Estimation and

Confidence Intervals
Chapter 9

1
Learning Objectives

LO9-1 Compute and interpret a point estimate of a population mean

LO9-2 Compute and interpret a confidence interval for a population mean
LO9-3 Compute and interpret a confidence interval for a population
proportion
LO9-4 Calculate the required sample size to estimate a population proportion
or population mean
LO9-5 Adjust a confidence interval for finite populations
9-2
Point Estimate

A point estimate is a single value (statistic) used to estimate a population value (parameter)
POINT ESTIMATE The statistic, computed from sample information, that estimates a
population parameter.

Example
Suppose the Bureau of Tourism for Barbados wants an estimate of the mean amount spent
by tourists visiting that country. They randomly select 500 tourists as they depart and ask
these tourists about their spending while there. The mean amount spent by the sample of
500 tourists serves as an estimate of the unknown population parameter.
9-3
Confidence Intervals

A confidence interval is a range of values within which the population parameter is expected to
occur
CONFIDENCE INTERVAL A range of values constructed from sample data so that the population
parameter is likely to occur within that range at a specified probability.
The specified probability is called the level of confidence.

• The factors that determine the width of a confidence interval for a mean are
• The number of observations in the sample, n
• The variability in the population, usually estimated by the sample standard deviation, s
• The desired level of confidence

9-4
Level of Confidence, σ Known

To determine the confidence limits when the population standard deviation is known, we use the z
distribution
The formula is

x − sample mean
z − z - value for a particular confidence level
σ − the population standard deviation
n − the number of observatio ns in the sample
9-5
Finding a Value of z

The method for finding z for a 95% confidence interval is

• Divide the confidence interval in half, 0.9500/2 = 0.4750
• Find the value 0.4750 in the body of the table
• Identify the row and column and add the values
• The probability of finding a value between 0 and 1.96 is 0.4750
• So the probability of finding a value between +/- 1.96 is 0.9500

9-6
Level of Confidence, z Example

The American Management Association is studying the income of store managers in the retail industry. A random
sample of 49 managers reveals a sample mean of $45,420. The standard deviation of the population is $2,050.

1. What is the population mean?

2. What is a reasonable range of values for the population mean?
3. How do we interpret these results?

1. We do not know the population mean, so we can use the sample mean, $45,420 as our best estimate.
2. The AMA decides to use a 95% level of confidence, so use equation (9-1),
σ $2.050
xҧ ± z = $45,420 ± 1.96 = $45,420 ± $574
n
49
3. The confidence interval is from $44,846 and $45,994, the value $574 is called the margin of error.
9-7
Level of Confidence, σ Unknown

To determine the confidence limits when the population standard deviation is unknown, we use the t
distribution
The formula is

Example
The Dean of the Business College wants to estimate the mean number of hours full-time students
work at paying jobs each week. He randomly selects a sample of 30 students and asks them how
many hours they worked last week. He can calculate the sample mean, but it is unlikely he would
know the population standard deviation required for formula 9-1.
9-8
Characteristics of the t Distribution

• The t distribution is a continuous distribution

• It is mound-shaped and symmetrical
• It is flatter, or more spread out, than the standard normal distribution
• There is a family of t distributions, depending on the number of degrees of freedom

9-9
Finding a Value of t

• First assume the population is normal

• Using Appendix B.5, move across the columns identified for confidence intervals
• In the next example, we want to use the 95% level of confidence, so move to that column
• Then find df, the degrees of freedom, n-1

9-10
Level of Confidence, t Example
A tire manufacturer wishes to investigate the tread life of its tires. A sample of 10 tires driven 50,000 miles
revealed a sample mean of 0.32 inch of tread remaining with a standard deviation 0.09 inch. Construct a 95%
confidence interval for the population mean.
Would it be reasonable for the manufacturer to conclude that after 50,000 miles the population mean amount
of tread remaining is 0.30 inch?

