CHAPTER THREE: HYPOTHESIS TESTING

Basic concepts
Researchers are interested in answering many types of questions. For example, a scientist
might want to know whether the earth is warming up. A physician might want to know
whether a new medication will lower a person’s blood pressure. An educator might wish to
see whether a new teaching technique is better than a traditional one. A retail merchant
might want to know whether the public prefers a certain color in a new line of fashion.
Automobile manufacturers are interested in determining whether seat belts will reduce the
severity of injuries caused by accidents. These types of questions can be addressed through
statistical hypothesis testing. In hypothesis testing, the researcher must define the
population under study, state the particular hypotheses that will be investigated, give the
significance level, select a sample from the population, collect the data, perform the
calculations required for the statistical test, and reach a conclusion.

HYPOTHESIS AND HYPOTHESIS TESTING DEFINED

Hypothesis is a statement or an assumption about the value of a population parameter or

parameters. Hypothesis is a statement about a population parameter subject to verification.
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. Hypothesis testing is a decision-making process
for evaluating claims about a population.
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
Steps in Hypothesis testing
Step I. Identity the null hypothesis and the alternative 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, no effect or no change. There is usually a ‘not’ or a ‘no’
term in the null hypothesis meaning no change”. The null hypothesis (denoted by H o) is a
statement that the value of a population parameter (such as proportion, mean, or standard
deviation) is equal to some claimed value. The null hypothesis states that there is no
difference between a parameter and a specific value, or that there is no difference between
two parameters. 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 if our sample information
provides 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.
Alternative hypothesis (H1) is a statement describes what we will believe if we reject the
null hypothesis. It is designated H1 (H sub – one) it indicates existence of a difference
between a parameter and a specific value, or states that there is a difference between two

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parameters. The alternative 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 and Find the critical value(s).
After setting up the null hypothesis and alternative 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
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
A significance level of say 5 percent means that in the long run, the risk of making the wrong
decision is about 5 percent. In other words, one is likely to be committing an error by
accepting a false hypothesis or in rejecting a true hypothesis in 5 out of 100 occasions. A
significance level of, say, 1 percent implies that there is a risk of being wrong in accepting or
rejecting the hypothesis in 1 out of every 100 occasions. So a null hypothesis that is rejected
in 5% level of significance (LOS) may be accepted in 1% LOS because the area of
acceptance at 99% confidence level is more. Your choice of significance level will be based
on the criticality of the decision.
Type I and type II errors (concepts)
A type I error is designated by  (alpha). It the mistake of rejecting the null hypothesis
when it is actually true. 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. 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.

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The critical region (or rejection region) is the set of all values of the test statistic that cause
us to reject the null hypothesis. A region corresponding to a statistic which amounts to
rejection of the H0 (null hypothesis) is termed as the critical region or region of rejection.
The value which separates the critical region from the acceptance region is called the
critical value (also known as the test statistic).

Step III: select the Test statistic

Test statistic – A value, determined from sample information, used to reject or not to reject
the null hypothesis. Z distribution is used as test statistic when the sample size is large, n 
30. When a sample is small (less than 30), then t – test are more appropriate. Based on the
sample size and the parameter to be tested the statistician will select the appropriate test
statistic.

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.
Summary table for decision rule.
Types of the test Reject H0 if Accept H0 if

Two tail test |Z cal|>Z α /2 |Z cal|<Z α /2 |Z cal|<Z α /2 |Z cal|>Z α /2

or or

Left tail test Z cal <−Z α Z cal >−Z α

Right tail test Z cal > Z α Z cal < Z α

Non-rejection

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 Region or do not reject H 0 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.
One – Tailed and Two – Tailed tests

One Tailed Test

A one-tailed test is either a right tailed test or left-tailed test, depending on the direction
of the inequality of the alternative hypothesis. The region of rejection is only in one tail of
the curve.

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. A test is one - tailed if H 1 state a

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direction. Test is one – tailed, if H 1 states  >, the it is one tailed (lower/left tailed test) or 
< it is one tailed ( upper tailed test).

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

HYPOTHESIS TESTING INVOLVING LARGE SAMPLE

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

Case 1 hypothesis test for the Population Mean when n  30 & Population
Standard Deviation Known
X̄−μ
Z=
In this case the relevant test statistic is σ /√n

Example. The efficiency ratings of a company have been normally distributed over a period
of many years. The mean of the distribution is 200 and the standard deviation is 16.
Recently, however, young employees have been hired and new training and production
methods introduced. The efficiency ratings of 100 employees were analyzed. The mean of
the sample was computed to be 203.5.Using the 0.01 level of significance; test the
hypothesis that the mean is still 200.

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Solution:
Step 1. State the null and alternative hypothesis
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.

Step 2: determine the level of significance

As noted the 0.01 level of significance is to be used. 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.

