Chapter 7

Tests of hypotheses

7 .0 Aims and Objectives

When we estimate the value of a parameter we are using methods of estimation. The unknown value of a
population parameter is estimated from sample information by constructing confidence interval estimate.
Decision concerning the value of a population parameter are obtained by hypothesis testing, which is the
topic of this chapter.

7.1 Introduction
Most statistical inference center son the parameters of a population. In hypothesis testing we start with an
assumed value of a population parameter. Then sample evidence is used to decide whether the assumed
value is unreasonable and should be rejected, or whether it should be accepted; hence the statistical
inferences made are referred to as hypothesis testing.

7.2 Hypothesis and hypothesis testing defined

 Hypothesis is a statement or an assumption about the value of a population parameter or
parameters.
Examples
- The mean monthly income of all employees of a company is br. 2000.
- The average age of students in a college is 22 years
- 5% of the products of a firm are defective
All these hypothesis have one thing in common:
The population of interest are so large that for various reasons it would not be feasible to study all the
items, or persons, in the population
7.2.2 Hypothesis Testing Defined
Hypothesis testing is a procedure based on sample evidence and probability distribution used to determine
whether the hypothesis is a reasonable statement and should not be rejected, or is unreasonable and should
be rejected.
It is simply selecting a sample from the populations, calculate sample statistic and based on certain decision
rules accept or reject the hypothesis.
Test statistic is a sample statistic computed from the sample data. The value of the test statistic is used in
determining whether or not we may reject the hypothesis.
Decision rule of a statistical hypothesis is rule that specifies the conditions under which the hypothesis may
be rejected. We decide whether or not to reject the hypothesis by following the decision rule.

7.3 Steps for testing hypothesis

There is a five-step procedure that systematizes hypothesis testing.
Hypothesis testing as used by the statisticians does not provide proof that something is true, in the manner
in which a mathematician “proves” a statement. It does provide a kind of “proof beyond a reasonable
doubt” in the manner of an attorney.

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Step I. Identity the null hypothesis and the alternate hypothesis
The first step is to state the hypothesis to be tested. It is called the Null Hypothesis, designated by Ho
and read “H sub-zero”. The capital letter H stands for hypothesis and the subscript zero implies “no
difference or no change. There is usually a ‘not’ or a ‘no’ term in the null hypothesis meaning no change”.
The null hypothesis is set up for the purpose of either to rejecting or not to rejecting it. The null hypothesis
is a statement that will be rejected it our sample information provide us with convincing evidence that it
false. And it will not be rejected if our sample data fail to provide ample evidence that it is false.
If the null hypothesis is not rejected based on sample data, in effect we are saying that the evidence does
not allow us to reject it. We cannot state, however, that the null hypothesis is true. This is the same as the
situation in the courts.
In courts we heard judges saying, “Found not guilty” when they release a suspect free. They never say “he
is innocent”. The suspect is released may be because the prosecutor or the police fail to provide the court
with convincing evidence beyond reasonable doubt that the suspect has committed the crime. The null
hypothesis is a tentative assumption made about the value of a population parameter. Usually it is a
statement that the population parameter has a specific value.
Failure to reject the null hypothesis does not prove that Ho is true. To prove with out any doubt that the null
hypothesis is true, the population parameter would have to be known. This is usually not feasible.
The sample statistic is usually different from the hypothesized population parameter. For this reason we
have to make a judgment about the difference.
If a hypothesized mean is 70 and the sample mean is 69.5 we musts make a judgment about the difference
0.5. Is it a true difference, i.e a significant difference, or is it due to chance / sampling. To answer this
question we conduct a test of significance, commonly referred to as a test of hypothesis.
Identify the Alternative hypothesis (H 1): Alliterate hypothesis is a statement describes what we will
believe if we reject the null hypothesis. It is designated H 1 (H sub – one) the alternate hypothesis will be
accepted if the sample data provide us with evidence that the null hypothesis is false.
It is a statement that will be accepted if our sample data provide us with ample evidence that the null
hypothesis is false.
Step II: Determine the level of significance
After setting up the null hypothesis and alternate hypothesis, the next step is to state the level of
significance. It is the probability of rejecting the null hypothesis when it is actually true.
Level of significance is the risk we assume of rejecting the null hypothesis when it is a actually true.
The level of significance is designated by the Greek letter alpha, , it is also referred to as the level of risk.

