Lecture 8

Interval Estimation
 Lecture Outline
Interval Estimation of a Population Mean:
Large-Sample Case
Interval Estimation of a Population Mean:
Small-Sample Case
Determining the Sample Size
Interval Estimation of a Population Proportion

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
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Slide 2
 Interval Estimation of a Population
Mean: Large-Sample Case
Sampling Error
Probability Statements about the Sampling
Error
Constructing an Interval Estimate:
Large-Sample Case with  Known
Calculating an Interval Estimate:
Large-Sample Case with  Unknown

Slide 3
 Sampling Error
The absolute value of the difference between an
unbiased point estimate and the population
parameter it estimates is called the sampling
error.
For the case of a sample mean estimating a
population mean, the sampling error is
Sampling Error = | x − |

Slide 4
 Probability Statements
About the Sampling Error
Knowledge of the sampling distribution of x
enables us to make probability statements about
the sampling error even though the population
mean  is not known.

A probability statement about the sampling

error is a precision statement.

Slide 5
 Probability Statements
About the Sampling Error
Precision Statement
There is a 1 -  probability that the value of a
sample mean will provide a sampling error of
z /2  x or less.

Sampling
distribution
of x
1 -  of all
/2 /2
x values

x

Slide 6
Interval Estimate of a Population Mean:
Large-Sample Case (n > 30)
With  Known

x  z /2
n
where: x is the sample mean
1- is the confidence coefficient
z/2 is the z value providing an area of
 /2 in the upper tail of the standard
normal probability distribution
 is the population standard deviation
n is the sample size

Slide 7
 Interval Estimate of a Population
Mean: Large-Sample Case (n > 30)
With  Unknown
In most applications the value of the
population standard deviation is unknown. We
simply use the value of the sample standard
deviation, s, as the point estimate of the
population standard deviation.

s
x  z /2
n

Slide 8
Example: National Discount, Inc.
National Discount has 260 retail outlets
throughout the United States. National
evaluates each potential location for a new
retail outlet in part on the mean annual income
of the individuals in the marketing area of the
new location.
Sampling can be used to develop an interval
estimate of the mean annual income for
individuals in a potential marketing area for
National Discount.
A sample of size n = 36 was taken. The sample
mean, x , is $21,100 and the sample standard
deviation, s, is $4,500. We will use .95 as the
confidence coefficient in our interval estimate.
Slide 9
Example: National Discount, Inc.
Precision Statement
There is a .95 probability that the value of a
sample mean for National Discount will
provide a sampling error of $1,470 or
less……. determined as follows:
95% of the sample means that can be
observed are within + 1.96  x of the
population mean  .

If  x = s = 4,500 = 750 , then 1.96  x = 1,470.

n 36

Slide 10
Example: National Discount, Inc.
Interval Estimate of the Population Mean: 
Unknown

Interval Estimate of  is:

$21,100 + $1,470
or $19,630 to $22,570

We are 95% confident that the interval contains

the population mean.

Slide 11
 Interval Estimation of a Population
Mean: Small-Sample Case (n < 30)
Population is Not Normally Distributed
The only option is to increase the sample size to
n > 30 and use the large-sample interval
estimation procedures.
Population is Normally Distributed and  is
Known
The large-sample interval-estimation procedure
can be used.
Population is Normally Distributed and  is
Unknown
The appropriate interval estimate is based on a
probability distribution known as the t
distribution.
Slide 12
 t Distribution
The t distribution is a family of similar
probability distributions.
A specific t distribution depends on a
parameter known as the degrees of freedom.
As the number of degrees of freedom increases,
the difference between the t distribution and
the standard normal probability distribution
becomes smaller and smaller.
A t distribution with more degrees of freedom
has less dispersion.
The mean of the t distribution is zero.

Slide 13
 Interval Estimation of a Population Mean:
Small-Sample Case (n < 30) with  Unknown
Interval Estimate
s
x  t /2
n
where
1 - = the confidence coefficient
t/2 = the t value providing an area of /2
in the upper tail of a t distribution
with n - 1 degrees of freedom
s = the sample standard deviation

Slide 14
 Example: Apartment Rents
Interval Estimation of a Population Mean:
Small-Sample Case (n < 30) with  Unknown
A reporter for a student newspaper is writing
an article on the cost of off-campus housing.
A sample of 10 one-bedroom units within a
half-mile of campus resulted in a sample
mean of $550 per month and a sample
standard deviation of $60.
Let us provide a 95% confidence interval
estimate of the mean rent per month for the
population of one-bedroom units within a
half-mile of campus. We’ll assume this
population to be normally distributed.

