Statistics for

Business and Economics

8th Global Edition

Chapter 1

Using Graphs to Describe Data

Copyright © 2013 Pearson Education Ch. 1-1

 Decision Making in an
Uncertain Environment

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?

Copyright © 2013 Pearson Education Ch. 1-2

 Dealing with Uncertainty
(continued)

Numbers and data are used to assist decision

making

 Statistics is a tool to help process, summarize, analyze,

and interpret data for the purpose of making better
decisions in uncertain environment.

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 1-3
 Some Statistics
(continued)

 Almost 10% of MIS junior students become repeating

after the first year

 Specifically last year this ratio was 8.6 %

 Passing rate for statistics course is around 80 % on

average

 Passing rate for students who attend statistics course

more than half of the time is around 95 % on average

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 1-4
 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

Copyright © 2013 Pearson Education Ch. 1-5

 Population vs. Sample

Population Sample

Values calculated using Values computed from

population data are called sample data are called
parameters statistics
Copyright © 2013 Pearson Education Ch. 1-6
 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

Copyright © 2013 Pearson Education Ch. 1-7

 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

Copyright © 2013 Pearson Education Ch. 1-8

 Systematic Sampling

For systematic sampling,

 Assure that the population is arranged in a way that is not

related to the subject of interest
 Select every jth item from the population…
 …where j is the ratio of the population size to the
sample size, j = N/n
 Randomly select a number from 1 to j for the first item
selected

The resulting sample is called a systematic sample

Copyright © 2013 Pearson Education Ch. 1-9

 Systematic Sampling
(continued)

Example:
Suppose you wish to sample n = 9 items from a
population of N = 72.

j = N / n = 72 / 9 = 8

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)
Look at: https://www.youtube.com/watch?v=pTuj57uXWlk

Copyright © 2013 Pearson Education Ch. 1-10

 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

Copyright © 2013 Pearson Education Ch. 1-11

 Descriptive Statistics

 Collect data
 e.g., Survey

 Present data
 e.g., Tables and graphs

 Summarize data
 e.g., Sample mean =
X i

Copyright © 2013 Pearson Education Ch. 1-12

 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
Copyright © 2013 Pearson Education Ch. 1-13
 1.2
Classification of Variables

Data

Categorical Numerical

Examples:
 Marital Status
 Are you registered to Discrete Continuous
vote?
 Eye Color Examples: Examples:
(Defined categories or  Number of Children  Weight
groups)  Defects per hour  Voltage
(Counted items) (Measured characteristics)

Copyright © 2013 Pearson Education Ch. 1-14

 Measurement Levels

Differences between
measurements, true Ratio Data
zero exists
Quantitative Data

Differences between
measurements but no Interval Data
true zero

Ordered Categories
(rankings, order, or Ordinal Data
scaling)
Qualitative Data

Categories (no
ordering or direction) Nominal Data
Copyright © 2013 Pearson Education Ch. 1-15
 Scales of Measurement
 Nominal

Data are labels or names used to identify an

attribute of the element.

A nonnumeric label or numeric code may be used.

Scales of Measurement

 Nominal

Example:
Students of a university are classified by the
school in which they are enrolled using a
nonnumeric label such as Business, Humanities,
Education, and so on.
Alternatively, a numeric code could be used for
the school variable (e.g. 1 denotes Business,
2 denotes Humanities, 3 denotes Education, and
so on).
 Scales of Measurement
 Ordinal

The data have the properties of nominal data and

the order or rank of the data is meaningful.

A nonnumeric label or numeric code may be used.

 Scales of Measurement
 Ordinal
Example:
Students of a university are classified by their
course performance using a nonnumeric label
such as Distinction, Merit, Pass or Fail.
Alternatively, a numeric code could be used for
the class standing variable (e.g. 1 denotes
Distinction, 2 denotes Merit and so on).
 Scales of Measurement

 Interval

The data have the properties of ordinal data, and

the interval between observations is expressed in
terms of a fixed unit of measure.

Interval data are always numeric.

 Scales of Measurement

 Interval

Example:
Marianna has an GMAT score of 605, while Kostas
has an GMAT score of 490. Marianna scored 115
points more than Kostas.
 Scales of Measurement
 Ratio

The data have all the properties of interval data

and the ratio of two values is meaningful.

Variables such as distance, height, weight, and time

use the ratio scale.