Traditionally three levels of significance are known

0.05. level is selected for consumer research
0.01. for quality assurance
0.10. for political polling
The level of significance reflects the risk we want to assume A0.01 level of significance will yield smaller
risk than 0.05 or 0.1.
The researcher must decide on the level of significance before formulating a decision rule and collecting
sample data. This is very important to reduce bias. The level of significance can be any level between 0 and
1.

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To illustrate how it is possible to reject a true hypothesis, suppose that a computer manufacturer purchase a
component form a supplier. Suppose the contract specifies that the manufacture’s quality assurance
department will sample all incoming shipment of component. If more than 6% of the components sampled
are substandard the shipment will be rejected.
The null hypothesis is:
Ho= the incoming shipment of components contains 6% or less substandard components.
The alternative hypothesis is:
H1: More than 6% of the components are defective.
A sample of 50 components just received revealed that 4 components or 8% were substandard.
The shipment was rejected because it exceeded maximum of 6%. If the shipment was actually substandard
then the decision to return the component to the supplier was correct.
However suppose the 4 components selected in the sample were the only substandard components in the
shipment of 4000 components. Only 1% were defective. In that case less than 6% of the entire shipment
was substandard and rejecting the shipment was an error.
In terms of hypothesis testing we rejected the null hypothesis that the shipment was not substandard when
we should not have rejected it.
By rejecting a true hypothesis we committed a type I error.
A type I error is designated by  (alpha).
Type I error is rejecting the null hypothesis, Ho, when it is actually true.
The probability of committing another type of error, Type II error, is designated, beta, failure to
reject Ho when it is actually false.
The above firm would commit a type II error if, unknown to it, an incoming shipment contained 600
substandard components yet the shipment was accepted. Suppose 2 of the 50 component in the sample
(4%) tested were substandard and 48 were good. Because the sample contains less than 6% substandard
components, the shipment was accepted. But of all task the entire shipment 15% of the components we
defective.
We often refer to those two possible errors as the alpha error, and the beta error,
 error – the probability of making a type I error
 error – the probability of making type II error
The following table shows the decision the researcher could make and the possible consequences.
Null Hypothesis The researcher The Researcher
does not reject Ho rejects Ho
If Ho is true Correct decision Type I error α
If Ho is false Type II errorβ Correct decision
Step III: Find the Test statistic
Test statistic – A value, determined from sample information, used to reject or not to reject the null
hypothesis.
There are many test statistics, Z (the normal distribution), the student t test, F, and X 2 or the chi –square.
The standard normal deviate, Z distribution is used as test statistic when the sample size is large, n  30.
Based on the sample size and the parameter to be tested the statistician will select the appropriate test
statistic.

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Step IV: Determine the decision rule
A decision rule is a statement of the conditions under which the null hypothesis is rejected and the
conditions under which it is not rejected.
The region or area of rejection defines the location of all those values that are so large or so small that the
probability of their occurrence under a true null hypothesis is rather remote.
Sampling distribution for the statistic Z, 0.05 level of significance.

Non-rejection
Region or do not reject H0 Rejection region

Scale of Z
0 1.6 45
0.95 Probability 0.05 Probability
Initial Value

The above chart portrays the rejection region for a test of significance. The level of significance selected is
0.05.
1. The area where the null hypothesis is not rejected includes the area to the left of 1.645
2. The area of rejection is to the right of 1.645
3. A one – tailed test is being applied /will be discussed latter on/
4. The 0.05 level of significant was chosen
5. The sampling distribution is for the test statistic Z , the standard normal deviate.
6. The value 1.645 separates the regions where the null hypothesis is rejected and where it is not
rejected
7. The value 1.645 is called the critical value. It is the corresponding value of the test statistic for the
selected level of significance i.e. Z value at the 0.05 level of significance is 1.645.

