Statistics for Business and Economics

Tenth Global Edition

Chapter 1
Describing Data:
Graphical

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Chapter Goals (1 of 3)
After completing this chapter, you should be able to:

• Explain how decisions are often based on incomplete

information
• Explain key definitions:
– Population vs. Sample
– Parameter vs. Statistic
– Descriptive vs. Inferential Statistics
• Describe random sampling and systematic sampling
• Explain the difference between Descriptive and Inferential
statistics

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Chapter Goals (2 of 3)
After completing this chapter, you should be able to:

• Identify types of data and levels of measurement

• Create and interpret graphs to describe categorical
variables:
– frequency distribution, bar chart, pie chart, Pareto diagram
• Create a line chart to describe time-series data
• Create and interpret graphs to describe numerical
variables:
– frequency distribution, histogram, ogive, stem-and-leaf display

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Chapter Goals (3 of 3)
After completing this chapter, you should be able to:

• Construct and interpret graphs to describe relationships

between variables:
– Scatter plot, cross table
• Describe appropriate and inappropriate ways to display
data graphically

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Section 1.1 Decision Making in an
Uncertain Environment (1 of 2)
Everyday decisions are based on incomplete
information
Examples:
• Will the job market be strong when I graduate?
• Will the price of Yahoo stock be higher in six months than it
is now?
• Will interest rates remain low for the rest of the year if the
federal budget deficit is as high as predicted?

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Section 1.1 Decision Making in an
Uncertain Environment (2 of 2)
Data are used to assist decision making
• Statistics is a tool to help process, summarize, analyze,
and interpret data

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Key Definitions
• A population is the collection of all items of interest or
under investigation
– N represents the population size

• A sample is an observed subset of the population

– n represents the sample size

• A parameter is a specific characteristic of a population

• A statistic is a specific characteristic of a sample

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Population vs. Sample
Population Sample

Values calculated using Values computed from

population data are sample data are called
called parameters statistics

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Examples of Populations
• Names of all registered voters in the United States
• Incomes of all families living in Daytona Beach
• Annual returns of all stocks traded on the New
York Stock Exchange
• Grade point averages of all the students in your
university

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Random Sampling
Simple random sampling is a procedure in which
• each member of the population is chosen strictly by
chance,
• each member of the population is equally likely to be
chosen,
• every possible sample of n objects is equally likely to be
chosen
The resulting sample is called a random sample

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Systematic Sampling (1 of 2)
For systematic sampling,
• Assure that the population is arranged in a way that is not
related to the subject of interest
• Select every j th item from the population…
• …where j is the ratio of the population size to the
N
sample size, j 
n
• Randomly select a number from 1 to j for the first item
selected
The resulting sample is called a systematic sample

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Systematic Sampling (2 of 2)
Example:
Suppose you wish to sample n = 9 items from a population
of N = 72.
N 72
j  8
n 9
Randomly select a number from 1 to 8 for the first item to
include in the sample; suppose this is item number 3.
Then select every 8th item thereafter
items 3, 11, 19, 27, 35, 43, 51, 59, 67 

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Descriptive and Inferential Statistics
Two branches of statistics:
• Descriptive statistics
– Graphical and numerical procedures to summarize and
process data

• Inferential statistics
– Using data to make predictions, forecasts, and
estimates to assist decision making

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Descriptive Statistics
• Collect data
– e.g., Survey

• Present data
– e.g., Tables and graphs

• Summarize data
– e.g., Sample mean   X i

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Inferential Statistics
• Estimation
– e.g., Estimate the population
mean weight using the
sample mean weight
• Hypothesis testing
– e.g., Test the claim that the
population mean weight is
140 pounds

Inference is the process of drawing conclusions or

making decisions about a population based on sample
results
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Section 1.2 Classification of Variables

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Measurement Levels

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Section 1.3-1.5 Graphical
Presentation of Data (1 of 2)
• Data in raw form are usually not easy to use for
decision making
• Some type of organization is needed
– Table
– Graph
• The type of graph to use depends on the variable
being summarized

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Section 1.3-1.5 Graphical
Presentation of Data (2 of 2)
• Techniques reviewed in this chapter:

