5 years.
Historically means over the last few decades. Projections are acceptable too. If a temporal graph is not
available, then a spatial graph, such as one that shows the current status in the US and other countries
should be used. It is critical that either a temporal or spatial comparison is made, as numbers in
isolation do not hold much meaning.
Ultimately, the class will watch the presentation of the graphs and evaluate the topic on a scale
of 0 to 4, in which 0 represents a critical situation and 4 represents an excellent situation. Your
evaluation should be based on both the current status and the trend. Consider a critical state as one
that could negatively affect us during our lifetime. An excellent state is one that humanity should be
proud of achieving.
Not all topics have the same importance. Besides scoring each topic, you will also give it a
weight using numbers between 0 and 3. A score of 0 means you don’t consider the topic to have any
importance at all to the goal of becoming vibrant and sustainable. A score of 3 means you think the
topic is extremely important. After viewing all graphs, you will find the weighted mean of your scores.
The graph should be copied into a Word document and sent to me as an email attachment. I
will compile the graphs. Each graph must include the source (URL). Graphs are due to me by ________.
This QAW project will be evaluated using the following criteria and points.
5. Graph pasted into a Word document, submitted by email and on time, (6)
Total: 46 points
9. Life Expectancy Life expectancy in the US. Compare with other countries
too.
10. Health Care Cost Health care costs in the US. Compare with other countries
too.
Food
11. Marine Fisheries Size of marine fish stocks from around the world.
13. Water Quantity - World World water supply, look for maps from different time
periods instead of a time-series graph.
19. Driving Distances Per capita annual distance driven in the US.
20. Air Pollution Changes in particulate matter, Nitrogen Oxides (NOx), Sulfur
Oxides (Sox), Carbon Monoxide (CO), Volatile Organic
Compounds (VOCs), Particulate Matter.
21. Climate Change Global temperature changes. Show long term changes (more
than 1000 years) for carbon dioxide and temperature.
22. Electrical Energy Compare the amount of energy produced by various sources
such as fossil fuels, nuclear, hydro, wind etc. and show how
that has changed over time.
Financial
23. National Debt National Debt from at least the early part of the 1900s.
25. Wealth Gap Gini Coefficient for the US and other countries. Explain the
Gini Coefficient.
26. Margin Income tax rates US Tax rates for different income levels. Including corporate
tax rates if possible.
27. Cost of College Education Costs of education, including public, private, community
colleges.
28. Government funding of Show Federal and State funding of k-12 and higher ed.
Education
29. Gross Domestic Product (GDP) Show the US GDP. Compare it with other countries, if
possible.
A Vibrant World
35. National Park Visitors Number of people visiting National Parks annually
3. US Population
4. Changing US demographics
5. Poverty US
Being
6. Poverty World
7. Violent Crimes US
8 Prisons
9. Life Expectancy
10. Health Care Cost
11. Marine Fisheries
Food
12. Farms
13. Water Quantity - World
14. US Oil Production and
Environment and Energy
32. Sports
World
33. Inventions
34. Marriages
35. National Park Visitors
Total ∑W = ∑(W*S)=
After watching the QAW presentations and determining your weighted mean score for the state
of the world based on the graphs you saw, it is beneficial to reflect on the current state of the world in
which you live at the moment. In groups, discuss and answer the following questions.
1. What are the three best issues in the world at this moment?
3. Of all the problems we face collectively, whether they are in the QAW or not, what is the one
problem you care about the most and believe you could solve. State the problem and your
theory of how to solve it.
Systems
To understand the big picture, we will explore the concept of systems. On the largest scale,
everything is part of one or more systems. Systems have three characteristics. They have elements,
interconnections, and purpose. For example, the human body is a system. It has elements such as
arms, legs, lungs, etc. These are interconnected in a way that allows them to work together to fulfill
their purpose of being a viable organism. The human body shows that systems are hierarchical. That is,
within the system of the human body are other systems such as the nervous system, skeletal system,
cardiopulmonary system, digestive system, etc.
The human body is an element in larger systems, including family, community, country, and
planet. Communities and countries have security systems (police, military), food production and
distribution systems, financial systems, energy systems, etc. By understanding systems and the
interaction within and between systems, we can get a better understanding of why some decisions that
seem so obvious actually produce unexpected results. It is the many interactions between elements
that can confuse us.
One of the reasons for studying systems is to understand the impact of events on the long range
behavior of the system. Consider the following fictitious scenario. A child comes home from school and
informs his parents that his teacher said he had musical talent. The child wants to develop that talent so
asks his parents to get him all the best teachers, instruments and to build him a recording studio in the
basement of their house. In an effort to look after the immediate needs (wants) of the child, the
parents take out a second mortgage on their house, buy everything the child wants, fly the child to the
best teachers wherever they happen to be only to find, after a few years, that the musical talent is really
not that good and the interest of the child in music is not as strong as it was in the beginning and he
would really like to take up water skiing and recommends the purchase of the top of the line water ski
boat. In the meantime, the parents find they have run out of money, are behind on their bills, in trouble
with the credit agencies and today got a letter from the bank indicating the foreclosure of their house.
A day later, their cars are repossessed. The family must now live on the street.
If we think about this family as a system, then the long run behavior for it is towards financial
ruin because of decisions that they did not adequately evaluate with a long view. While this situation
may seem a little preposterous, in what ways is it different than decisions made by a corporation to
improve the results of the next quarterly report at the expense of the long term future of the company?
Compare it to the citizens of a country voting for the politicians that promise to do the most for them
now, even if it means the country will be bankrupt in 20 years. Reflect on the ways that this story is not
unlike the choices made in this country to be a car dependent society that continues to drain petroleum
and other natural resources from the planet, ultimately ensuring that a future world will not have them
and that people will have to survive a world designed for petroleum use without the petroleum being
available. All these examples reflect short term thinking with the willingness to compromise the long
term health of the system.
It is now appropriate to ask how an individual, corporation, or society progresses if they don’t
take a chance on something. For instance, the child may really have musical talent and may recoup the
money that was invested thousands of times. The corporation may have improved its bottom line for
the quarter, resulting in increased investments that were put into research and development that
eventually lead to a new product that everyone wants. The political leaders may have actually done
something beneficial for their country that did not lead to the long term increase in the national debt.
The challenge that we face is how to create a vibrant society that is also sustainable. This
challenge is based on the idea that humanity is an intelligent and creative species and that optimism is
more inspiring than pessimism. Problem solving is one of humanities best skills though often a solution
to one problem leads to a collection of new problems. We are a species that does not like to see
suffering, but are often willing to participate in actions that lead to unseen suffering. As complex and
contradictory as the system of humanity is, we will work under the assumption that humanity will not
regress to a pre-technological era but rather will move forward toward a future that is both vibrant and
sustainable.
To understand the behavior of systems we will start by playing a game. The game is called
FishBanks Simulation. It was created Dennis Meadows and John Sterman and is managed by the MIT
Sloan School of Management. The game is a renewable resource management simulation. Participants
in the game play the role of fishers with the goal of increasing their net worth. They compete against
other players. In the game, the participants can buy, sell, and build ships. They can decide where to
fish. All teams compete in the same fisheries. The goal of the game is to make money.
https://mitsloan.mit.edu/LearningEdge/simulations/fishbanks/Pages/fish-banks.aspx.
To understand the long run behavior of a system requires the use of an iterative process. An
iterative process is one that is mathematically repetitive. To understand this process, imagine a house
was built on 10 acres of land far from a city, so that the water to the house will come from a well drilled
into the local aquifer. The size of the aquifer is generally not known, but for this example we will say it
contains 1000 cubic meters of water. The only way in which water leaves the aquifer is through the well
when water is used by the homeowner. The only way water enters the aquifer is when rain percolates
through the ground. Suppose, for this example, the home owner uses 45 cubic meters each month 1.
Suppose also, that precipitation produces an average of 25 cubic meters each month. It is probably
already obvious that this aquifer will eventually run dry. Algebra could be used to produce a nice linear
equation to show when this would happen.
Algebra: Let y = amount of water remaining. Let x = months then y = 1000 + (25 - 45)x or y=1000 – 20x.
By setting y equal to zero, we can determine that the aquifer will be completely empty in 50 months.
Because systems are more complicated than this example however, we will look at this as an
iterative process. This will be shown in a table.
This demonstration has been with a linear process which is why a linear equation could be used
to determine when the aquifer would be dry. Now, let’s make it more complicated.
Suppose the owner was aware of the size of the aquifer and managed water usage so that each
month he would only use 4.5% of the water in the aquifer. Since the homeowner cannot control the
precipitation, then that will remain constant.
The graph below shows the long run behavior of this system functioning under these conditions.
Notice how the volume of water will reach the point of not changing at about 556 cubic meters.
1
Based on http://www.epa.gov/WaterSense/pubs/indoor.html March 26, 2014
Ultimately, the homeowner will only be able to take out 25 cubic meters of water each month. The
graph below was made in Excel from this iterative process being completed for 160 months.
This graph resembles an exponential decay function although it is more complicated because
the increase is constant while the decrease is exponential.
This scenario could be made increasingly complicated by the addition of other conditions, such
as replenishment of the aquifer having a rate that varies as a result of climate change or the need for
water increasing because of the birth of a new child in the family or new neighbors who also taps into
this aquifer. As the complexity increases, our ability to produce a nice simple equation such as those
used in algebra decreases. Ultimately, our analysis of systems will require the use of technology.
Systems dynamic modeling is the process of showing the connections between different
elements in the system and using these connections to show the expected behavior of the system over
time under varying condition. There are a couple of key terms to understand before the model can be
created.
Each model begins with a stock. A stock is the quantity of an element in the system that will be
measured. In the aquifer example that we have been developing, the stock would be the amount of
water in the aquifer. In other examples, the stock could be the number of people or organisms in a
population, the amount of money in a budget, or the amount of minerals on the planet.
After defining a stock, the next concern is with changes to the stock. These changes are
achieved by flows. There can be flows into the stock and flows out of the stock. In the aquifer example,
precipitation that percolates into the aquifer is an inflow while the water used by the family is the
outflow.
Identifying variables that contribute to the flows is an essential part of building the model, as is
showing their interaction. It is possible to make models very complicated by looking at every possible
variable and interaction, but in general, models should be made with the least amount of complexity as
possible since these can still achieving reasonable outcomes. In this book, models will be kept as simple
as possible because this is only an introduction to modeling, not a complete course in modeling.
Below is a stock and flow model for the aquifer problem. The Aquifer is the stock, percolation is
the inflow, Withdrawal from Well is the outflow. The variable precipitation is connected to the inflow
and the variable family water usage is connected to the outflow.
Family Water
Precipitation Usage
Aquifer
Percolation Withdrawal from
Well
The y axis of the graph below shows the amount of water remaining in the aquifer. It reaches 0 in 50
months, as expected.