Step 3: select the test statistic

The test statistic for this type of problem is Z, because the sample is large (n=100).
X−μ
σ
Therefore, Z= √n
Compute Z
X−μ 203 .5−200 203 .5−200
=
σ 16 1.6
Z= √ n = √ 100 = 2.19

Step 4: The decision rule is rejecting Ho if Z>Za

Non-rejection
Rejection region with Region or do not reject H 0 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 2.19 2.58

The decision rule is therefore: 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.

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Step 5: Make a decision

Since 2.19 do 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.

Example 2
A researcher wishes to see if the mean number of days that a basic, low-price, small
automobile sits on a dealer’s lot is 29. A sample of 30 automobile dealers has a mean of 30.1
days for basic, low-price, small automobiles. At a = 0.05, test the claim that the mean time
is greater than 29 days. The standard deviation of the population is
3.8 days.
Solution
Step 1 State the hypotheses and identify the claim.
H0: =29 and H1: =29 (claim)
Step 2 Find the critical value. Since a =0.05 and the test is a right-tailed test, the critical
value is z=1.65.
Step 3 Compute the test value.

Step 4 Make the decision. Since the test value, 1.59, is less than the critical value, 1.96, and
is not in the critical region, the decision is to not reject the null hypothesis.
Check Your Progress –1

The management of chain of restaurants claims that the mean waiting time of customers for
service is normally distributed with a mean of 3 minutes and a standard deviation of one
minute. The quality assurance department found a sample of 50 customers at a restaurant
and that the mean waiting time was 2.75 minutes. At the 0.05 significance level test the
mean waiting time is less than 3 minutes?

Example A study in commercial bank of Ethiopia claimed that the mean commute time for
all employees working in teller counter exceeds 40 minutes. This figure is higher than what
has been assumed in the past. The plan is to test this claim using an alpha level equal to
0.05 and a sample size of 100 commuters. Based on previous studies, suppose that the
population standard deviation is known to be 8 minutes. Test the hypothesis following the
steps.
Example: The manager at the Female Fitness Club in Addis Ababa believes that the recent
remodeling project has greatly improved the club’s appeal for members and that they now
stay longer at the club per visit than before the remodeling. Studies show that the previous
mean time per visit was 36 minutes, with a standard deviation equal to 11 minutes. A simple
random sample of 200 visits is selected, and the current sample mean is 36.8 minutes. Test
the manager’s claim, and partially justify the remodeling project, using an alpha of 0.05 level
following steps.

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Case 2: Testing for the population mean when n  30 and 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
X−μ
S
standard deviation, S. Then the test statistic Z = √n
Example:
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?

Solution
Ho:  =400
Hi:  > 400
Because Hl states a direction, a one tailed test is applied. The critical value of Z is 1.96 for
0.05 level
X−μ 407−400
S 380
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 greater than 400, in favor of
H1, which states that the mean is greater than 400.

Check Your Progress –2

At the time a server was haired 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?

CASE 3: STUDENT’S t TEST/ SMALL SAMPLE/Testing for the population mean

when n  30 and standard deviation unknown
If the sample size is less than 30 observations and  is unknown the Z distribution is not
appropriate. The student’s t or the t distribution is used as the test statistic.

Example: Experience in investigating accident claims by an insurance company revealed

that it cost 60 on the average to handle the paper work, pay the investigator, and make a
decision. The cost compared with that of other insurance firms was deemed exorbitant, and

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cost cutting measures were instituted. In order to evaluate the impact of these new
measures, a sample of 26 recent claims was selected at random and cost studies were
made. It was found that the sample mean, x , and the sample standard deviations, s, were
57 and 10 respectively. At the 0.01 level is there a reduction in the average cost?
Step 1: - the null hypothesis, Ho: the population mean is 60
The alternate hypothesis, H1 the populations mean is less than 60. i.e.
Ho:  = 60
H1:-  < 60
Step 2: The 0.01 level is to be used
Step: 3 the test statistic is student’s t distribution. Because the population standard
deviation is unknown and the sample size is small (26 under 30)
X−μ
t= S/ √ n
X = 57
 = 67
S = 10 57−60
n = 26 t = 10/ √ 26 = -1.530

Step 4: The critical value

There are n -1 degrees of freedom for the test df (26-1= 25). The critical value for df = 25,
a one tailed test and 0.01 level is 2.787. The decision rule for this one tailed test is reject Ho
if the computed value of t falls in any part of the tails to the left of –2.787 otherwise do not
reject Ho.

Step 5: arrive at a decision

Because -1.530 lies in the region to the right of the critical value –2.787 Ho is not rejected at
the 0.01 level. This indicates that the cost cutting measures have not reduced the mean cost
per claim to less than 60 based on sample results.