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Section 1.3 Tables and Graphs for
Categorical Variables

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The Frequency Distribution Table
Summarize data by category
Example: Hospital Patients by Unit

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Graph of Frequency Distribution
• Bar chart of patient data

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Cross Tables
• Cross Tables (or contingency tables) list the
number of observations for every combination of
values for two categorical or ordinal variables
• If there are r categories for the first variable (rows)
and c categories for the second variable (columns),
the table is called an r  c cross table

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Cross Table Example
• 3  3 Cross Table for Investment Choices by Investor
(values in $1000’s)

Investment Investor A Investor B Investor C Total

Category
Stocks 46 55 27 128
Bonds 32 44 19 95
Cash 15 20 33 68
Total 93 119 79 291

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Graphing Multivariate Categorical
Data (1 of 2)
• Side by side horizontal bar chart

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Graphing Multivariate Categorical
Data (2 of 2)
• Stacked bar chart

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Vertical Side-by-Side Chart Example
• Sales by quarter for three sales territories:

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Bar and Pie Charts
• Bar charts and Pie charts are often used for
qualitative (categorical) data
• Height of bar or size of pie slice shows the
frequency or percentage for each category

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Bar Chart Example

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Pie Chart Example

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Pareto Diagram
• Used to portray categorical data
• A bar chart, where categories are shown in
descending order of frequency
• A cumulative polygon is often shown in the same
graph
• Used to separate the “vital few” from the “trivial
many”

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Pareto Diagram Example (1 of 3)
Example: 400 defective items are examined for
cause of defect:
Source of
Manufacturing Error Number of defects
Bad Weld 34
Poor Alignment 223
Missing Part 25
Paint Flaw 78
Electrical Short 19
Cracked case 21
Total 400
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Pareto Diagram Example (2 of 3)
Step 1: Sort by defect cause, in descending order
Step 2: Determine % in each category
Source of
Manufacturing Error Number of defects % of Total Defects
Poor Alignment 223 55.75
Paint Flaw 78 19.50
Bad Weld 34 8.50
Missing Part 25 6.25
Cracked case 21 5.25
Electrical Short 19 4.75
Total 400 100%
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Pareto Diagram Example (3 of 3)
Step 3: Show results graphically

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Section 1.4 Graphs to Describe Time-
Series Data
• A line chart (time-series plot) is used to show the
values of a variable over time
• Time is measured on the horizontal axis
• The variable of interest is measured on the
vertical axis

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Line Chart Example

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Section 1.5 Graphs to Describe
Numerical Variables

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Frequency Distributions
What is a Frequency Distribution?
• A frequency distribution is a list or a table…
• containing class groupings (categories or ranges
within which the data fall)...
• and the corresponding frequencies with which
data fall within each class or category

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Why Use Frequency Distributions?
• A frequency distribution is a way to summarize
data
• The distribution condenses the raw data into a
more useful form...
• and allows for a quick visual interpretation of the
data

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Class Intervals and Class Boundaries
• Each class grouping has the same width
• Determine the width of each interval by
largest number  smallest number
w  interval width 
number of desired intervals
• Use at least 5 but no more than 15-20 intervals
• Intervals never overlap
• Round up the interval width to get desirable
interval endpoints

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Frequency Distribution Example (1 of 3)
Example: A manufacturer of insulation randomly
selects 20 winter days and records the daily high
temperature
data:

24, 35, 17, 21, 24, 37, 26, 46, 58, 30,
32, 13, 12, 38, 41, 43, 44, 27, 53, 27

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Frequency Distribution Example (2 of 3)
• Sort raw data in ascending order:
12, 13, 17, 21, 24, 24, 26, 27, 27, 30, 32, 35, 37, 38, 41, 43, 44, 46, 53, 58
• Find range: 58  12 = 46
• Select number of classes: 5 (usually between 5 and 15)
• Compute interval width: 10  
46
then round up 
 5 
• Determine interval boundaries: 10 but less than 20, 20 but
less than 30, , 60 but less than 70
• Count observations & assign to classes

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Frequency Distribution Example (3 of 3)
Data in ordered array:
12, 13, 17, 21, 24, 24, 26, 27, 27, 30, 32, 35, 37, 38, 41, 43, 44, 46, 53, 58