Critical value: The dividing point between the region where the null hypothesis is rejected and the region
where it is not rejected.
Steps V: Take a sample and made a decision
At this step a decision is made to reject or not to reject the null hypothesis. For the above chart, if based on
sample data or information, Z is computed be 2.34 the null hypothesis is rejected at the 0.05 level of
significance.
The decision to reject Ho is made because 2.34 lies in the region of rejection that is beyond 1.645. We
would reject the null hypothesis reasoning that it is highly improbable that a computed Z value this large is
due to sampling variation or chance. Had the computed value been 1.645 or less say 0.71 then Ho would
not be rejected. It would be reasoned that such a small computed value could be attributed to chance that is
sampling variation.
One – Tailed and Two – Tailed tests of significance

One Tailed Test

The region of rejection is only in one tail of the curve. The above example indicates that the region of
rejection is in the right (upper) tail of the curve.
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 Non-rejection
Rejection region Region or do not reject H0

0.95 Probability
Z
-1.6 45 0
0.05 Probability 0.95 Probability

Initial Value

Consider companies purchase larger quantities of tire. Suppose they want the tires to an average mileage of
40,000 Km of wear under normal usage. They will therefore reject a shipment of tires if accelerated - life
test reveal that the life of the tires is significantly below 40000 Km on the average.

The purchasers gladly accept a shipment if the mean life is greater than 40000 Kms, they are not concerned
with this possibility.

They are only concerned if they have sample evidence to conclude that the tires will average less than
40000 Kms of useful life.

Thus the test is set up to satisfy the concern of the companies that the mean life of the tires is less than
40000Km.
The null and alternate hypotheses are written: -
Ho:  = 40,000 km and
H1: < 40000 km
One way to determine the location of the rejection region is to look at the direction in which the inequality
sign in the alternate hypothesis is pointing.
Test is one – tailed, if H1 states > or < if 1 , states a direction, test is one - tailed.

Two-tailed test
A test is two - tailed if H1 does not state a direction.
Consider the following example:

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Ho: there is no difference between the mean income of males and the mean income of females.
H1: there is a difference in the mean income of males and the mean income of females.
If Ho is rejected and H1 accepted the mean income of males could be greater than that of females or vis
versa. To accommodate these two possibilities, the 5 level of significance representing the area of rejection
is divided equally in to two tails of the sampling distribution. If the level of significant is 0.05 each
rejection region will have 0.025 probability.

Note that the total area under the normal curve is one found by 0.95 + 0.025 + 0.025.

Non-rejection
Rejection region Region or do not reject H0 Rejection region

0.95 Probability
Z
-1. 96 0 + 1. 96
0.025 Probability 0.025 Probability

Initial Value Initial Value

7.4 Hypothesis testing involving large sample

Note that a sample of 30 or more is considered large.

7.4.1 Test for the Population Mean
7.4.1.1 Population Standard Deviation Known
Example1. The efficiency ratings of a company have been normally distributed over a period of many
years. The arithmetic mean () of the distribution is 200 and the standard deviation is 19. Recently,
however, young employees have been hired and new training and production methods introduced. Using
the 0.01 level of significance, we want to test the hypothesis that the mean is still 200.
Solution:
Step 1. The null hypothesis is " The population mean is still 200 " the alternative hypothesis is “The mean
is different from 200 " or "The mean is not 200"
the two hypotheses are written as:
Ho :  =200
H1:  200
This is a two - tailed test because the alternate hypothesis does not state the direction of the difference.
That is, it does not state whether the mean is greater than or less than 200.

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Step 2: - As noted the 0.01 level of significance is to be used. This is  the probability of committing a
type I error. That is the probability of rejecting a true hypothesis.
Step 3: - The test statistic for this type of problem is Z, the standard normal deviate /you will see later on
that the sample size is large/
X−μ
σ
Z = √n
Step 4: The decision rull is formulated by finding the critical values of Z from the table of normal
distribution.
Since this is a two - tailed test, half of 0.01 or 0.005 is in each tail. Each rejection region will have a
probability of 0.005.
The area where Ho is not rejected located between the two tails, is therefore, 0.99.
0.5000-0.005= 0.4950 so 0.4950 is the area between 0 and the critical value. The value nearest to 0.4950 is
0.495. The value for this probability is 2.58.