Aquifer
1,000
750
Cubic Meters
500
250
0
0 5 10 15 20 25 30 35 40 45 50
Time (Month)
Aquifer : Linear
The stock-and-flow model below reflects the change that was made in the story when the family
used 4.5% of the water that remained in the aquifer each month. This is reflected by the extra
connector between the stock (Aquifer) and the variable (Family Water Usage). The result is shown in
the graph below the model. Notice it is similar to the graph that was produced from the iterative
process in Excel.
Usage Rate
Family Water
Precipitation Usage
Aquifer
Percolation Withdrawal from
Well
Percolation Rate
Aquifer
1,000
875
Cubic Meters
750
625
500
0 20 40 60 80 100 120 140 160 180 200
Time (Month)
Aquifer : Exponential
Before continuing, there is a part of the model that you may have noticed that hasn’t been
explain yet. The part is the cloud that is on either end of the model. These clouds are stocks that are
not defined and are beyond the boundaries of what is being considered by the model.
Systems thinking is an important topic that is not routinely taught in the level of math classes for
which this text is designed. Yet even a small understanding of the existence and behavior of systems is
extremely important for anyone desiring to improve their critical thinking abilities. There are stories
from many cultures that illustrate that systems thinking is common throughout the world and over time.
As our modern world has transitioned from fictional stories with a moral to non-fictional mathematical
and scientific descriptions of the world, concepts such as systems thinking can be lost unless they are
presented in a technological manner. Such presentations cost money that exceeds the budgets of most
students. Fortunately, one of the exciting aspects of our contemporary world is the willingness of
companies to produce free versions of their product that can be used for educational purposes.
Vantana Systems, Inc is one such company. It produces a free student version of their systems modeling
software called Vensim. This software can be downloaded from their website
at http://vensim.com/vensim-software/. The free version is called Vensim PLE (personal learning
edition).
The remainder of this chapter will be focused on learning to use Vensim. Therefore it will be
necessary to download a version to your personal computer or to one of the computers in the computer
lab (if allowed). Your instructor may present other alternatives if neither of these is possible. While this
chapter will give step-by-step instructions for making a variety of models that range from simple to not-
as-simple (but not reaching the level of very complex), the objective is for you to gain comfort with the
program so that in later chapters you will be able to produce your own models from scratch.
First Model
Select the New Model icon (or File, New Model). This is one place in which to define time in your model,
including the initial and final times and the units for times such as months or years.
1. Use the Box Variable to create the stock. Click once on the Box Variable icon, click once on the
work space, and then type the name Investment in the space that is provided.
2. Use the Rate icon to create the inflow by positioning the cursor about 4 or 5 inches to the left of
the stock, clicking once and then moving the cursor into the stock and clicking a second time.
Type the name Interest Earned into the space provided.
3. Use the Variable icon by clicking an inch or two above the inflow. Type Interest Rate into the
space provided.
4. Use the Arrow icon to make the connectors. The first connector is created by clicking once on
the Interest Rate, once between the Interest Rate and Interest Earned and finally once on the
valve for Interest Earned.
5. The second connector starts with a click in the stock, a click between the stock and the inflow
and a final click on the inflow valve.
Interest Rate
Investment
Interest Earned
Now that the model has been made, the initial values, formulas and units must be assigned. Select the
f(x) icon and click on Investment. Put a $ in the space for units and 1000 in the space for Initial Value.
That indicates that a $1000 will be put into the investment at the beginning.
Next, select the inflow and make the following changes in Units and Equation. Don’t type in the words
for the equation, just click on them in the space for Variables.
Select the Interest Rate. Change units to 1/year. The initial value should be 0.01 which means a 1%
annual interest rate. After running the initial model, we will want to see the effect of different interest
rates on the investment. Vensim will create a slider that allows for the user to change the rates. The
parameters for the slider can be set in the spaces Min, Max, and Incr (increment). For this example, use
a min of 0, max of 0.1 and an Incr of 0.005. This will allow us to compare interest rates between 0 and
10% counting by half a percent.
To check if the units are correct, go to the drop down menu at the top called Models and select Unit
Check. You will be asked if you want to save the sketch to enable automated backup. Select Yes then
give the file a name (such as Chapter 2 Investment Model) and click save. You should now get a
message that says “Units are A. O. K.”. If not, you will have to find the error in the units you entered.
To produce a graph the connect to the stock and flow model, click the IO Object button and you will be
shown a new dialogue box. Select Output Workbench Tool then click on the Level button icon and
select Investment. Finally select Graph from the list of options in the last space.
Use the Hand icon to move the generic graph to an appropriate location then click on the lock icon and
you should see a graph such as this show up in the space.
To produce a graph and label the line that will be on the graph, Type “1 percent” for the Simulation
results file name near the top of the screen then click the Simulate button. The graph you get should
look like the one below.
At this point, I have not found a way to edit the y-axis scale in this version of Vensim.
To compare the effect of different interest rates on the amount of money in the investments, we will
run a simulation. The original line for 1 percent will remain on the graph. In the space for Simulation
Results file name, change the original name to 1 pt 5 percent then click on the SyntheSim icon. Doing so
will put a slider in the interest Rate variable. Move this slider until it says 1.5. You should now see a
second line on the graph. Change the Results file name to 6 percent and a third line should appear.
Your final model and graph should look like this. By clicking on the Investment stock and selecting the
table icon on the left side of the screen, Vensim will produce a table that gives the actual values for each
year.
It might be helpful to repeat the entire process for model 1 again, just to become more
comfortable with the icons and steps.
Second Model
This model will be a little more complicated than the first model, but images will not be shown for every
step. This model will show the amount of blood alcohol after drinking. Absorption and metabolism
rates from Theathlete.org 2 were used for this model. The formulas for BAC per Drink were calculated
from their absorption rate table. In this model, genders are labeled as 0 for males and 1 for females.
When creating a new model, use the following set up. Notice the Time Step will be 0.25 which means
every quarter of an hour the model will update.
2
http://www.theathlete.org/drug-abuse/absorption.htm
Initial Settings
Verify that your model is correct by comparing your graph to the following, which was made using the
default values.
Conduct a synthesim.
Label the First Simulation as Male and set your sliders to:
Gender = 0, Number of Drinks Per Hour = 2, Weigh = 175, Number of Hours of Drinking = 2.75
Label the Second Simulation as Female and change only Gender so that Gender = 1
If your graph has three lines on it because the original line is still there, select the control panel icon
from the upper right corner of the program, then select the dataset tab and move the first dataset from
the right box to the left box.
Click once on the stock (Blood Alcohol Level) and then go to the Table icon on the left side and
determine the time when the blood alcohol level is below 0.08 (the legal driving maximum) after they
have finished drinking.
Send an email to your instructor. The email should contain the following items:
1. An image of the model and complete graph. Use the Snipping Tool to copy and paste.
2. An answer to the earliest time when the male and female would be legal to drive.
3. What do you conclude from this simulation about the differences in how gender influences
when someone can drive, if all else is equal (weight, drinks, etc).
Chapter 2 Homework
1. Name at least 5 different things that were affected by the discovery of DNA. Identify each item in
your list as a benefit or detriment for society. Include at least one of each.
Benefit Detriment
2. Name at least 5 different things that were affected by the invention of the computer. Identify each
item in your list as a benefit or detriment for society. Include at least one of each.
Benefit Detriment
3. Linear model: Create a model for which the stock is a checking account that begins with a balance of
$1000. The inflow is deposits. The outflow is expenses. Pay checks of $2500 are deposited monthly.
Expenses include mortgage (including utilities, insurance, etc) of $1600, food at $350 per month, car at
$250 per month, and fun at $400 per month. Show the model and a graph for 12 months. Interpret the
graph.
4. Exponential Growth Model: An invasive plant species is introduced to a region. Initially there are 100
of these plants. If the growth rate of these plants is 10% annually, how many plants will there be in 20
years? Create a model and produce a graph.
5. Exponential Decay Model: Lithium is an important component of batteries, which are critical for our
current technologies. Over 80% of lithium has been imported to the US, but new deposits have been
found in Wyoming. It is estimated that there are 18 million tons of lithium in a 2000 square mile
region. 3 Create a model and produce a graph that shows the amount of lithium remaining if the removal
rate is 0.6% per year. The domain should be 0 – 50 years.
3
(http://www.mining.com/web/america-finds-massive-source-of-lithium-in-wyoming/ 8-3-14).
6. Models can have more than one stock. For this question, we will explore what would happen if cars
powered by gas could no longer be produced and all new cars would be powered by hydrogen, which
does not produce carbon dioxide as a waste product. The time domain should be 0 to 240 months.
Assumptions: There are about 250 million gas cars on the road today.
There are approximately no hydrogen cars on the road today. Assume that the technology and
infrastructure will be adequate.
About 1.3 million new gas cars are produced a month. Assume this will be the same for hydrogen cars.
About half a percent of all gas cars are junked each month. Assume this will be the same for hydrogen
cars.
Chapter 3. Statistics
MULTIPLE OUTCOMES
A large part of the mathematics you have been taught during your life are based on the
assumptions that outcomes are deterministic. That means that if you have the right formula and can
substitute and calculate correctly, then you can get to exactly the right answer. For example, if you have
a rectangle that is 4 ft by 3 ft, the area will be 12 square feet, based on the formula A=LW. Likewise, if
you travel at exactly 60 miles per hour for 2 hours, the d=rt formula shows you will travel a distance of
120 miles. It is nice when things work out so neatly, but what about when they don’t?
1. How much will the economy change if taxes are reduced by 10%?
3. Will all swimmers who are trained by the coach of an Olympic champion, using
identical training methods, swim just as fast as the champion?
To appreciate the difference between these questions and the deterministic questions, think
about what happens to a classroom of students. All students are given exactly the same instruction yet
test scores vary. Likewise, the effect on the economy will vary with tax cuts. Medical treatments, even
by the same doctor, yield different results. Coaches train many athletes, but they don’t all become
Olympic champions.
Think about the multitude of choices we make that are not deterministic. There are choices
made about raising children, educating people, governing people, finances, health, the natural world,
interpersonal relationships, etc. If there were deterministic formulas that could be found to optimize
outcomes, then we would be finding them, using them, and we would all be doing the same thing.
Instead, we have many areas in which outcomes vary. This makes the world a far more interesting and
challenging place. For example, how does someone make a decision on raising children? Cultural
guidance such as “spare the rod, spoil the child” might be effective on some children and
counterproductive on others. How is a parent to know what to do? What about health? Should you eat
a low carbohydrate diet, a low fat diet, become a vegetarian? What is right? What should the
government do about the economy? Is your recommendation of what the government should do going
to always lead to the desired outcome? How many times do we have theories that sound valid but that
just don’t work as intended when they are put to the test?
In chapter 4 you will have the opportunity to test one of your theories. But before you are
ready for that, it is necessary to learn the mathematics behind randomness and stochastic systems.
Stochastic Systems
Think about people. For any group of people, there is variation. There is variation in physical
characteristics (height, strength, metabolism, eye color, etc.), in mental characteristics (emotions,
intelligence, creativity, mental health), and in opinions (political, religious, cultural, interpersonal).