Check Your Progress –6

From past records it is known that the mean life of a battery used in a digital clock is 305
days. The lives of the batteries is normally distributed. The battery was recently modified to
last longer. A sample of 20 modified batteries were tested. It was discovered that the man
life was 311 days and the sample standard deviation was 12 days. At the 0.05 level of
significance, did the modification increases the mean life of the battery?

Hypothesis testing; Two-population means; Independent population

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The basic concepts of hypothesis testing were explained with the z, t, tests, a sample mean,
or proportion can be compared to a specific population mean, variance, or proportion to
determine whether the null hypothesis should be rejected. There are, however, many
instances when researchers wish to compare two sample means, using experimental and
control groups. For example, the average lifetimes of two different brands of bus tires might
be compared to see whether there is any difference in tread wear. Two different brands of
fertilizer might be tested to see whether one is better than the other for growing plants. Or
two brands of cough syrup might be tested to see whether one brand is more effective than
the other.
Assumption for two-sample test
1. The population should be normally distributed
2. The population standard deviations for both populations 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 populations 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 populations, 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 S sample means
12 22
+
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 Sample mean Sample standard Sample Size
Deviation
Senior Citizens 5.5 Minutes 0.40 minuets 50
Other 5.3 Minutes 0.30 minutes 100

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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.
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. Therefore 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 than 2.58.
The critical value for 0.01 cruel, one-tailed tests is 2.58

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

Z = 50 √
(0 . 40 )2 (0 .30 )2
+
100 = 3.13
The computed value of 3.13 is beyond the critical value of 2.58. 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.
Exercise: A survey found that the average hotel room rate in New Orleans is $88.42 and
the average room rate in Phoenix is $80.61. Assume that the data were obtained from two
samples of 50 hotels each and that the standard deviations of the populations are $5.62 and
$4.83, respectively. At 0.05, can it be concluded that there is a significant difference in the
rates?

Testing for Population Proportion

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In testing hypothesis for the population proportion the assumptions of the binomial
distribution should be met.
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 current governor is interested
in assessing his chance of returning to office and plans to have a survey conducted
consisting of 2000 registered voters. The sample survey of 2000 potential voters revealed
that 1550 planned to vote for the present governor. At a=0.05 test if the proportion of
voters less than 80%?

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 is reelected.

Ho: P = 0.80
H1: P<0.80
Step 2: The level of significance is 0.05
The critical value is, -1.96 obtained from the Z table
Step 3: Z is the appropriate statistic
P−P
Z=
σp where P – is the population proportion and P is the sample proportion,
p is the standard error of the proportion

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

n =2000
Z= n√
P(1−P )

1550
P=
2000 = 0.775
p = 0.80, the hypothesized population proportion
P−P 0. 775−0 .80
=

Z= √
√ P(1−P)/n 0 . 8(1−0 .801
2000 = -2.80
Step 4: 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. make a decision with respect to Ho.

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

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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.

Example: The Family and Medical Leave Act provide job protection and unpaid time off from
work for a serious illness or birth of a child. In 2000, 60% of the respondents of a survey
stated that it was very easy to get time off for these circumstances. A researcher wishes to
see if the percentage who said that it was very easy to get time off has changed. A sample
of 100 people who used the leave said that 53% found it easy to use the leave. At a =0.01,
has the percentage changed?
Example: A dietitian claims that 60% of people are trying to avoid trans fats in their diets.
She randomly selected 200 people and found that 128 people stated that they were trying to
avoid trans fats in their diets. At a =0.05, is there enough evidence to reject the dietitian’s
claim?
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?

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 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. 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.
200 older women were selected at random and each was given the same standard smell test
of the 200 women 100 preferred the perfume. At a= 0.05 is there is a difference in the
proportion of younger and older women who prefer the perfume?
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 P 1 and the proportion of older women is P 2 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

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

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 Total number of successe x1 + x 2
Pc =Total number of samples = n1 +n2
Where x1 is the number of younger women
(sample 1) who prefer the perfume, x2 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.
X1 =40
n1=100 x 1 40
P1 = = =0 . 40
X2 = 100 n1 100
n2=200
x 2 100
P2 = = =0. 50
Pc is n2 200
The pooled or weighted proportion

x1 + x 2
40+ 100
Pc = n1 +n2 = 100+200 = 140 / 300 = 0.4667

P 1−P2 0 . 40−0. 50
= =−1 .64

Z= √ Pc (1−Pc ) P c (1−P c )
n1
+
n2 √ 0 . 4667(0 . 5333) 0 . 4667+0 .5333
100
+
200

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

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.
Example: In the nursing home study mentioned in the chapter-opening Statistics Today,
the researchers found that 12 out of 34 small nursing homes had a resident vaccination rate
of less than 80%, while 17 out of 24 large nursing homes had a vaccination rate of less than
80%. At a = 0.05, test the claim that there is no difference in the proportions of the small
and large nursing homes.

Check Your Progress –5

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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?

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