Non-rejection
Rejection region with Region or do not reject H0 Rejection region
probability 0.99 Probability with probability 0.01÷2=0.005
0.01÷2=0.005 0.4950=0.5-0.005 0.4950=0.5-0.005
Z
It is not rejected

The decision rule is there fore: Reject the null hypothesis and accept the alternate hypothesis if the
computed value of Z does not fall in the region between +2.58 and -2.58. Otherwise do not reject the null
hypothesis.

Step 5: Take a sample and make a decision

Take a sample from the population (efficiently ratings) compute Z and based on the decision rule, arrive at
a decision to reject Ho or not reject Ho.
The efficenty ratings of 100 employees were analyzed. The mean of the sample was computed to be 203.5.
Compute Z
X−μ 203 .5−200 203 .5−200
=
σ 16 1.6
Z= √ n = √ 100 203.5-200= 2.19
Since 2.19 does not fall in the rejection region, Ho is not rejected. So we conclude that the difference
between 203.5, the sample mean, and 200 can be attributed to chance variation.
Note: Selecting the level of significance before setting up the decision rule and sampling the population is
important not to be biased.
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Ho is not rejected at the 1% level. We would have biased the later decision by not initially selecting the
0.01 level. Instead we could have waited until after the sampling and selected a level of significance that
would cause the null hypothesis to be rejected. We could have chosen, for example , the 0.05 level. The
critical value for that level are + 1.96.
Since the computed value of Z (2.19) lies beyond 1.96 the null hypothesis would be rejected and we could
concluded that the mean efficiency rating is not 200.
Example 2: The mean annual turn over rate of a brand of chemical is 6.0 (this indicates that the stock of
the chemical turns over an average of six times a years) . The standard deviation is 0.5. It is suspected that
the average turnover is not 6.0. The 0.05 level of significance is to be used to test this hypothesis.
1. State Ho, ad H1
2. What is the value of ?
3. Give the formula for the test statistic
4. State the decision rule
5. A random sample of 64 bottles of a brand was selected. The mean turn over rate computed to be
5.84. Shall we reject the null hypothesis at the 0.05 levels? Interpret.
Solution:
1. Ho:  = 6.00
H1:  6.00
2. 0.05
X−μ
σ
3. Z = √ n
4. Do not reject the null hypothesis if the computed Z value fales between – 1.96 and + 1.96
5. 84−6 . 00
0. 5
5. Z = √ 64 = 2.56
6. reject Ho at the 0.05 level. Accept H1 the mean turnover is not equal to 6.00.

A one Tailed Test

If the alternate hypothesis states a direction (either greater than “ or “ less than”) the test is one tailed. The
hypothesis – testing procedure is generally the same as for a two – tailed test, except that the critical value
is different.
Let us change the alternate hypothesis in the previous problem, involving efficing racting of worker
H1:  200 (tow – tailed test) to
H1: > 200 ( a one – tailed test )
The critical values for the two – tailed test were -2.58 and +2.58. The region of rejection for a one – tailed
test is in the right tail of the curve
For a one-tailed test the critical value is found by
a. 0.5000 – 0.01 = 0.4900
b. The Z value for 0.4900 = probability is  2.33

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P – Values is Hypothesis Testing
Additional value is often reported on the strength of the rejection, or how confident we are in rejecting the
null hypothesis. This method reports the probability (assuming that the null hypothesis is true) of getting a
value of the test statistic at least as exterm as that obtained.
This procedure compares the probability, called P – Value, with the significance level.
If the P- value is smaller than the significance level, Ho is rejected. If it is larger than the significant level
Ho is not rejected. This procedure not only results in decision regarding Ho but it gives us in sight into the
strength of the decision.
A very small P- values say 0.001, means that there is a very little likelihood that Ho is true. On the other
hand, a p- value of 0.4 means that Ho is not rejected, and we did not come very close to rejecting it.
Recall that for the efficiency ratings the computed value of Z was 2.19. The decision was not to reject Ho
because the Z of 2.19 fall in the non-rejection area between 2.58 and + 2.58. The probability of obtaining a
Z values of 2.19 or more is 0.0143 found by 0.5000 – 0.4857. To compute the P – value, we need to be
concerned with values less than -2.19 and values greater than + 2.19. The p- value is 0.0286 found by
2(0.0143). The P – value of 0.0286 is greater than the significance level (0.01) decided upon initially, so Ho
is not rejected.