There are a variety of reasons why someone might want to understand one or more characteristics
about people.
• Clothing manufacturers and stores want to know physical characteristics as well as mental
characteristics that motivate purchases.
• Educators, employers, social workers, governments want to know about our mental
characteristics.
• Appropriate governance requires understanding many different aspects of people behavior.
The collection of all people is just one potential population that might be of interest to us. A
population is a collection of all organisms, things, events, or outcomes of interest to us. Other
populations include other species, natural resources, cars, computers, police – public interactions, effect
of a new law, etc.
Ideally, if we are going to understand a population or make a decision about a population, we would
gather information for each element in the population. Doing this is called a census. In most cases,
conducting a census is impossible. Imagine trying to get the opinion of the 7 billion people on the
planet, or take a measurement on all the microbes in the ocean. These are impossible undertakings.
What is possible however, is to get information from some of the population. The portion of the
population we use to get information is called a sample. However, the information from one sample in
of the population will likely be different than the information from a different sample. What this means
is that we have to use the partial information that we obtain from a sample to make a judgement about
the entire population, knowing that a different sample would have yielded different evidence.
The concept of making a decision with partial information is something humans do routinely, out of
necessity. If a lifetime of being married to someone is the population, then dating is the sample that
provides partial information. If working at a job is the population, the resume with job interview is the
sample. In both the case of marriage and hiring, a decision is being made without complete
information.
In statistics, there is a sequence of steps that are taken to determine what decision should be
made. Because this topic is only a chapter in this book and not an entire course, the steps that are
outlined here are not as extensive as you would find in a book devoted exclusively to statistics.
However, they are sufficient to help you start appreciating the variation that exists in the world and how
to make decisions that incorporates this knowledge. The steps are:
2. Design research
Each of these steps will be explored in greater depth in the following sections.
Suppose that we want to understand our own life better. It would be difficult to answer
questions such as:
These are general questions with answers that are difficult to elucidate.
• How frequently do I have days in which I feel I made a positive contribution to the world (even a
small one)?
Specific questions are ones for which data can be collected. The answer to a specific question is a
random variable. A random variable is a variable that takes different values, depending on the person
or element that is in the population. For example, the amount of sleep each day would be the random
variable used to answer the question of how much time is spent sleeping each day. Resting heart rate
would be the random variable for a person wondering about their resting heart rate.
There are two types of data that can be collected. One is quantitative and the other is
categorical. Quantitative data consists of numbers that have numerical meaning. This means that it
makes sense that you could add them or express them as a ratio. Categorical data is usually not numeric
and is often a word. The table below shows both types of data.
The table above shows examples of both categorical and quantitative random variables.
Research Design
In this text our focus will be on observational studies. This means that we will ask a specific
question, determine our population of interest, and then gather data from this population to help
answer the question. Examples of studies include:
If the goal of a researcher is to understand the truth about a population, then sampling must be
done in such a way as to avoid bias. Bias is systematic prejudice in one direction. An example of bias in
sampling would be to ask people if tax money should be spent improving parks by conducting a survey
of people in a park. As park users, they may be more likely to support improving the parks than would
be the general public.
A researcher should never make a conscious choice of who, or what, will be sampled. Rather, a
random process should be used. In this text, we will focus on the most basic of all sampling methods, a
simple random sample. Examples of a simple random sample (SRS) are pulling names out of a hat and
pulling raffle tickets out of a container. For populations that are large, pulling from a hat is impractical.
Instead, all members of a population are assigned a number and then numbers are randomly selected.
One way to select the numbers is with a table of random digits such as the one shown below. Think of
this table as an endless string of digits between 0 and 9. The numbers are grouped only for visual
convenience.
To use the table, determine the size of the population from which you will sample. Assign a
number to each unit in the population, starting at 1 and continuing until all units have been numbered.
Count the number of digits in the unit with the highest number. This count will be the number of
adjacent digits you select.
For example, if there are 550 units in a population and you wish to select 5 of them, starting in
row 7 (an arbitrary choice), then you will look at each consecutive group of 3 numbers (because 550 is a
3 digit number) and use them if they are less than or equal to 550. If you reach the end of the row
before you have all the numbers that you need, continue onto the next row without skipping any
numbers. Numbers with less than three digits will become three digit numbers by putting zeros in front
of them (1 will be 001, 37 will be 037).
7 01849 40765 97487 56378 80291 40351 95246 58004 56115 53197
8 94368 20871 13867 61232 87091 67621 27560 81197 63987 01118
The five numbers that would be selected are 018, 494, 076, 487 and 029.
There are two questions that need to be answered when using this table. The first question is
whether we can really consider our selection to be random if everyone following the same process gets
the same numbers. The answer is that in reality, this is pseudorandom sampling. What this means is
that a random process was used to generate the numbers in the list but once that list is used, the
process becomes repeatable. In spite of this, using a table of random digits is superior to making the
choice yourself.
The second question is whether selections should be made with or without replacement. This is
a way of asking whether the same number can be used twice, which means that the same data value
will be used twice. The theories that we will use later in this chapter are based on sampling with
replacement, therefore we will routinely sample with replacement.
The two most common types of graph for categorical data are bar graphs and pie charts. When
the data consist of counts, a bar graph is used. However, there are times when the counts are
converted into proportions, in which case a pie chart is used. These will be demonstrated below.
One of the pleasures of life is music. The way we access music has changed over the years with
streaming music being a current favorite. Of the many sources that stream music, some are used by a
lot of people and others are not. The table below shows the services with the largest number of users,
based on results from softwareinsider.com.
The bar graph below shows the same information as the table. The heights of the bars
correspond to the number of users. When looking at a graph, read the title, and the axis titles to get a
good understanding of what the graph is showing. When making a graph, be sure to include descriptive
titles.
1
http://music-streaming-services.softwareinsider.com/ viewed 10/30/15
The next example is about taxes. No one enjoys paying taxes, but a government must be funded
somehow, so therefore taxes are one solution. State governments must balance their budgets. They
have a variety of ways of taxing their residents with the two most common being an income tax on
wages and a sales tax. Washington State, for example, doesn’t have an income tax but it does have a
sales tax. Oregon, on the other hand, does not have a sales tax but they do tax incomes. Some states
have both an income tax and a sales tax, some have neither. The following table summarizes the
distribution. We will use the data in this table to make a pie chart.
To make a pie chart, it was necessary to find the proportion. A proportion is a way to show the
part out of the whole. It is a number that is between 0 and 1.
There are two proportions of interest. One is the proportion of the entire population, the other
is the proportion of the sample. Any number that summarizes the population is called a parameter.
Any number that summarizes a sample is called a statistic. The value of the statistic is based on the
random sample that is taken, consequently different samples yield different results. A parameter does
not vary because it is the result of a census. It is nice to know the parameter but it can’t usually be
found because it is too expensive, takes too much time or is impossible to conduct a census.
Consequently, we usually use a statistic for making decisions. However, in this example, we have data
from all 50 states, consequently we will be finding the parameter.
There are two different notations used to help distinguish the proportion of the population from
the proportion of the sample.
𝑥𝑥
Proportion of Population 𝑝𝑝 = Parameter
𝑁𝑁
𝑥𝑥
Proportion of Sample 𝑝𝑝̂ = 𝑛𝑛 (pronounced p-hat) Statistic
Where x is the number of values in a category, N is the total population size, and n is the total sample
size.
There are a few things to notice about the pie chart. While it was originally produced using
computer software that used brilliant colors for the different slices, when reproduced in black and
white, it is difficult to tell one color from another. Consequently, colors were removed. Since there is
evidence that people have a difficult time interpreting pie charts, each slice is labeled with a text label,
number and a percent.
It would be difficult to determine the percentage of the slice if the percentages were not listed.
The reason for including the number with each slice is to help determine the amount of credibility we
should place in the results. If all the numbers were increased by the same factor, the pie chart would
look identical.
While many pie charts are made using computers, you should be able to
draw one by hand. To do so, think of a circle being divided into quarters. Each
section of this circle represents 25%. Start at the top, then estimate the location
of the line separating slices. Any percentage less than 25% would have the line
placed in the first quadrant (top right). If the percentage was between 25 and
50%, the line would be in the fourth quadrant (bottom right).
When the data that is gathered is quantitative, there are different graphs and statistics that are
used. The graph that will be discussed below is called a histogram. A histogram is a bar graph in which
the height of the bars indicate the frequency with which values fell into different classes. The classes
have numeric boundaries such as 0 to 10, 10 to 20, etc, so consequently, the bars in histograms touch
each other.
There are two categories of statistics that are found for quantitative data. The first category is a
measure of center and the second category is a measure of variation. The two most common measures
of center are the arithmetic mean and the median. The most common measure of variation is standard
deviation.
The construction of a histogram will be done using bicycling data. Some countries have done an
impressive job of providing safe bicycle lanes through cities. The US is improving in this area, but there
is still conflict between car users and bicycle users. The advantages of using bicycles include less use of
gas, less contribution to climate change, and greater health from exercising.
A histogram is useful for making sense of this data. For this graph, data are sorted into groups
called classes by using a frequency distribution. The width, or difference between the boundaries of the
class, is the same for all classes. A histogram is a bar graph that shows the number of data values in
each class. After constructing the histogram, the statistics mean and standard deviation will be found.
The process for creating histograms by hand includes the following steps.
2. Create reader-friendly boundaries that will be used to sort the data into 4 to 10 classes. The
lowest boundary should be a nice number that is less than or equal to the lowest data value. Nice
number means a number that is reader friendly. The class width, which is the difference between
consecutive boundaries, should be a factor of the boundary values.
3. Make a frequency distribution to provide an organized structure to count the number of data
values in each class.
4. Create the histogram by labeling the x-axis with the lower boundaries and the y-axis with the
frequencies. The height of the bars reflects the number of values in each class. Adjacent bars should
touch.
There isn’t a precise mathematical way to pick the starting value and the class width for a
histogram. Rather, some thought is necessary to use numbers that are easy for a reader to understand.
For example, if the lowest number in a set of data is 9 and the highest number is 62, then using a
starting value of 0 and a class width of 10 would result in the creation of 7 classes with reader-friendly
boundaries of 0,10,20,30,40,50,60, and 70. On the other hand, starting at 9 and using a class width of
10 would not produce reader-friendly boundaries (9,19,29, …). Numbers such as 2,4,6,8… or
5,10,15,20… or any version of these numbers if they are multiplied by a power of 10 make good class
boundaries.
Once the class boundaries have been determined, a frequency distribution is created. A
frequency distribution is a table that shows the classes and provides a place to tally the number of data
values in each class. The frequency distribution should also help clarify which class will be given the
boundary values. For example, would a value of 20 be put into a 10 – 20 class or a 20 – 30 class? While
there is no universal agreement on this issue, it seems a little more logical to have all the values that
begin with the same number be grouped together. Thus, 20 would be put into the 20 – 30 class and we
would consider that class contained all the values from 20.000 up to 29.999. This can be shown in a few
ways as are demonstrated in the table that follows.