This scale must contain a zero value that indicates

that nothing exists for the variable at the zero point.
 Scales of Measurement

 Ratio
Example:
Marianna’s college record shows 36 credits
earned, while Kostas’s record shows 72 credit s
earned. Kostas has twice as many credits
earned as Marianna.
 1.3-
Graphical
1.5 Presentation of Data

 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

Copyright © 2013 Pearson Education Ch. 1-24

 Graphical
Presentation of Data
(continued)
 Techniques reviewed in this chapter:

Categorical Numerical
Variables Variables

• Frequency distribution • Line chart

• Cross table • Frequency distribution
• Bar chart • Histogram and ogive
• Pie chart • Stem-and-leaf display
• Pareto diagram • Scatter plot

Copyright © 2013 Pearson Education Ch. 1-25

 1.3
Tables and Graphs for
Categorical Variables

Categorical
Data

Tabulating Data Graphing Data

Frequency
Distribution Bar Pie Pareto
Table Chart Chart Diagram

Copyright © 2013 Pearson Education Ch. 1-26

 The Frequency
Distribution Table
Summarize data by category
Example: Hospital Patients by Unit
Hospital Unit Number of Patients Percent
(rounded)

Cardiac Care 1,052 11.93

Emergency 2,245 25.46
Intensive Care 340 3.86
Maternity 552 6.26
Surgery 4,630 52.50
Total: 8,819 100.0
(Variables are
categorical)

Copyright © 2013 Pearson Education Ch. 1-27

 Graph of Frequency Distribution

 Bar chart of patient data

Copyright © 2013 Pearson Education Ch. 1-28

 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 x c
cross table

Copyright © 2013 Pearson Education Ch. 1-29

 Cross Table Example

 3 x 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

Copyright © 2013 Pearson Education Ch. 1-30

 Graphing
Multivariate Categorical Data
(continued)

 Side by side horizontal bar chart

Copyright © 2013 Pearson Education Ch. 1-31

 Graphing
Multivariate Categorical Data
(continued)

 Stacked bar chart

Copyright © 2013 Pearson Education Ch. 1-32

 Vertical
Side-by-Side Chart Example
 Sales by quarter for three sales territories:
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
East 20.4 27.4 59 20.4
West 30.6 38.6 34.6 31.6
North 45.9 46.9 45 43.9

Copyright © 2013 Pearson Education Ch. 1-33

 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

Copyright © 2013 Pearson Education Ch. 1-34

 Bar Chart Example

Hospital Number
Unit of Patients

Cardiac Care 1,052

Emergency 2,245 Hospital Patients by Unit
5000
Intensive Care 340
Maternity 552
patients per year
Number of 4000
Surgery 4,630
3000

2000

1000

0
Cardiac

Surgery
Emergency

Maternity
Intensive
Care

Care
Copyright © 2013 Pearson Education Ch. 1-35
 Pie Chart Example

Hospital Number % of
Unit of Patients Total
Hospital Patients by Unit
Cardiac Care 1,052 11.93
Emergency 2,245 25.46 Cardiac Care
12%
Intensive Care 340 3.86
Maternity 552 6.26
Surgery 4,630 52.50

Emergency
Surgery 25%
53%

Intensive Care
(Percentages 4%
are rounded to Maternity
the nearest 6%
percent)
Copyright © 2013 Pearson Education Ch. 1-36
 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”

Copyright © 2013 Pearson Education Ch. 1-37

 Pareto Diagram Example

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

Copyright © 2013 Pearson Education Ch. 1-38

 Pareto Diagram Example
(continued)

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%
Copyright © 2013 Pearson Education Ch. 1-39
 Pareto Diagram Example
(continued)
Step 3: Show results graphically
Pareto Diagram: Cause of Manufacturing Defect
60% 100%
% of defects in each category

90%

cumulative % (line graph)

50%
80%

70%
(bar graph)

40%

60%

30% 50%

40%

20%
30%

20%
10%

10%

0% 0%
Poor Alignment Paint Flaw Bad Weld Missing Part Cracked case Electrical Short

Copyright © 2013 Pearson Education Ch. 1-40

 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

Copyright © 2013 Pearson Education Ch. 1-41

 Line Chart Example

Copyright © 2013 Pearson Education Ch. 1-42

 1.5
Graphs to Describe
Numerical Variables

Numerical Data

Frequency Distributions Stem-and-Leaf

and Display
Cumulative Distributions

Histogram Ogive

Copyright © 2013 Pearson Education Ch. 1-43

 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

Copyright © 2013 Pearson Education Ch. 1-44

 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

Copyright © 2013 Pearson Education Ch. 1-45

 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

Copyright © 2013 Pearson Education Ch. 1-46

 Frequency Distribution Example

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

Copyright © 2013 Pearson Education Ch. 1-47

 Frequency Distribution Example
(continued)

 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 (46/5 then round up)

 Determine interval boundaries: 10 but less than 20, 20 but

less than 30, . . . , 60 but less than 70

 Count observations & assign to classes

Copyright © 2013 Pearson Education Ch. 1-48

 Frequency Distribution Example
(continued)
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
Copyright © 2013 Pearson Education Ch. 1-49
 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
Copyright © 2013 Pearson Education Ch. 1-50
 Histogram Example

Interval Frequency
Histogram : Daily High Tem perature
10 but less than 20 3
20 but less than 30 6 7 6
30 but less than 40 5
40 but less than 50 4
6 5
50 but less than 60 2 5 4
Frequency

4 3
3 2
2
1 0 0
(No gaps 0
between 0 0 10 10 2020 30 30 40 40 50 50 60 60 70
bars) Temperature in Degrees
Copyright © 2013 Pearson Education Ch. 1-51
 Questions for Grouping Data
into Intervals

 1. How wide should each interval be?

(How many classes should be used?)