7.4.1.2 Testing for the population mean: (standard deviation unknown)

In the preceding problems, we knew population standard deviation, . In most cases, however, it is
unlikely that  would be known. Thus it must be estimated using the sample standard deviation, S. Then
X−μ
S
the test statistic Z = √ n
Example 3 :
A department store issues it own credit card. The credit manger wants to find out if the mean monthly
unpaid balance is more than Br. 400. The level of significance is set at 0.05. A random check of 172 unpaid
balances revealed the sample mean to be 407 and the standard deviation of the sample 38. Should the credit
manager conclude that the population mean is greater than 400, or is it reasonable to assume that the
difference of 407- 400=7 is due to chance:
Solution
Ho:  =400
Hi: > 400
Because Hl states a direction, a one tailed test is applied. The critical value of Z is 1.645 for 0.05 level

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 X−μ 407−400
S 38
Z = √ n = √ 172 = 2.42
A value of this large (2.42) will occur less than 5% of the time. So the credit manager would reject the null
hypothesis, Ho. that the mean unpaid balance is 400, in favor of H 1, which states that the mean is greater
than 400.
The P – value, in this one – tailed test is the probability that Z is greater than 2.42. Found by 0.5000-
0.4922. 0.4922 is the probability that Z can assume a value of 2.420.
Check Your Progress –2
At the time a server was heired at a restaurant was told by the manager that she can average more than 20
br a day in tips. Over the first 35 days she was employed at the restaurant, the mean daily amount of her
tips was 24.85 br with a standard deviation of 3.24 br. At the 0.01 significance level, can the manager
conclude that she is earning more than 20 br. per day in tips?
7.4.2 Hypothesis testing; Two-population means; Independent population
Assumption for two-sample test
1. The population should be normally distributed
2. The population standard deviations for both population should be known. If they are not known,
then both samples should contain at least 30 observations so that the sample standard deviation can
be used to approximate the population standard deviation
3. The samples should be drawn from independent population.
If we select random samples from two normal population the distribution of the differences between the
two means is also normal or if a large number of independent random samples are selected from two
population, the difference between the two means will be normally distributed. If these differences are
divided by the standard error of the difference, the result is the standard normal distribution.
The formula for the test statistic Z is
x 1 −x 2
The difference between two

√
S 2 S 2 sample means
1 2
+
Z = n1 n2 Standard error of the difference
between two sample means
Example: Each patient at a hospital is asked to evaluate the service at the time of discharge. Recently there
have been several complaints that resident physicians and nurses on the surgical wing respond too slowly to
the emergency calls of senior citizens. The administrator of the hospital asked the quality assurance
department to investigate. After studying the problem, the quality assurance department collected the
following sample information. At the 0.01 significance level, is the response time longer for the senior
citizens, emergencies?
Patient type Smaple mean Sample standard Sample Size
deviation
Senor Citizens 5.5 Minutes 0.40 minuets 50
Other 5.3 Minutes 0.30 minutes 100
Solution:-
The testing procedure is the same as for one sample test except the formula for the test statistic, Z:
Step 1: Ho: there is no difference in the mean response time between the two groups of patients.

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i: e The difference of 0.2 minute, in the arithmetic mean response time is due to chances.
H1: the mean response time is greater for the senior citizens
Because the quality assurance department is concerned that the response time is greater for senior citizens,
he wants to conduct a one – tailed test. There fore the null and alternate hypotheses are stated as follows.
Ho: 1 = 2
H1: 1>2
Step 2: The 0.01 significance level is selected.
x 1 −x 2

√
S S
12 22
+
Step 3: the test statistics is Z, the standard normal distribution, Z = n1 n2
Step 4: The decision rule is:
Reject the null hypothesis if the computed value of Z is greater then 2.33.
The critical value for 0.01 cruel, one-tailed test is 2.33
Step 5: Calculate the test statistic and make a decision.
x 1 −x 2