All three columns indicate the same classes. The third column uses interval notation and
because it is explicit and uses the least amount of writing, will be the method used in this text. As a
reminder about interval notation, the symbol “ [ “ indicates that the low number is included whereas the
symbol “ ) “ indicates the high number is not included.
For the bicycling data, the lowest number is 0.4 miles and the highest number is 25 miles. The
first lower boundary will be set as 0. The class width will be 5. This will result in 6 classes.
Frequency Distribution
Classes Frequency
[0,5) 12
[5,10) 4
[10,15) 2
[15,20) 1
[20,25) 0
[25,30) 1
The histogram is shown below. Notice the x-axis scale is the same as the lower boundaries and
the height of the bars is consistent with the frequencies in the frequency distribution table.
One of the objectives of a histogram is to show the distribution of the data. This distribution is
not obvious by looking at the numeric data but in the histogram we see that most people commute less
than 10 miles and only a few people commute more than that.
Notice there is a title over the graph as well as titles for each axis. The y-axis title shows the
number of observations. This is also called the frequency.
A histogram shows the shape of the distribution but it is also useful to quantify the center of the
data and the amount of variation. The mean of data corresponds to the balance point in a histogram.
That is, if you can imagine the x axis of the histogram being a teeter-totter, the mean is the place where
the fulcrum would be placed. The mean of the population and sample are shown in the following table.
∑ 𝑥𝑥
Mean of Population 𝜇𝜇 = (The Greek Letter µ is pronounced mu) Parameter
𝑁𝑁
∑ 𝑥𝑥
Mean of Sample 𝑥𝑥̅ = (pronounced x - bar) Statistic
𝑛𝑛
where x are individual data values, N is the size of the population, and n is the size of the
sample. ∑ is an upper case Sigma used in summation notation that means add
everything that follows.
Both formulas indicate that all the data values should be added and then the sum is divided by
the number of data values.
An example of using the mean formula for the bicycle commute data is:
∑ 𝑥𝑥 131.5
𝑥𝑥̅ = = = 6.575
𝑛𝑛 20
Another measure of center is the median. The median is the value in an ordered set of data
such that there are an equal number of data values that are less than or equal to the median as there
are greater than or equal to the median.
There is a slight difference between finding the median when there are an odd number of data
compared to an even number. This data set {3,5,8,10,12} contains an odd number of values. It is
ordered (small to large). The number in the middle (8) is the median. In contrast, the data set
{21,30,30,32,40,100} contains an even number of data values (6). Since there is not a middle value, we
will find the mean of the two middle values (30 and 32). The mean of these two values is
∑ 𝑥𝑥 30+32
𝑥𝑥̅ = = = 31. Notice that in this case, the median is not actually one of the numbers in the set.
𝑛𝑛 2
Also notice that in both examples, changing the lowest or highest numbers in a way that does not
change their order, would not affect the value of the median.
The process for finding the median will be demonstrated with the bicycle data. To find the
median, place all the data in order from low to high. This is shown below in 2 rows.
Since there are 20 data values, then the median will fall midway between the 10th and 11th
4.4+4.6
values. This is found by taking the average of these two values. Thus the median is = 4.5. If
2
there had been an odd number of data values, the median would have been the middle number in the
ordered set of numbers.
Before progressing further, it is appropriate to discuss the meaning and importance of the mean
(or median). In his book “The End of Average”, Todd Rose shares a story about early airplanes that were
designed for the “average” pilots. After many airplane crashes and considerable research, a test of the
pilots revealed that none of them were “average” in all the dimensions that made up the average pilot,
such as height, weight, arm length, etc. This ultimately led to adjustable seats and other features that
we are accustomed to finding in cars. The point of this little story is that even though the use of an
average (mean or median) is very common, it is not, and should not be, considered the only important
way to understand a set of quantitative data. The histogram is especially important for understanding
the distribution. In addition, having a numerical way to explain variation will also be very beneficial. For
example, the following two (hypothetical) data sets are for the height of pilots (in centimeters). They
have exactly the same mean and median, but do they look the same?
Notice the amount of variation. In set A, all data values are within 2 cm of the mean. Planes designed
for the average height of 175 cm would probably be adequate for all the pilots in set A. However,
because there is considerable variation in set B, the cockpit designed for the average pilot in this set
would not be sufficient. The next objective therefore is to find a way to explain variation.
The amount of variation in the data is quantified using standard deviation. Standard deviation
can be thought of as approximately the average distance between each data value and the mean. The
formulas for the standard deviation of the population and the sample are provided below.
n −1
To find the standard deviation using this formula, it can be helpful to build a 3 column table.
The first column is the data, the second column is the difference between the data and the mean. The
third column is the difference squared. The sum of the third column becomes the numerator of the
fraction in the standard deviation formula. The
calculations are demonstrated with set A and you can ∑(𝑥𝑥 − 𝑥𝑥̅ )2
𝑠𝑠 = �
try them on set B. 𝑛𝑛 − 1
1. What proportion of college graduates end up working in a job that is related to their field of
study? 2
The (hypothetical) data: Of the 400 graduates who were surveyed, 110 said they were working
in a job related to their field of study. Find the sample proportion and make a completely labeled pie
chart.
2
Based on results from Agglomeration and Job matching among College Graduates by Jaison R. Abel and Richard
Deitz. https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr587.pdf. Viewed 9-2-16
2. What is the average number of times people buy food from a restaurant each week? 3
The data: A sample of 18 randomly selected people was taken. They were asked the number of times
they ate in a restaurant in the last week. Their responses are provided in the table below.
1 0 12 2 2 8
9 9 0 0 9 9
11 0 7 9 0 11
2a. Make a frequency distribution and a completely labeled histogram of this data. Use a starting value
of 0 and a class width of 2.
3
Based on claims from United States Healthful Food Council, http://ushfc.org/about/#fancy-form-delay. Viewed
9-2-16.
Inference
Now is a good time to review the objectives of this chapter and what we have accomplished
thus far. The objective is to understand a population so we can make a decision. Out of necessity, we
are forced to develop our understanding based on partial evidence. Because a random process was
used to determine our sample, we realize that a different sampling would have produced different
results. Since all we have are the actual data from our sample, then we need to understand that data as
well as possible. To do this, we use graphs and statistics.
If the data are categorical, we use bar graphs or pie charts to visualize the data and proportions
to summarize the data numerically. If the data are quantitative, we use histograms to visualize the data
and means, medians and standard deviations to summarize the data numerically.
The question that we will address now is how do we use this partial information to infer
something about the entire population? To understand the approach we will take, you will need to use
your imagination a little. Picture an entire population. Then picture using a random process to select a
sample from this population. Then picture repeating the random selection process 1,000 times. Can
you visualize that your original sample is just one of 1,000 possible samples and that many of the
samples will be different than yours? This will be demonstrated with two examples.
The first example will begin with a known population of the set {Heads,Tails} as a simulation for
flipping a coin. This is categorical data. We will simulate 100 coin flips, find the sample proportion of
heads, then repeat the process 1000 times. The first result we get will be our official result. The first 20
results are shown in the table below. The results of all 1,000 values are graphed in the histogram.
0.43 0.44 0.44 0.51 0.5 0.43 0.47 0.48 0.5 0.53
0.5 0.54 0.45 0.45 0.57 0.41 0.48 0.48 0.42 0.55
A histogram of 1000 sample proportions is shown below. This is called a sampling distribution.
Typically, we don’t know the proportion of the original population. In this case it is necessary to
know it to see what happens when we sample from it. The proportion of heads in the population is 0.5.
Our original sample is 0.43. The question we are attempting to answer is how do we use the sample
proportion of 0.43 to estimate the population proportion of 0.5, if we didn’t actually know the
population proportion? Before answering this question, we will look at an example for quantitative
data.
The second example will begin with a known population that consists of the numbers 0-50.
From this population we will sample 50 numbers, with replacement, and then find the mean of these
numbers. This process will be repeated 1,000 times. The first result we get will be our official result.
The first 20 results are shown in the table below. The results of all 1,000 values are graphed in the
histogram.
26.88 26.2 30.06 26.48 25.24 25.88 27.18 24.56 24.98 26.38
25.12 28.98 24.62 22.6 25.22 25.98 30.92 24.24 23.2 23.04
A histogram of 1000 sample means is shown below. This is called a sampling distribution.
Typically, we don’t know the mean of the original population. In this case it is necessary to
know it to see what happens when we sample from it. The mean of all the whole numbers from 0 to 50
is 25. Our original sample mean is 26.88. The question we are attempting to answer is how do we use
the sample mean of 26.88 to estimate the population mean of 25, if we didn’t actually know the
population mean? The answer to this question and the similar question asked about the categorical
data will be developed in the following section.
Probability
You have just seen two demonstrations for creating sampling distributions, one for categorical
data and the other for quantitative data. There are two primary points that you should observe.
1. The shapes of the sampling distributions are similar. We call these a normal distribution.
2. The center of the sampling distributions are located at the parameter. The center of the first
distribution is at 0.50 and the center of the second distribution is at 25.
What these demonstrations show is that when many samples are taken, the statistic from the
sample is likely to be close to the parameter, but probably is not equal to the parameter. It also shows
that a small percent of statistics are not very close to the parameter but that there is a limit to how far
any statistic is from the parameter.
Because the shapes of the sampling distributions are similar, we ask a few questions that will
apply to this type of distribution.
Questions that correspond to this can be found be replacing the word proportion with the word
probability so that the three questions become:
1. What is the probability the statistics of our sample will be less than the parameter?
2. What is the probability the statistics of our sample will be greater than the parameter?
3. What is the probability the statistics in our sample will be close to the parameter?
Probability is the chance that a particular outcome will happen if a process is repeated a very
large number of times. It is quantified by dividing the number of favorable outcomes by the number of
possible outcomes. This is shown as a formula:
where P(A) means the probability of some event called A. This formula assumes that all outcomes are
equally likely, which is what happens with a good random sampling process. The entire set of possible
outcomes is called the sample space. The number of possible outcomes is the same as the number of
elements in the sample space.
If we wanted to know the probability of getting a tail when we flip a fair coin, then we must first
consider the sample space, which would be {H, T}. Since there is one element in that sample space that
1
is favorable and the sample space contains two elements, the probability is p(tails) = .
2
To find the probability of getting a 4 when rolling a fair die, we create the sample space with six
elements {1,2,3,4,5,6}, since these are the possible results that can be obtained when rolling the die. To
1
find the probability or rolling a 4, we can substitute into the formula to get P(4) = .
6
A more challenging question is to determine the probability of getting two heads when flipping
two coins or flipping one coin twice. The sample space for this experiment is {HH,HT,TH,TT}. The
1
probability is (HH) = . The probability of getting one head and one tail, in any order is
4
2 1
(1 head and 1 tail) =4 = .
