What is the rule that governs when to use counting method or binomial theorem?
Recall the requirements for a binomial random variable - more specifically,
the probability, p, must remain constant after every selection/trial/event.
In the question above, we only have 10 items to select one. Let's say we take one (without replacing it) - the probability of it being defective is 4/10. What about the next one being defective? 3/9 (since there is one less in total, and one less defective). The probability is clearly changing after every trial. So, we cannot use the binomial distribution.
Now consider, let's say the question was selecting from a population of 100,000 items, of which 40% (40,000) are defective. What's the probability we select a defective item? 40,000/100,000. What about another one (without replacement)? 39,999/99,999. If we compare these probabilities, they are approximately equal (convert to decimals to check for yourself). Here, we are selecting from a 'large' population. The probability
does change, but by a relatively insignificant amount. Therefore, we consider p to be (relatively) constant, which means we can use the binomial distribution.