 2. 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

Copyright © 2013 Pearson Education Ch. 1-52

 How Many Class Intervals?

 Many (Narrow class intervals) 3.5

3
 may yield a very jagged distribution 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) 12

10
 may compress variation too much and

Frequency
8

yield a blocky distribution 6

4
 can obscure important patterns of 2

variation. 0
0 30 60 More
Temperature
(X axis labels are upper class endpoints)

Copyright © 2013 Pearson Education Ch. 1-53

 The Cumulative
Frequency Distribuiton
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

Copyright © 2013 Pearson Education Ch. 1-54

 The Ogive
Graphing Cumulative Frequencies
Upper
interval Cumulative
Interval endpoint Percentage
Less than 10 10 0
10 but less than 20 20 15
20 but less than 30 30 45 Ogive: Daily High Temperature
30 but less than 40 40 70
40 but less than 50 50 90 100
Cumulative Percentage
50 but less than 60 60 100
80
60
40
20
0
10 20 30 40 50 60
Interval endpoints
Copyright © 2013 Pearson Education Ch. 1-55
 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)

Copyright © 2013 Pearson Education Ch. 1-56

 Example
Data in ordered array:
21, 24, 24, 26, 27, 27, 30, 32, 38, 41

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

Stem Leaf
 21 is shown as 2 1
 38 is shown as 3 8

Copyright © 2013 Pearson Education Ch. 1-57

 Example
(continued)
Data in ordered array:
21, 24, 24, 26, 27, 27, 30, 32, 38, 41

 Completed stem-and-leaf diagram:

Stem Leaves
2 1 4 4 6 7 7
3 0 2 8
4 1

Copyright © 2013 Pearson Education Ch. 1-58

 Using other stem units

 Using the 100’s digit as the stem:

 Round off the 10’s digit to form the leaves

Stem Leaf
 613 would become 6 1
 776 would become 7 8
 ...
 1224 becomes 12 2

Copyright © 2013 Pearson Education Ch. 1-59

 Using other stem units
(continued)

 Using the 100’s digit as the stem:

 The completed stem-and-leaf display:

Data: Stem Leaves

6 136
613, 632, 658, 717, 722, 750, 7 2258
776, 827, 841, 859, 863, 891,
894, 906, 928, 933, 955, 982, 8 346699
1034, 1047,1056, 1140, 1169, 9 13368
1224 10 356
11 47
12 2
Copyright © 2013 Pearson Education Ch. 1-60
 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

Copyright © 2013 Pearson Education Ch. 1-61

 Scatter Diagram
 A Positive Relationship
y

x
 Scatter Diagram
 A Negative Relationship
y

x
 Scatter Diagram
 No Apparent Relationship
y

x
 Scatter Diagram Example

Volume Cost per

Cost per Day vs. Production Volume
per day day
23 125 250
26 140
200
Cost per Day

29 146
150
33 160
38 167 100
42 170 50
50 188
0
55 195
0 10 20 30 40 50 60 70
60 200
Volume per Day

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall Ch. 1-65
 Scatter Diagram Example

 Insights Gained from the Preceding Scatter Diagram

• The scatter diagram indicates a positive relationship

between volume per day and the cost per day.

• Higher costs are associated with higher

volumes.
• The relationship is not perfect; all plotted points in
the scatter diagram are not on a straight line.
 Scatter Diagram Example
Average SAT scores by state: 1998
Verbal Math
Alabama 562 558
Alaska 521 520
Arizona 525 528
Arkansas 568 555
California 497 516
Colorado 537 542
Connecticut 510 509
Delaware 501 493
D.C. 488 476
Florida 500 501
Georgia 486 482
Hawaii 483 513

…
W.Va. 525 513
Wis. 581 594
Wyo. 548 546
Copyright © 2013 Pearson Education Ch. 1-67
 Scatter Diagram Example
Scatterplot – Bishop’s Supermarket

Weekly quantities sold - Orange Juice

Bishops Supermarket

3.0
Price

2.5

2.0

200 300 400 500

Quantity

Copyright © 2013 Pearson Education Ch. 1-68