2
Probability will always be a number between 0 and 1, thus 0 ≤ P(A) ≤ 1. A probability of 0 means
something cannot happen. A probability of 1 is a certainty.
curve is above the mean. Consequently, the probability of selecting a value below the mean is 0.5 as is
the probability of selecting a value above the mean.
Notice on the x-axis of the curve are numbers from -3 to 3. In sampling distributions
such as those shown below, these indicate the number of standard errors away from the mean. A
standard error is the standard deviation of a statistic. The standard error for the distribution of sample
𝑝𝑝(1−𝑝𝑝) 𝜎𝜎
proportions is 𝜎𝜎𝑝𝑝� = � . The standard error for the distribution of sample means is 𝜎𝜎𝑥𝑥̅̅ = .
𝑛𝑛 √𝑛𝑛
These standard errors are given without proof. A demonstration follows to help explain these concepts.
p̂ x
p̂ p̂ p̂ x x x
p̂ p̂ p̂ p̂ p̂ x x x x x
For the simulated coin flip, the population consists of {H,T}, so the proportion of heads in this
𝑥𝑥 1
population is 𝑝𝑝 = 𝑁𝑁 = 2 = 0.5. The simulation consisted of flipping the coin 100 times, therefore n =
𝑝𝑝(1−𝑝𝑝) 0.5(1−0.5)
100. The standard error is 𝜎𝜎𝑝𝑝� = � 𝑛𝑛
=� 100
= 0.05. The normal curve for the sampling
distribution can then be labeled as:
p̂
p̂ p̂ p̂
p̂ p̂ p̂ p̂ p̂
0.35 0.40 0.45 0.50 0.55 0.60 0.65
For the simulation of selecting 50 numbers from a set of whole numbers between 0 and 50, the
mean is µ = 25 and the standard deviation of that set of numbers is σ = 14.7 and the standard error is
𝜎𝜎 14.7
𝜎𝜎𝑥𝑥̅ = = = 2.08.
√𝑛𝑛 √50
x
x x x
x x x x x
We have already established that half of the statistics are less than the parameter and half are
greater than the parameter, consequently the probability that the statistic is below the parameter is 0.5
and the probability it is greater than the parameter is also 0.5. Now we need to address the question of
what is the probability the statistic will be close to the parameter. We are going to define close as
within 2 standard errors on either side of the parameter. That is, we want to know the probability the
statistic we get is near the center of the distribution.
In the case of the simulated coin flip, we would like to know the probability a sample proportion
would fall between 0.40 and 0.60. These values are found by subtracting two standard errors from the
mean (0.5 − 2 ∙ 0.05) and by adding two standard error to the mean (0.5 + 2 ∙ 0.05). From the sample
proportions shown in the histogram, there were 981 out of 1000 sample proportions between 0.40 and
0.60. The proportion is 0.981 so the probability of selecting one of those in our sample is 0.981.
In the case of the quantitative data, we would like to know the probability a sample mean would
fall between 20.84 and 29.16. These values are found by subtracting two standard error from the mean
(25 − 2 ∙ 2.08) and by adding two standard error to the mean (25 + 2 ∙ 2.08). Likewise, from the
sample means shown in the histogram, there were 959 out of 1000 sample means between 20.84 and
29.16. The proportion is 0.959 so the probability of selecting one of those in our sample is 0.959.
Our simulations were specific examples and show variation. Mathematicians have determined
that in a normal curve, 95% of the entire curve falls within approximately 2 standard deviations of the
mean. While we assume the normal curve model is a good fit for the sampling distribution, the two
simulations show that there is variation in the proportion of values in the interval of plus or minus 2
standard errors.
Confidence Intervals
If you recall, the desire is to know the parameter, but the evidence is a statistic. Statistics vary
but as we just saw, they vary in a predictable way in that most of the statistics are close to the
parameter and fewer statistics are farther from it. The sampling distributions have similar shapes.
While these sampling distributions are theoretical and would never be created in a real-world situation,
one should imagine that the statistic that was actually obtained from one sample is part of a distribution
of possible statistics that could have been obtained if different random selections had been made.
We can make use of the concepts that have been developed to estimate the parameter after
one more problem is resolved. The problem is that since the standard error cannot be known without
conducting a census (in which case we would know the parameter anyway and not have to estimate it),
then we will need to estimate the standard error using the statistics that we do know. The estimated
pˆ (1 − pˆ ) 𝑝𝑝(1−𝑝𝑝)
standard error formula s pˆ = is used as an estimate for 𝜎𝜎𝑝𝑝� = � 𝑛𝑛 . For quantitative data,
n
s 𝜎𝜎
the estimated standard error formula s x = is used as an estimate for 𝜎𝜎𝑥𝑥̅̅ = .
n √𝑛𝑛
The table below shows the formula for the means and standard deviations of the samples and
sampling distributions.
You are probably most familiar with the concept of confidence intervals from polling results
preceding elections. A reporter might say that 48% of the people in a survey plan to vote for candidate
A, with a margin of error of plus or minus 3%. The interpretation is that between 45% and 51% of the
population of voters will vote for candidate A. The size of the margin of error provides information
about the potential gap between the point estimate (statistic) and the parameter. The interval gives the
range of values that is most likely to contain the true parameter. For a confidence interval of (0.45,0.51)
the possibility exists that the candidate could have a majority of the support. The margin of error, and
consequently the interval, is dependent upon the degree of confidence that is desired, the sample size,
and the standard error of the sampling distribution.
From the simulations you can see that most statistics are close to the parameter. We have
found that about 95% of them are within two standard errors of the proportions. Since that is the case,
then we can be 95% confident the parameter will be within 2 standard errors of the statistic for the
sample we take. A margin of error will be defined as two standard errors. We create a confidence
interval by adding and subtracting the margin of error to our statistic.
This becomes:
pˆ (1 − pˆ )
pˆ ± 2
n
s
x±2
n
These formulas will be demonstrated using the initial result from the two simulations.
pˆ (1 − pˆ )
Since the simulated coin-flip data is categorical, the formula pˆ ± 2 will be used to find
n
the 95% confidence interval for the proportion of heads. Recall that the proportion in the first sample
was 0.43.
0.43(1 − 0.43)
Substitution: 0.43 ± 2
100
0.43(1 − 0.43)
Calculate the margin of error first: 2 = 0.099
100
Interpretation: We are 95% confident that the true proportion is between 0.331 and 0.529. In fact,
since we know the true proportion was 0.5 for this simulation, then we can see that it fell within the
interval.
s
For the quantitative simulation the formula that will be used is x ± 2 . The objective is to find
n
the 95% confidence interval for the mean of the population.
The mean in the simulation was 26.88. The standard deviation was 15.98. The sample size was 50.
15.98
Substitution: 26.88 ± 2
50
Interpretation: We are 95% confident that the true mean is between 22.35 and 31.40. In fact, since we
know the true mean is 25, then we can see that it fell within the interval.
In this activity you will re-visit the questions from activity 3.1. This time, you will use the
statistics from that activity to find the confidence intervals. Show the formula, substitution, margin of
error and confidence interval.
1. What proportion of college graduates end up working in a job that is related to their field of
study?
The (hypothetical) data: Of the 400 graduates who were surveyed, 110 said they were working
in a job related to their field of study. Find the 95% confidence interval. The sample proportion is 0.275
2. What is the average number of times people buy food from a restaurant each week?
The (hypothetical) data: A sample of 18 randomly selected people was taken. They were asked the
number of times they ate in a restaurant in the last week. Their responses are provided in the table
below.
1 0 12 2 2 8
9 9 0 0 9 9
11 0 7 9 0 11
2a. The mean of this data is 5.5. The sample standard deviation is 4.7. Find the 95% confidence
interval.
Homework
Types of Data
1. A vibrant world includes opportunities for physical and mental challenges. If the idea of running a
marathon doesn’t sound exciting, consider a Tough Mudder. According to their website
(https://toughmudder.com/), a “Tough Mudder is a 10-12 mile obstacle course designed to test all-
around strength, stamina, teamwork, and mental grit. Tough Mudder is Probably the Toughest Event on
the Planet. Probably.” Obstacles include sewage outlet, fire, underwater tunnels, electroshock therapy
(live wires), mud, Arctic Enema, and more. Weather and altitude can make these even more
challenging. They are so difficult that not everyone finishes. A random sample of 200 participants is
taken from various Tough Mudder events and 156 of those finished. Answer the following questions
based on this information.
1a. For the question: “What is the average time it takes to finish a Tough Mudder event?”, would the
data categorical or quantitative?
1b. For the question: “What is the proportion of people who finish a Tough Mudder event?”, would the
data be categorical or quantitative?
1c. For the question: “What is the average number of volunteers who are needed at a Tough Mudder
event?”, would the data be categorical or quantitative?
1d. For the question: “What is the average profit made by the organizers of a Tough Mudder event?”
would the data be categorical or quantitative?
1e. For the question: “What proportion of participants sign up on the day of the event (and
consequently pay a higher fee than those who preregistered)?” would the data be categorical or
quantitative?
Random Sampling
2. If there are a total of 258 people who participated in a Tough Mudder event and the organizers plan
to give a prize to 3 randomly selected participants, what are the numbers of the first 3 people selected
for the sample if row 4 of the table of random digits is use?
3. A health inspector should not be predictable when deciding which restaurants to inspect. Suppose a
city has 176 restaurants and the health inspector wants to randomly select 5 of them for a surprise
inspection, what are the numbers of the restaurants that will be inspected if row 3 of the table of
random digits is use?
4. One way people have found to simultaneously enjoy their life, get exercise, meet other people, see
other cultures and help other people is by participating in organized bicycle tours. These tours happen
throughout the world and can be a one-day event or last a week. In the table below are the lengths of
bicycling on each day of a tour. These include tours in Thailand, Colorado, New York, Oregon, Ohio, and
Great Lakes 4.
93 8 40 60 103 100
84 19 45 72 81 71
87 38 55 64 74
4a. Make a frequency distribution and a completely labeled histogram. Use a starting value of 0 and a
class width of 20 for your frequency distribution. Your classes should be [0,20), [20,40), etc.
4
International Bicycle Fund http://www.ibike.org/index.htm, Bikeride.com http://www.bikeride.com/,
Bicycle Tour Network http://www.bicycletournetwork.com/.
5. Do a majority of Americans believe their taxes are fair? The data: In a Gallup Poll of 1026 adults, 554
thought their taxes were fair. 5
5a. What is the sample proportion who think takes are fair?
5b. Make a pie chart. Assume two categories, fair and not fair.
Confidence Intervals
A single period of homelessness costs taxpayers an estimated $20,000 (for shelters, policing,
health care, etc). Some programs that attempt to prevent homelessness give cash to people who incur a
non-repeatable expense that could lead them to becoming homeless. Because of inconsistent funding
for the agency, researchers in Chicago were able to compare the homeless status of people who
received money with people who didn’t receive money. For those receiving money (when funding is
available), 168 out of 2128 people became homeless. For those not receiving money, 1946 out of 2320
people became homeless 6.