√
S S
12 22
+
The test statistic is Z = n1 n2
5 .5−5 .3

√
(0 . 40 )2 (0 .30 )2
Z = 50
+
100 = 3.13
The computed value of 3.13 is beyond the critical value of 2:33. Therefore, the null hypothesis is rejected
and the alternate hypothesis is accepted at the 0.01 significant level.
The quality assurance department will report to the administrator that the mean response time of the nurses
and resident physicians is longer for senior citizens than for other patients.
What is the P-value in this problem?
P- Value is the probability of computing aZ value this large or larger when Ho is true.
What is the likelihood of aZ value greater than 3.13
P(Z=3.13)= 0.4991
So, P(Z)>3.13 ) =0.5000-0.44991=0.0009
Ho is very likely false and there is little likelihood of a type I error.

Check Your Progress –3

A peal Estate Association is preparing a pamphlet that they feel might be of interest to prospective home
buyers in the eastern and western areas of the city. One item of interest is the length of time the seller
occupied the home. A sample of 40 home sold recently in the eastern areas revealed that the mean length of
ownership was 7.6 years with standard deviation of 2.3 years.
A sample of 55 homes in the western areas reaealled that the mean length of ownership was 8.1 years with
a standard deviation of 2.9 years. At the 0.05 significance level can we conclude that the Eastern residents
owned the homes for a shorter period of time?

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7.4.3 Testing for Population Proportion
In testing hypothesis for the population proportion the assumptions of the binomial distribution should be
met. To test for the proportion
a) np and n(1-p) both should be greater than 5.
b) n should be at least 50
Example: suppose prior elections in a region indicated that it is necessary for a candidate for governor to
receive at least 80% of the majority vote. The incumbent governor is interested in assessing his chance of
returning to office and plans to have a survey conducted consisting of 2000 registered voters
Using the five – step hypothesis testing procedure, asses the governor’s chances of reflection
np = 2000(0.8) = 1600 which is greater than 5
nq = n(1-p) = 2000(1-0.8) = 400 which is greater than 5
both 1600 and 400 are greater than 5
Step 1: The null hypothesis Ho is that the population proportions is 0.80
The alternate hypothesis, H1 is that the proportion is less than 0.80.
The incumbent governor is concerned only when the sample proportion is less than 0.8. If it is equal to or
greater than 0.8 he will have no problem; that is the sample data would indicate he will be probably be
reelected.
Ho: P = 0.80
H1: P<0.80
Step 2: The level of significance is 0.05
Step 3: Z is the appropriate statistic
P−P
Z=
σ p where P – is the population proportion and
P is the sample proportion, p is the standard error of the proportion

σP = √
p(1−p )
n
p−p
so the formula for Z becomes :

Step 4:
Z= √
P(1−P )
n

The area between 0 and the critical value is, 1.645 obtained for the Z table 0.45000 = 0.5000 – 0.05 Z value
for probability 0.450 is 1.645.
The decision rule is therefore reject the null hypothesis and accept the alternate hypothesis if the computed
value of Z falls to the left of -1.645 otherwise do not reject Ho.
Step 5. Take Sample and make a decision with respect to Ho.
The sample survey of 2000 potential voters revealed that 1550 planned to vote for the incumbent governor.
Is the proportion of 0.775 (found by 1550/2000) close enough to 0.80 to conclude that the difference if due
to chance?
n =2000
1550
P=
2000 = 0.775