Slide 15
 Example: Apartment Rents
t Value
At 95% confidence, 1-  =.95,  =.05, and /2 =.025.
t.025 is based on n - 1 = 10 - 1 = 9 degrees of
freedom.
In the t distribution table we see that t.025 = 2.262.
Degrees Area in Upper Tail
of Freedom .10 .05 .025 .01 .005
. . . . . .
7 1.415 1.895 2.365 2.998 3.499
8 1.397 1.860 2.306 2.896 3.355
9 1.383 1.833 2.262 2.821 3.250
10 1.372 1.812 2.228 2.764 3.169
. . . . . .

Slide 16
 Example: Apartment Rents
Interval Estimation of a Population Mean:
Small-Sample Case (n < 30) with  Unknown
s
x  t.025
n
60
550  2.262
10
550 + 42.92
or $507.08 to $592.92
We are 95% confident that the mean rent per
month for the population of one-bedroom units
within a half-mile of campus is between $507.08
and $592.92.
Slide 17
 Sample Size for an Interval
Estimate of a Population Mean
Let E = the maximum sampling error mentioned
in the precision statement.
E is the amount added to and subtracted from
the point estimate to obtain an interval
estimate.
E is often referred to as the margin of error.
We have

E = z /2
n
Solving for n we have
( z / 2 ) 2  2
n=
E2

Slide 18
Example: National Discount, Inc.
Sample Size for an Interval Estimate of a
Population Mean
Suppose that National’s management team
wants an estimate of the population mean
such that there is a .95 probability that the
sampling error is $500 or less.
How large a sample size is needed to meet the
required precision?

Slide 19
Example: National Discount, Inc.
Sample Size for Interval Estimate of a
Population Mean 
z /2 = 500
n
At 95% confidence, z.025 = 1.96.
Recall that  = 4,500.
Solving for n we have
(1.96)2 (4, 500)2
n= 2
= 311.17
(500)

We need to sample 312 to reach a desired

precision of + $500 at 95% confidence.

Slide 20
 Interval Estimation
of a Population Proportion
Interval Estimate

p (1 − p )
p  z / 2
n

where: 1 - is the confidence coefficient

z/2 is the z value providing an area of
/2 in the upper tail of the
standard normal probability
distribution
p is the sample proportion

Slide 21
Example: Political Science, Inc.
Interval Estimation of a Population Proportion
Political Science, Inc. (PSI) specializes in voter
polls and surveys designed to keep political
office seekers informed of their position in a
race. Using telephone surveys, interviewers
ask registered voters who they would vote for
if the election were held that day.
In a recent election campaign, PSI found that
220 registered voters, out of 500 contacted,
favored a particular candidate. PSI wants to
develop a 95% confidence interval estimate for
the proportion of the population of registered
voters that favors the candidate.

Slide 22
 Example: Political Science, Inc.
Interval Estimate of a Population Proportion
p (1 − p )
p  z / 2
n
where: n = 500, p = 220/500 = .44, z/2 = 1.96
. 44 (1−. 44 )
. 44  1. 96
500
.44 + .0435
PSI is 95% confident that the proportion of all
voters that favors the candidate is between
.3965 and .4835.

Slide 23
 Sample Size for an Interval
Estimate of a Population Proportion
Let E = the maximum sampling error mentioned
in the precision statement.
We have
p (1 − p )
E = z / 2
n

Solving for n we have

( z / 2 ) 2 p (1 − p )
n=
E2

Slide 24
 Example: Political Science, Inc.
Sample Size for an Interval Estimate of a
Population Proportion
Suppose that PSI would like a .99 probability
that the sample proportion is within + .03 of
the population proportion.
How large a sample size is needed to meet the
required precision?

Slide 25
 Example: Political Science, Inc.
Sample Size for Interval Estimate of a
Population Proportion
At 99% confidence, z.005 = 2.576.
( z / 2 ) 2 p (1 − p ) ( 2. 576) 2 (. 44 )(. 56)
n= 2
= 2
 1817
E (. 03)
Note: We used .44 as the best estimate of p in
the above expression. If no information is
available about p, then .5 is often assumed
because it provides the highest possible sample
size. If we had used p = .5, the recommended n
would have been 1843.

Slide 26