6a. Find the 95% confidence interval for the proportion of people who became homeless when there
was funding?
6b. Find the 95% confidence interval for the proportion of people who became homeless when there
was no funding available?
5
http://www.gallup.com/poll/168500/half-americans-say-federal-taxes-high.aspx, 8/3/14
6
The impact of homelessness prevention programs on homelessness, Evans, William N ; Sullivan, James X ;
Wallskog, Melanie. Science (New York, N.Y.), 12 August 2016, Vol.353(6300), pp.694-9 [Peer Reviewed Journal]
(Pete: Find actual numbers from this article for next edition).
6c. The mean amount of funding given to the 2128 people who could potentially become homeless
was $1000 with a standard deviation of $650. What is the 95% confidence interval for the amount each
person is given when funding is available?
7. The more humans learn, the more we realize we don’t know. In addition, as we learn, there becomes
an increasing number of opportunities to solve problems with creative thinking and invention. A
measure of a community’s creativity is the number of patents that are produced in that community.
The table below provides the number to total patents from 2000-2011 per 10,000 people in a
community. 7
27 9 23 2 86 83
30 5 9 843 116 374
298 134 169 684 49
7a. To find this data, it was necessary to look up the number of patents and the population for each
community and then calculate the number of patents per 10,000 people. Was this an observational
study or an experiment?
7c. If there are 121 communities in the list of communities with patents, what are the numbers of the
first 3 communities selected when using the table of random digits and beginning in row 5?
7
(http://www.uspto.gov/web/offices/ac/ido/oeip/taf/cls_cbsa/allcbsa_gd.htm and
http://www.census.gov/popfinder/ 12-12-13)
x (x − x ) ( x − x )2
8. Another measure of creativity is demonstrated by support of the arts. Arts festivals can attract many
visitors to a community. A random sample of 160 people attending an arts festival showed that 112
were from out of town.
8d. What is the 95% confidence interval for the proportion of visitors?
Political parties are distinguished by their ideologies. It is often interesting to hear people with
different ideologies argue as each seems to think they have the obviously-correct interpretation of the
world and they have difficulty understanding why the other person cannot see it their way. Ultimately,
neither changes the other’s mind. But the ideas that comprise the ideologies are only theories and
theories should be tested to determine their validity.
The objective of this chapter is for you to test your theory about how to solve a problem. In the
process you will explore possibility distributions and create subjective probability distributions. You will
make use of system dynamics modeling as well as statistics. You may need algebra.
In Chapter 2, during the QAW synthesis, you stated a problem you thought was important and
how you think it should be solve. This will be your opportunity to test your idea (or you may pick a
different problem/solution if you want).
Possibility Distributions
One problem of concern in society is the financial status of poorer people. Ultimately, poverty
has costs that affect society (think about how parts of a system are interrelated). One way that is often
proposed to help the poorest people is to raise the minimum wage.
The subject of minimum wage can be a contentious issue with opinions aligning with the
ideology of the political party. One party claims that raising the minimum wage will lead to a loss of jobs
because employers cannot afford to pay the extra amount. The other party believes that raising the
minimum wage will put more money in the hands of people who need money and that they will spend
it, leading to economic growth and greater employment. Perhaps you believe one of these arguments.
Both sound valid even though they are contradictory.
If you want to think independently and not simply repeat an argument of others, the first step
to take is to list the possible solutions to the problem and the possible outcomes if these solutions are
implemented.
Do nothing
Raise the minimum wage a lot (e.g. from $9 to $15 per hour)
Considering multiple solutions and multiple outcomes is an important step for moving away
from ideological thinking. The next question to ponder is whether your expected outcome will happen
every time the minimum wage is raised, most of the time, or some of the time. To do this, we create
probability distributions.
Probability Distributions
We learned about probability distributions in the last chapter when discussing sampling
distributions. For this chapter, we will focus on subjective probability distributions, which means that
you will guess at the probability of the possible outcomes. One thing to keep in mind when making your
guesses is that the sum of all the probabilities must add up to 1. We will always include a category of
“other” in the probability distributions to keep us aware of potential black swans or other unexpected
outcomes. Black Swans are defined by Nassim Nicholas Taleb, author of The Black Swan, The Impact of
the Highly Improbable (Random House, 2010), as unexpected outlier events that carry an extreme
impact and only in retrospect can we explain why we should have predicted it.
Since the current minimum wage debate is about raising minimum wages to $15 per hour, what
probability would you assign to each of the possible outcomes?
Probability Distribution
Possibility Probability
A. Employment will increase
B. Employment will not change
C. Employment will decrease
D. Other
Evidence can impact the assignment of probability. Consider the following evidence.
Employment data was collected 6 months before and 6 months after the minimum wage was
increased by the Federal government. The difference between the number of people employed after
the increase and before the increase (after minus before) is shown in the table below. The units are
millions of people.
1.923 1.338 1.338 1.614 1.576 1.635 2.186 0.35 2.778 4.369
3.009 -0.382 1.762 -1.02 3.111 3.155 0.895 -4.425 -4.271
In the histogram we see that employment frequently increased after a change in the minimum
wage, however sometimes it also decreased.
The mean increase is 1.1 million with a standard deviation of 2.3 million. The 95% confidence
interval is 1.1 ± 1.1 or (0, 2.2). This means that on average we would expect an increase in employment
of between zero and 2.2 million people.
The median change in employment is found by ordering the data. Since there are an odd
number of values (19), the middle value is the median.
-4.425 -4.271 -1.02 -0.382 0.35 0.895 1.338 1.338 1.576 1.614
1.635 1.762 1.923 2.186 2.778 3.009 3.111 3.155 4.369
In general, this evidence suggests that raising the minimum wage leads to greater employment.
However, more in depth thinking about these results are needed to clarify this. The first question to
raise is about the design of the research. If we are looking for the effect of raising the minimum wage,
then we can think about this as an experiment (natural or observational experiment). However, an
experiment should have a control group and when the Federal government raises the minimum wage,
there is no control group. Consequently, we can’t be sure if the changes in employment were the result
of the minimum wage or the overall economic conditions.
Next, let us transform the list of possible outcomes, into a probability distribution. We will
consider that no change in employment implies a change in either direction of less than 1 million
people.
This probability leads to the conclusion that 68% of the time the minimum wage is raised by the
Federal government, employment will increase and 16% of the time it will decrease. Keep in mind these
probabilities are based on a very small sample (19 times). The statistics of small samples have more
variation than from large samples.
In summary, the evidence does more to support the position that raising minimum wage leads
to increases in employment than the theory that it will reduce the number of employed people,
however this evidence shows a variety of outcomes are possible. It also provides no evidence for local
changes when cities raise their minimum wage independently or when the change in minimum wage is
dramatic (e.g. from $9 per hour to $15 per hour).
Use the tables below to enter your possibilities in the first column and assign probabilities in the second
column. Verify that your probabilities add to 1. Provide at least 3 very different possible consequences.
They can be good or bad or neither. They need to be mutually exclusive.
B.
C.
D.
E. Other
What are the possible consequences to the cost of health care if we adopt universal health care in this
country?
D.
E. Other
The assessment of your ability to analyze a theory will be done through the creation of a
document that includes the following parts. Your group should consist of 2 or 3 people. The document
should be 3-7 pages in length.
State and explain the problem by giving relevant background information and providing both temporal
and spatial graphic evidence of the magnitude of the problem, if possible. These graphs can be found
online or created with data.
From the possibility distribution, pick your favorite option. Explain the reason for your choice. Identify
potential consequences to other systems.
Make a possibility distribution of at least 3 potential outcomes plus the category “other” to account for
the unexpected.
Make a Vensim model and graphs. Include a table that contains each variable in the system model, the
values used in the model, and the source of those values. If necessary, you may make assumptions, but
try to find actual numbers first.
Provide any other relevant mathematical support. This might include algebra, statistics, or other math.
Assess the efficacy of your solution. Convert your outcome possibility distribution into a probability
distribution. Based on the evidence, does the theory still appear to be a good solution?
Additional Grading
Spelling, grammar, punctuation, and level of writing should all be at a college level.
This should be written in a way that flows naturally so the reader can follow the thought
processes from a description of the problem to an assessment of the solution.
Any information you got from somewhere else must be cited, otherwise it is plagiarism. You can
pick your favorite style for citing the source.
12. Bonus points (10 pts): Consultation with entire group during which I can review a completed draft
of the project. An appointment must be made and this must be done two days or more before the
project is due.
In this chapter we will explore several aspects of money, including savings and borrowing,
because financial security is important for meeting basic needs as well as being able to participate in the
possibilities of a vibrant world.
The models used for financial calculations are deterministic. This means there are formula that
can be used to determine how much money can be expected from an investment. In this chapter we
will use formulas for the following situations.
1. Invest one amount of money that will gain interest for a specific amount of time.
2. Invest the same amount of money every month for a specific amount of time.
The equations that are used are based on two core concepts, growth rates and growth factors.
The growth rate is the proportion by which a quantity increases. Growth factors are used to determine
the future value of an account. Growth rates are usually stated in terms of percentage but the formulas
will use the decimal equivalent. The money that is added to the account because of this growth is called
interest or dividends. If an account starts at $100 and grows by 3% a year, then after one year the
interest that is earned is $3. This is found by converting 3% to the decimal 0.03 and then multiplying
this decimal times the original amount, 100 * 0.03 = 3. The interest rate is called the nominal rate or the
annual percentage rate, APR.
There are two approaches to finding the total size of the account after a year. The first
approach is to add the increase to the original amount, 100 + 3 = 103.
The second, and more useful approach, is to multiply the original population by the growth
factor which is found by adding 1 to the growth rate, 100(1 + 0.03) = 103
Why do these give the same result? If we generalize these numbers using P for the initial
principal and r is the growth rate then
Pr gives the amount of the increase, in the case of money this is called interest.
P(1 + r) is the result of factoring out p. It gives the amount after one year
This expression can be converted into a formula that can be expanded to allow the amount in
the account to be determined for any number of years.
Let P 0 = the initial amount in the account and Let P t = the amount in year t. Then,
This pattern can be continued to produce the compound interest formula: P t = P 0 (1+r)t
Where
P t is the value after t years
P 0 is the starting value
r is the annual interest rate
t is the number of years for the investment
Example 4.1: Suppose you have $1000 in an account that pays 5% interest at the end of each year. The
table below shows how the investment grows during the first four years.
The final amount can be found using the compound interest formula.
P t = P 0 (1+r)t
P t = 1000(1+.05)4
P t = 1215.51
Pick the correct formula, show the formula, substitution and solution.
tk k
r r
P t = P 0 (1+r) t
Pt = P0 1 + APY = 1 + − 1
k k
r
12 t
d 1 + − 1
12
P t = P 0 ert APY = er-1 Pt =
r
12
Your car currently has 130,000 miles on the odometer. You are hoping it will make it to
200,000, which means it will last approximately 7 more years, based on the average amount you drive
each year. You don’t have car payments now, and would prefer not to have them in the future. You
have $2500 that you would like to invest in a 3.1% certificate of deposit. If you make this investment,
how much money will be available for buying a new car in 7 years?