ҧx ± t s = 0.32 ± 2.262 0.09 = 0.32 ± 0.064

n
10

The endpoints of the confidence interval are 0.256 and 0.384. The margin of error is 0.064. The manufacturer
can be reasonably sure (95% confident) that the mean remaining tread depth is between 0.256 and 0.384
inch. Because the value 0.30 is in this interval, it is possible that the mean of the population is 0.30.
9-11
Confidence Intervals for Proportions

PROPORTION The fraction, ratio, or percent indicating the part of the sample or the population having a
particular trait of interest.
A sample proportion, p, is found by x, the number of successes, divided by n, the number of observations

Examples
Southern Tech career services reports that 80% of its graduates enter the job market in a position related
to their field of study
A recent study of married men between the ages 35 and 50 found that 63% felt that both partners should
earn a living
9-12
Confidence Intervals for Proportions

A population proportion is identified by π

Two requirements
• The binomial conditions have been met
• The values nπ and n(1- π) should both be greater than or equal to 5
We construct a confidence interval for a population proportion with the following formula

9-13
Confidence Interval, π Example
The union representing the Bottle Blowers of America (BBA) is considering a proposal to merge with the Teamsters
Union. At least three-fourths of the BBA membership must approve any merger. A random sample of 2,000 current
members reveals 1,600 plan to vote for the merger proposal. What is the estimate of the population proportion? Can
you conclude that the necessary proportion of BBA members favor the merger? Why?
x 1,600
First, calculate the sample proportion, p = = = .80
n 2,000

Next, use formula (9-4) to determine the 95% confidence interval,

p(1−p) .80(1−.80)
p±z = .80 ± 1.96 = .80 ± .018
n 2,000

The endpoints of the confidence interval are .782 and .818, so we conclude the merger will likely pass because the
interval estimate includes values greater than 75% of the union membership.
9-14
Determining Sample Size for Means

• There are three factors that determine the sample size when we wish to estimate the mean
• The margin of error, E
• The desired level of confidence, for example 95%
• The variation in the population
• The formula to determine the sample size for the mean is

The result is not always a whole number; the usual practice is to round up any fractional result to
the next whole number.

9-15
Sample Size to Estimate a Population Mean Example

A student in public administration wants to estimate the mean monthly earnings of city council members in
large cities. She can tolerate a margin of error of $100 in estimating the mean. She would also prefer to
report the interval estimate with a 95% level of confidence. The student found a report by the Department
of Labor that reported a standard deviation of $1,000. What is the required sample size?

n=
𝑧𝜎 2 (1.96)($1,000) 2 2
= = 19.6 = 384.16
𝐸 $100

The computed value of 384.16 is rounded up to 385. A sample size of 385 is required to meet the
specifications.

9-16
Determining Sample Size for Proportions

• There are three factors that determine the sample size when we wish to estimate a
proportion
• The margin of error, E
• The desired level of confidence
• A value for π to calculate the variation in the population
• The formula to determine the sample size for a proportion is

9-17
Sample Size for the Population Proportion Example

The student in the previous example also wants to estimate the proportion of cities that have private refuse
collectors. The student wants to estimate the population proportion with a margin of error of .10, prefers a level
of confidence of 90%, and has no estimate for the population proportion.
What is the required sample size?

1.645
n = (.50)(1-.50) 2 = 67.65
.10

The student needs a random sample of 68 cities.

9-18
Finite Population Adjustment

• A population that has a fixed upper bound is finite

• For a finite population, the standard error is adjusted by the finite-population correction

factor,
𝑁−𝑛
𝑁−1

• This will make your estimate more precise by reducing the standard error and resulting
in a smaller range of values in estimating the population mean

9-19
Finite Population Adjustment Example
There are 250 families residing in Scandia, Pennsylvania. A random sample of 40 of these families revealed the mean
annual church contribution was $450 and the standard deviation of this was $75.
1. What is the population mean? What is the best estimate of the population mean?
2. Develop a 90% confidence interval for the population mean.
3. Using the confidence interval, explain why the population mean could be $445. Could the population mean be
$425? Why?
1. We do not know the population mean. The best estimate is $450.
2. The formula is
s N−n $75 250−40
xҧ ± t = $450 ± 1.685 = $450 ± $18.35
n N−1 250−1
40
3. The endpoints are $431.65 and $468.35, so the population mean could be $445. It is not likely the population
mean is $425 since $425 is not within the confidence interval.
9-20