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 P−P 0. 775−0 .80
=

p = 0.80, the hypothesized population proportion Z = √

√ P(1−P)/n 0 . 8(1−0 .801
2000 = -2.80
The computed value of Z (-2.80) is in the rejection region. So the null hypothesis is rejected at the 0.05
level of significance. The difference of 2.5 percentage points between the sample (77.5) and the
hypothesized population percentage (80.0) is statistically significance. It is probably not due to sampling
variation.
To put it another way the evidence at this point does not support the claim that the incumbent governor will
return to the office.
The p- Value is 0.0026 found by 0.5000-0.4974. 0.4974 is the probability of Z to assume
–2.80 value. It is less than the significance level of 0.05. So Ho should be rejected. This further indicates
that the likelihood that Ho is ture is small.
Check Your Progress –4
This Claim is to be investigated at the 0.02 level “Forty percent of those persons who retired from an
industrial job before the age of 60 would return to work if a suitable job were available” 74 persons out of
the 200 sampled said they would return to work.
Can we conclude that the fraction returning to work is different from 0.40?
1) Can the Z test be used? Why or why not?
2) State the null hypothesis and the alternate hypothesis
3) Compute Z, and arrive at a decision
7.4.4 Testing for the Difference between two Population Proportions
Example: - a company has developed a new perfume
One of the questions is whether the perfume is preferred by a larger proportion of younger women or a
larger proportions of older women. A standard smell test is used.
Women selected at random are asked to sniff several perfumes in succession, including the new. Each
woman selects the perfume she likes best.
Step 1
Ho “ There is no difference between the proportion of younger women who prefer the perfume and the
proportion of older women who prefer it” If the proportion of younger women in the population is
designated as P1 and the proportion of older women is P2 then;
Ho: P1= P2
The alternate hypothesis is that the two proportions are not equal or:
Hi: P1 P2
Step 2: It was decided to use the 0.05 level.
Step 3: The test statistic is Z and the formula is: -
P−P 2 where: n1 , is the number of young women selected in the
sample n2 is the number of older women selected in the sample,

Z= √ Pc (1−Pc ) P c (1−P c )
n1
+
n2
Pc = is the weighted mean of the two sample proportion
computed by

Statistics for Management /finance chapter 7(Tests of hypotheses) lecture note by Legese.T 2019/12Page13
 Total number of successe x1 + x 2
P c =Total number of samples = n1 +n2 where x1 is the number
of younger women (sample 1) who prefer the perfume, x 2
is the number of older women (sample 2) who prefer the
perfume.
Pc is generally referred to as the pooled estimate of the population proportion or it is a combined estimate,
combined proportion.
Step 4: The Formulate Decision Rule:
The critical values for the 0.05 level two-tailed tests are -1.96 and +1.96. If the computed Z value is in the
region between +1.96 and -1.96, the null hypothesis will not be rejected. If it does occur it is assumed that
any difference between the two proportions is due to chance variation.
Two – tailed test, Areas of rejection and Non-rejection 0.05 level of significance.
Step 5: The decision
A total of 100 young women selected at random, and each was given the standard smell test. Forty of the
100 young women chose the perfume, as they liked best
x1 = 40 n1= 100 and
200 older women were selected at random and each was given the same standard smell test of the 200
women 100 preferred the perfume.
x2 = 100 x 40
n2=200 P1 = 1 = =0 . 40
P n1 100
The pooled or weighted proportion c is x 100
x1 + x 2 P2 = 2 = = 0 . 50
n 200
Pc = n1 +n2 = 100  200 = 140 / 300 = 0.4667
40  100 2

P 1−P2 40−0.50
= =−1.64

Z= √ n
1
+
n 2
100 √
Pc (1−Pc ) P c (1−P c ) 0.4667(0.5333) 0.4667+0.5333
+
200

The computed value of Z (-1.64) falls in the non-rejection region. Therefore we concluded that there is no difference in the
proportion of younger and older women who prefer the perfume. In this case we expect the P- value to be greater than the
significance level of 0.05, and it is.

for Z = -1.64 probability is 0.4495

P value = 0.5000 – 0.4495 = 0.0505 for one tail only

However the test was two tailed, so we must account for the area beyond 1.64 as well as the area less than -1.64. Then
The P – value is 2(0.0505) = 0.1010

Model exam.

Of 150 girls who tried a new candy 87 rated it excellent of 200 boys sampled 123 rated it excellent using the 0.10 level of
significance, can we conclude that there is a difference in the proportion of girls versus boys who rate the candy excellent?
1. State the null and alternate hypotheses
2. What is the decision rule
3. Compute the value of the test statistics

Statistics for Management /finance chapter 7(Tests of hypotheses) lecture note by Legese.T 2019/12Page14
 4. State your decision granting Ho
5. Compute the P – value

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