_______________________
Compound interest is the result of having interest added to the principal so that future interest
is earned on both the principal and the past interest. The most basic compound interest formula is
𝑃𝑃𝑡𝑡 = 𝑃𝑃0 (1 + 𝑟𝑟)𝑡𝑡 . Banks and other investments give the interest annually, quarterly, monthly or daily.
The number of compounding periods in a year are represented with the variable k and shown in the
table below.
Annual 1
Quarterly 4
Monthly 12
Daily 365
When banks offer compounding more frequently than once a year, the interest rate is divided
𝑟𝑟
equally between each of the compounding periods � �. This results in the more complete compound
𝑘𝑘
tk
r
interest formula Pt = P0 1 + Where
k
P t is the value after t years
P 0 is the starting value
r is the annual interest rate (APR)
t is the number of years for the entire investment
k is the number of compounding periods in a year
When interest is compounded more often than once a year, the compounding results in more
earned interest than expected from the APR. For example, based on the compound interest formula, if
1*4
0.05
$1000 earns 5% interest compounded quarterly, then P1 = 10001 + = 1050.95 . The interest rate
4
that is actually earned as a result of compounding is called the effective rate or Annual Percentage Yield
(APY). Annual Percentage Yield can be found by calculating the rate portion of the compound interest
k
r
equation for one year, then subtracting 1: APY = 1 + − 1 . In the example of 5% compounded
k
quarterly, we get
4
0.05
APY = 1 + −1
4
APY = 0.05095 .
You can verify this is the correct value by finding the actual percent increase after one year.
Annual Compounding
Quarterly Compounding
Monthly Compounding
tk 5*12
r 0.03
Pt = P0 1 + = 40001 + = $4646.47
k 12
k 12
r 0.03
APY = 1 + − 1 = 1 + − 1 = 0.03042
k 12
Daily Compounding
Pick the correct formula, show the formula, substitution and solution.
tk k
r r
P t = P 0 (1+r) t
Pt = P0 1 + APY = 1 + − 1
k k
r
12 t
d 1 + − 1
12
P t = P 0 ert APY = er-1 Pt =
r
12
Your car currently has 130,000 miles on the odometer. You are hoping it will make it to
200,000, which means it will last approximately 7 more years, based on the average amount you drive
each year. You don’t have car payments now, and would prefer not to have them in the future. You
have $2500 that you would like to invest in a 3.1% certificate of deposit, compounded monthly. If you
make this investment, how much money will be available for buying a new car in 7 years?
_______________________
CONTINUOUS COMPOUNDING
While the APY increases with more frequent compounding, that increase is less each time.
Supposing you compounded twice a day, or every minute or every second, would there be a limit to the
increase in APY? It turns out that there is a limit. This limit occurs when you have continuous
compounding. To understand this increase, we will modify the compound interest formula. 1
tk
r
Pt = P0 1 +
k
Let rn = k Since r and k are positive, then n is positive. As k increases, n must also increase,
thus n is an alternative way of showing an increase in the frequency of compounding.
trn
r
Pt = P0 1 +
rn
nrt
1
Pt = P0 1 +
n
rt
1 n
Pt = P0 1 +
n
n
1
As k → ∞, n → ∞ and 1 + → 2.71828 = e
n
The value e is used in cases that have continuous compounding. The formula for continuous
compounding is: P t = P 0 ert Where
1
(Tussy and Gustafson, 2008)
Example 4.2 Using our prior example of a $4000 investment at 3%, if the investment was compounded
continuously, the value after five years would be:
P t = P 0 ert
P t = 4000e0.03*5
P t = 4647.34
APY = er-1
APY = e0.03-1
APY = 0.03045
Pick the correct formula, show the formula, substitution and solution.
tk k
r r
P t = P 0 (1+r) t
Pt = P0 1 + APY = 1 + − 1
k k
r
12 t
d 1 + − 1
12
P t = P 0 ert APY = er-1 Pt =
r
12
Your car currently has 130,000 miles on the odometer. You are hoping it will make it to
200,000, which means it will last approximately 7 more years, based on the average amount you drive
each year. You don’t have car payments now, and would prefer not to have them in the future. You
have $2500 that you would like to invest in a 3.1% certificate of deposit, compounded continuously. If
you make this investment, how much money will be available for buying a new car in 7 years?
_______________________
Up to now, we have considered one-time investments. That means money is deposited into the
account and left there to accumulate interest until the end of the time period. Most people do not have
the necessary funds to make this type of investment. For most, the necessity is to invest a smaller
amount of money each month. Just like problems with the compound interest, we would like to be able
to calculate how much money we will have after time t if we make a regular monthly deposit and also
how much our regular monthly deposit needs to be to achieve our goals. The formula for regular
deposits is given without proof.
r
kt
d 1 + − 1
k
Pt = where
r
k
P t = the amount after time t (years)
d = the regular deposit
r = APR
k = the number of regular deposits per year
Most people make regular deposits once a month, so we will simplify the formula to solve that
type of problem.
r
12 t
d 1 + − 1
12
Pt =
r
12
Example 4.3 Every month, $25 is deposited into an account that pays 3.3% interest. How much is in
the account in 10 years? How much interest was earned?
0.033
12⋅10
251 + − 1
12
P10 = = 3548.53
0.033
12
$25 12 𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚ℎ𝑠𝑠
Total Deposited: � � 10 𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦 = 3000
𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚ℎ 1 𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦
Pick the correct formula, show the formula, substitution and solution.
tk k
r r
P t = P 0 (1+r) t
Pt = P0 1 + APY = 1 + − 1
k k
r
12 t
d 1 + − 1
12
P t = P 0 ert APY = er-1 Pt =
r
12
Your car currently has 130,000 miles on the odometer. You are hoping it will make it to
200,000, which means it will last approximately 7 more years, based on the average amount you drive
each year. You don’t have car payments now, and would prefer not to have them in the future. Your
payment used to be $200 per month. You decide to pay that same amount each month to an account
that will pay 3.1% interest. If you make this investment, how much money will be available for buying a
new car in 7 years?
_______________________
How much of your money will you have put into the account? ________________________
BIG PURCHASES
Many students will eventually make big purchases in their lives. These include a home, a car,
education, or a business. They are the types of purchases that generally require a loan. We will look at
two aspects of loans, the first being to determine the monthly payment; the second is to understand
how loans are paid off.
In most cases, a down payment is required when making a purchase. The lender wants to know
that the borrower has something to lose so that it is not only the lender assuming the risk. The amount
of money that is borrowed is the cost of the purchase minus the down payment amount. For
simplicity’s sake, we will assume that extra fees and taxes have been included into the total cost.
MONTHLY PAYMENT
If the interest rate on a loan remains fixed, then the amount of the monthly payment can be
computed with the following monthly payment formula.
r
P0
M = 12 where:
−12 t
r
1 − 1 +
12
P 0 is the amount of the loan
r is the APR
t is the number of years of the loan
M is the monthly payment
Example 4.4 A good used car costs $14,000. The down payment is $5000. A 5 year loan is used to pay
for the rest. The interest on the loan is 4.4%. What is the monthly payment? How much interest is
paid?
0.044
9000
12
M= −12⋅5
= 167.38
0.044
1 − 1 +
12
$167.38 12 𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚ℎ𝑠𝑠
Total Paid: � � 5 𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦 = 10,042.80
𝑚𝑚𝑚𝑚𝑚𝑚𝑚𝑚ℎ 1 𝑦𝑦𝑦𝑦𝑦𝑦𝑦𝑦
AMORTIZATION
It is important to understand what happens when you make monthly payments. If a person
borrows $120,000 at 7% for 30 years, their monthly payment is $798.36. After the person signs the
mortgage papers, they don’t owe the bank any money for one month. During that month, they have
been borrowing $120,000. Because they are borrowing, the loan is accumulating interest and the bank
wants to be paid that interest. The monthly payment will first be used to pay the interest, and then
whatever remains will be used to reduce the principal. The best way to see this is with an amortization
table.
0 $120,000
An amortization table is constructed using 4 columns. The first column lists the months. The
second column lists the amount of interest that will be paid during the month. The third column lists
the amount of the monthly payment that will be applied to the principal and the fourth column lists the
new balance at the end of the month.
When creating a table, start with month 0 to provide a row for the original balance (the amount
that is borrowed and that must be repaid). The interest and principal columns in this row should remain
empty.
In the interest column, calculate the amount of interest that is owed for that month. When
learning about the compound interest formula you saw that the monthly interest rate was found by
dividing the annual rate by 12 since there were 12 compounding periods in a month. A similar approach
is taken to determine the amount of interest that must be paid during the month. If the annual interest
0.07
rate for the loan is 7.0% then the monthly interest rate is = 0.5833 . During the first month, you
12
have been borrowing the original amount of the loan for one month. The institution that loaned you the
money would like to be paid the interest. The amount of interest you owe at that time is the monthly
interest rate times the original balance. In this example, we find the interest that is owed for borrowing
$120,000 for one month at 7% interest rate is $700.00. This is shown by the calculation:
0.07
⋅ 120,000 = 700 .
12
Since the monthly payment of $798.36 exceeds the amount of interest, then the difference
between the two is applied to the principal thereby reducing the balance. The difference is found by
subtracting the interest from the monthly payment, $798.36 - $700.00 = 98.36.
In the last column, we see that the balance is reduced by the amount of principal that was paid.
Therefore the new balance can be found by subtracting the value in the principal column from the
balance of the previous month, 120,000-98.36 = 119,901.64.
Now the process starts all over again. For the next month, you will only be borrowing
$119,901.64 rather than $120,000. In the interest column, multiple the new balance by the monthly
interest rate. Notice that the amount of interest that must be paid is less than it was during the first
month. In the principal column, subtract the interest for the month from the monthly payment to
determine the amount that will be paid towards the principal. Notice that the amount paid towards the
principal is slightly higher than in the previous month. Finally in the last column, find the new balance at
the end of the month by subtracting the principal from the previous balance.
It is possible to pay more than your monthly payment. One way of doing this is to include the
following month’s principal amount with the current month’s payment. For example, if the first month’s
check was increased by 98.93 to $897.29, then you would save yourself $699.43, which is the amount of
the interest you pay in the second month. You would not notice this savings until the loan is paid off
however. By paying the principal for one month, you would actually finish paying for your loan one
month early. Thus, instead of making 360 payments, you would only need to make 359. Paying the next
month’s principal in addition to your regular payment will not allow you to skip the payment next
month; it will only let you finish paying for the loan one month early.
Prepaying the next month’s principal makes more sense early in the loan than later in the loan.
Early in the loan, to save one month’s payment the amount that is applied towards the principal is a
small amount, whereas it is much larger later in the loan. Following is the last few months for the
amortization table. Prepayment at the end of the loan would require increasing your monthly payment
$793.73 and the savings by not having to pay interest would be only $4.63.