Relative
Interval Frequency Percentage
Frequency
10 but less than 20 3 .15 15

20 but less than 30 6 .30 30

30 but less than 40 5 .25 25

40 but less than 50 4 .20 20

50 but less than 60 2 .10 10

Total 20 1.00 100

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Histogram
• A graph of the data in a frequency distribution is
called a histogram
• The interval endpoints are shown on the
horizontal axis
• the vertical axis is either frequency, relative
frequency, or percentage
• Bars of the appropriate heights are used to
represent the number of observations within each
class
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Histogram Example

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Histograms in Excel (1 of 2)

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Histograms in Excel (2 of 2)

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Questions for Grouping Data into
Intervals
• How wide should each interval be?
(How many classes should be used?)
• How should the endpoints of the intervals be
determined?
– Often answered by trial and error, subject to user
judgment
– The goal is to create a distribution that is neither too
"jagged" nor too "blocky”
– Goal is to appropriately show the pattern of variation in
the data

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How Many Class Intervals?
• Many (Narrow class intervals) 3.5

– may yield a very jagged distribution 3

2.5

Frequency
with gaps from empty classes 2
1.5
– Can give a poor indication of how 1
0.5
frequency varies across classes 0

4
8
12
16
20
24
28
32
36
40
44
48
52
56
60
More
Temperature

• Few (Wide class intervals)

– may compress variation too much
and yield a blocky distribution
– can obscure important patterns of
variation.

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The Cumulative Frequency
Distribution
Data in ordered array:
12, 13, 17, 21, 24, 24, 26, 27, 27, 30, 32, 35, 37, 38, 41, 43, 44, 46, 53, 58

Cumulative Cumulative
Class Frequency Percentage
Frequency Percentage
10 but less than 20 3 15 3 15

20 but less than 30 6 30 9 45

30 but less than 40 5 25 14 70

40 but less than 50 4 20 18 90

50 but less than 60 2 10 20 100

Total 20 100 blank blank

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The Ogive Graphing Cumulative
Frequencies

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Stem-and-Leaf Diagram
• A simple way to see distribution details in a data
set
Method: Separate the sorted data series into
leading digits (the stem) and the trailing digits (the
leaves)

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Example (1 of 2)
Data in ordered array:

• Here, use the 10’s digit for the stem unit:

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Example (2 of 2)
Data in ordered array:
21, 24, 24, 26, 27, 27, 30, 32, 38, 41
• Completed stem-and-leaf diagram:

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Using Other Stem Units (1 of 2)
• Using the 100’s digit as the stem:
– Round off the 10’s digit to form the leaves

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Using Other Stem Units (2 of 2)
• Using the 100’s digit as the stem:
– The completed stem-and-leaf display:

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Scatter Diagrams
• Scatter Diagrams are used for paired
observations taken from two numerical
variables
• The Scatter Diagram:
– one variable is measured on the vertical axis
and the other variable is measured on the
horizontal axis

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Scatter Diagram Example

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Scatter Diagrams in Excel

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Section 1.6 Data Presentation
Errors (1 of 2)
Goals for effective data presentation:
• Present data to display essential information
• Communicate complex ideas clearly and
accurately
• Avoid distortion that might convey the wrong
message

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Section 1.6 Data Presentation
Errors (2 of 2)
• Unequal histogram interval widths
• Compressing or distorting the
vertical axis
• Providing no zero point on the
vertical axis
• Failing to provide a relative basis in
comparing data between groups

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Chapter Summary (1 of 2)
• Reviewed incomplete information in decision
making
• Introduced key definitions:
– Population vs. Sample
– Parameter vs. Statistic
– Descriptive vs. Inferential statistics
• Described random sampling
• Examined the decision making process

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Chapter Summary (2 of 2)
• Reviewed types of data and measurement levels
• Data in raw form are usually not easy to use for decision
making -- Some type of organization is needed:
– Table
– Graph
• Techniques reviewed in this chapter:
– Frequency distribution – Line chart
– Cross tables – Frequency distribution
– Bar chart – Histogram and ogive
– Pie chart – Stem-and-leaf display
– Pareto diagram – Scatter plot

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