Prepayment does not have to be done to save exactly one month’s payments. Any additional
amount will save you money. Some people will pay the same additional amount of money every month
(e.g. $50).
When borrowing money, take the time to read and understand the loan papers you are signing.
One of the conditions within the loan papers that you should identify is that prepayments can be made
at any time, without penalty. This way, you can reduce your debt quicker without being penalized.
Pick the correct formula, show the formula, substitution and solution.
tk k
r r
P t = P 0 (1+r) t
Pt = P0 1 + APY = 1 + − 1
k k
r
12 t
d 1 + − 1 r
P0
12
P t = P 0 ert APY = er-1 Pt = M = 12
−12 t
r r
12 1 − 1 +
12
Your car finally reached 200,000 miles and you decided it was time for a new car. The new
hydrogen fuel cell car you want will cost $38,000. Based on the combination of Activity 2 and 3, you
have saved 3105.86 + 18,735.22 = 21,841.08. This money will be used for the down payment but you
will need a loan for the balance. The best loan rate you can find is 8.6% for a 5 year loan.
_______________________
r
⋅ balance Payment-interest Balance - Principal
k
0 xxxxxxxxxxxxxxxx xxxxxxxxxxxxxxx
Notice how the amount of interest paid each month is gradually decreasing, the amount of
principal paid each month is gradually increasing and the balance is gradually declining. After 60
months, the balance will be zero.
The goal of this activity is to use Microsoft Excel to find the monthly payment for a loan and
then create an amortization schedule. The spreadsheet should be versatile in that you should be able to
change input variables and have the spreadsheet recalculate. An example is shown below.
A B C D
1 Cost
2 Down payment
3 Balance =B1-B2
4 Interest (as a decimal)
5 Term (months)
6
7 Monthly Pmt =PMT(B4/12,B5,-B3,0,0)
8
9
10 Period Interest Principal Balance
11 =B3
12 1 =$B$4/12*D11 =$B$7-B12 =D11-C12
13 2 =$B$4/12*D12 =$B$7-B13 =D12-C13
The monthly payment formula is =PMT(rate as a decimal, number of payment period, Present Value
(negative loan amount), Future Value (0), Payment at end of period (0))
You have decided to buy a house. The house will cost $169,000. You have saved enough for a
down payment of $30,000. The interest rate for the mortgage is 5.9%, regardless of the term. You
aren’t sure if you want a 15-year mortgage or a 30-year mortgage. To decide, you must consider
whether the payments are affordable. A monthly mortgage payment should be less than 25% of your
monthly income.
(2) 5. What is the difference in the amount you will pay in interest over the life of your mortgage
between the 30-year and 15-year mortgages?
(1) 6. If your monthly income is $3,800, which mortgage can you have so that your monthly payments
are less than 25% of your income?
Select all that apply by underlining: 15-year 30-year
(6) 7. Complete the table below that shows the payment number, interest, principal and balance for
the 180th payment of both the 15 and 30 year mortgages.
Payment number Interest Principal Balance
15 year mortgage 180
30 year mortgage 180
Homework
For questions 1 – 4 answer all of the following questions. How much money will the student have at the
end of 5 years? How much interest will the student have earned in 5 years? What is the effective yield
(APY)?
1. A student puts $1000 in a savings account that pays 2% annual interest, compounded annually.
2. A student puts $1000 in a savings account that pays 2% annual interest, compounded
quarterly.
3. A student puts $1000 in a savings account that pays 2% annual interest, compounded monthly.
4. A student puts $1000 in a savings account that pays 2% annual interest, compounded daily. The
interest is reinvested.
5. Use the results of problems 1 to 5 to make a graph of the number of compounding periods in a
year and the APY. The number of compounding periods should go on the x-axis, the APY goes
on the y-axis. Pick an appropriate scale.
6. How much money do you have to invest one time in a 6% account compounded quarterly to
have $10,000 in 4 years?
7. Suppose you have a one-year old child and want to invest some money for a college fund. You
expect to need the money in 17 years. If you want to have $20,000, how much money will you
need to put into the account if it pays 5%, compounded daily?
8. A student puts $1000 in a savings account that pays 2% annual interest, compounded
continuously. How much money will the student have at the end of 5 years? How much
interest will the student have earned in 5 years? What is the effective yield (APY)? Look at the
graph in problem 5, does your answer make sense?
9. A student puts $5000 in a savings account that pays 3.4% annual interest, compounded continuously.
How much money will the student have at the end of 5 years? How much interest will the student have
earned in 5 years? What is the effective yield (APY)?
10. A student estimates she needs $10,000 in 10 years. If she makes a one-time deposit, how much
money must she put into an account that pays 6% annual interest, compounded continuously? How
much interest will the customer have earned in 10 years? What is the effective yield (APY)?
11. If you deposit $50 per month for the next 15 years into a 4.6% account that is compounded
monthly, what is the total amount of money you will have 15 years from now? How much interest will
you earn?
12. If you deposit $25 per month for the next 8 years into a 4% account that is compounded monthly,
what is the total amount of money you will have 8 years from now? How much interest will you earn?
13. How much money must you deposit per month to have $13,000 in 4 years if the APR is 3%,
compounded monthly?
14.You need to borrow $8,000 to start a business. The bank offers a loan rate of 11% APR for a 6-year
loan. What is your monthly payment? What is the total amount of money you will pay over 6 years if
you don’t prepay?
15. Complete the first 3 months of an amortization table for problem 14.
X X X X X X X X X X X X X X X X X X X X X X X $8000
16. You borrow $14,000 for a new car. The bank offers a loan rate of 9% APR for a 5-year loan. What is
your monthly payment? What is the total amount of money you will pay over 5 years if you don’t
prepay?
17. Complete the first 3 months of an amortization table for problem 16.
X X X X X X X X X X X X X X X X X X X X X X X $14,000
18. Payday loans. In times of desperation, some people resort to payday loans. These are loans that
allow short term borrowing with expected payback periods of two weeks. For the convenience they
offer, the borrower pays a high interest rate. Payday loans will be explored below. The interest rates
that you will determine are realistic.
Your savings are gone, your checking account is nearly gone and you have a bill that must be
paid. What do you do? For some, the solution is payday loans. Payday loans are short term loans that
must be paid back when you get your next pay check. If they aren’t paid back, other fees will have to be
paid.
One payday loan business lends money to customers with jobs. They charge $18 for each $100
that is loaned. The term of the loan is 14 days.
18a. What is the amount of interest that must be paid for borrowing $500?
r
18c. Since the term is k = 14 days, then we can calculate the daily interest rate by dividing r by k, .
k
What is the daily interest rate?
18d. You can use the daily interest rate to determine the annual interest rate. That is done by
multiplying the daily interest rate by 365. If you used the decimal form of the interest rate, then
multiply that answer by 100 to find the interest rate as a percent. What is the annual interest rate (as a
percent)?
There are two types of problems, experiential and theoretical. Actual data must be collected for
the experiential problems. Research and mathematical calculations are needed for the theoretical.
Experiential 1 - Calculate the fuel economy of your car in both mpg and gallons per 100 miles
Deliverables: One completed form 5.1, with solutions, for each student.
Experiential 2 - What is the average amount of water that is used when taking a shower?
Experiential 3a - Calculate daily electric use. Find the electric meter for your house. Learn how to
interpret the numbers. Some meters have a multiplier. Record the meter reading for 14 consecutive
days.
Experiential 3b - Juggling. What is the average improvement that can be made for juggling 2 tennis
balls in one hand? Practice juggling for 5-10 minutes each day. Record the highest number of
consecutive catches for the day.
Theoretical 1 – Nuclear, solar, and wind are three ways to generate electricity while reducing carbon
emissions compared to coal and natural gas. Pick one of the three energy sources and determine the
number of generating facilities needed to replace all coal facilities? The data can be found
at http://www.energyjustice.net/map/localmap.
Deliverables by group: In groups of 2 students, complete and submit one copy of form 5.4.
(2 pts) Fill your car’s gas tank completely. Record the date and the miles that are on the odometer.
Date______________ Miles ____________
(3 pts) Drive as you normal would for a week and then fill your car’s gas tank completely again. Record
the date, the miles on the odometer and the number of gallons of gas (include all decimal places) that
were put into the tank.
(3 pts) How many miles does your car travel on one gallon of gas? This is your fuel efficiency as mpg
(miles per gallon). Show work.
(3 pts) With your car’s fuel efficiency, how many gallons of gas does it take for your car to drive 100
miles? Show work.
(4 pts) Determine the flow rate of your shower by collecting water for about 30 seconds. Use a big
container such as a pot from the kitchen or a bucket. Measure the amount of water you collect using a
measuring cup. Convert the measurements to gallons.
(3 pts) Time the length of 3 showers from the time you turn the water on until you turn the water off.
This will include the time it takes for the water to warm up.
(4 pts) Use the average length of a shower and the flow rate to determine the average number of
gallons used in a shower. Show work.
(5 pts) Find the electric meter on your house or at your apartment building. Learn how to read it.
Record the meter reading each day for 2 weeks, then calculate the number of kilowatt-hours (kWh) of
energy used each day. Be aware of any multipliers on the meter.
(4 pts) Make a frequency distribution and histogram of the number of kilowatt-hours used each day.
(2 pts) Find the mean number of kilowatt hours used each day.
(2 pts) Find the median number of kilowatt hours used each day.
x (x − x ) ( x − x )2
Sum:
(4 pts) Find the 95% confidence interval for the number of kilowatt-hours used each day.
Objective: Learn to juggling 2 tennis balls in one hand. Practice five minutes a day for two weeks.
Record the highest number of consecutive catches without a drop for each day. Recommendation:
Don’t practice near anything that can break!
(5 pts) Practice. List the days you practice and the best score for the day.
x (x − x ) ( x − x )2
sum:
(4 pts) Find the 95% confidence interval for your best scores.
Form 6.4 Replace all Coal Generating Facilities with Nuclear, Solar, or Wind
Objective. The objective is to determine the number of nuclear, solar, or wind generating facilities that
would be needed to replace all the coal power plants in the country.
(10 pts) For each state you select, use the table of random digits to randomly select 3 reactors. Under
the facilities menu option, use the Facilities Search option to generate all the reactors in the states you
selected. You may select coal and wind from the same states. If there aren’t 3 wind farms in a state,
use all there are. Visit each power plant selected and record the power that is listed there. Do this until
you have 15 for each type of power plant.
(10 pts) Determine the most appropriate class boundaries that can be used for both sets of data. Make
a frequency distribution and histogram for the coal data and one of the same size for the alternative
data.
(2 pts) How many operating coal plants are there in the US? This number is available on the national
map of the Energy Justice network if you check the operating coal plants box.
(4 pts) Using the average values, determine the number of your alternative generating facilities that
would be needed to replace all the coal plants in the country. Show work.