Chapter - 8

Testing Hypothesis –
One Sample Test
 What is hypothesis ?
• Hypothesis means assumption

• It is related with making assumption about

population parameters
 Hypothesis Testing
• Hypothesis/assumptions about population
parameters may be right or wrong.

• Hypothesis testing is related with

determining the correctness/accuracy of
hypothesis.
 An example
• A manger of shopping mall assumed that
efficiency level of its employees is 90%

• So it is his hypothesis / assumption

• Now in order to test his hypothesis /

assumption he will take a sample of
employees and will find the efficiency level
of sampled employees.
 An example
• If efficiency of sample is 95% :-
– Hypothesis is correct and acceptable.

• If efficiency of sample is 45% :-

– Hypothesis is wrong and not acceptable

• If efficiency of sample is 88% :-

– It is near to assumed 90% so such situation
requires further study
Null-hypothesis and Alternative hypothesis

• In hypothesis testing we must state the

assumption or hypothesized value of
population parameter.
Null-hypothesis and Alternative hypothesis

(1) Null hypothesis -

– Assumption we wish to test is called nulll
hypothesis
– Denoted as- H0
– For e.g. assumption is that population mean is
500
– It is called null hypothesis and denoted as
under,
H0: = 500 
Null-hypothesis and Alternative hypothesis

• Null hypothesis is tested by using sample

statistics (mean)
• Based on sample result we may accept or
reject null hypothesis
Null-hypothesis and Alternative hypothesis

(2) Alternative hypothesis –

– When we reject null hypothesis the conclusion
we do accept is called alternative hypothesis.
– Fro e.g. if null hypothesis is, H0: = 500
– Alternative hypothesis would be as under,
 = 500
 > 500
1. H0:
2. H0:
 < 500
3. H0:
 Hypothesized population mean
• Assumed population mean is denoted as
under,

 H0
 Significance level
• The purpose of hypothesis testing is to make
judgment about the difference between sample
statistic (mean) and hypothesized population
parameters (mean)

• The significance level is related with level of

acceptable difference between sample mean and
hypothesized population mean
 Selecting significance level
• Higher significance level leads to higher
accuracy

• Higher the significance level we use for

testing hypothesis, higher the probability of
rejecting null hypothesis when it is true.
Rejection and Non Rejection Regions

Rejection Region
Rejection Region

Non Rejection Region

=40 oz

Critical Value Critical Value

 Type-1 error and Type-2 error
• Type -1 error
– Error of rejecting null hypothesis when it is true
– Its probability is denoted by 
– It happens in case of high significance level

• Type - 2 error
– Error of accepting null hypothesis when it is false
– Its probability is denoted by 
– It happens when significance level is low
– There is a trade off between these two types of errors
 Decision Table
for Hypothesis Testing

Null True Null False

Fail to Correct Type II error

reject null Decision ()

Reject null Type I error Correct Decision

()
 Result Probabilities
H0: Innocent
Jury Trial Hypothesis Test
The Truth The Truth
Verdict Innocent Guilty Decision H0 True H0 False
Do Not Type II
Innocent Correct Error Reject 1-
Error (  )
H0
Type I Power
Guilty Error Correct Reject
Error
H0 (1 -  )
( )
 TypeI&IIE rrorsH avean
InverseRelationship
Ifyoured uceth eprobab ilityofone
error,theoth eroneincreasessoth at
everythingelseisunchan ged .



Which distribution to use ?

Population standard Population standard

deviation is known deviation is
unknown

Normal distribution Normal distribution

n>30 Z- table Z- table

n < 30 Normal distribution T- distribution

Z- table t- table
 One tail test and Two tail test

Two tail test

• A two tail test will reject the null hypothesis if
sample mean is significantly higher or lower than
hypothesized population mean.
• So there are two rejection areas
• Appropriate when,
– Null hypothesis is H0: 
– Alternative hypothesis is H1:
 Two-tailed Tests

: 1000
HH0 o:  40 Rejection Rejection
Region Region

HHa a: :1000
40 Non Rejection Region
=1000

Critical Values
 One tail test and Two tail test

One tail test

• One tail test will reject the null hypothesis if sample
mean is
– Higher than hypothesized population mean
– Lower than hypothesized population mea
• So there is only one rejection area
• Appropriate when,
– Null hypothesis is H0: 
– Alternative hypothesis is H1:
 H1:
 One-tailed Tests

H 0 :   40 H 0 :   40
H a :   40 H a :   40
Rejection Region Rejection Region

Non Rejection Region Non Rejection Region

=40 oz =40 oz

Critical Value Critical Value

 One-tailed and Two-tailed Tests
• One-tailed Tests

H 0 :   40 H 0 : p  0.18
H a :   40 H a : p  0.18

• Two-tailed Test

H 0 :   12
H a :   12
 Step - 1
• State your hypothesis

• Decide whether it is one tail test or two

tail test?

• State the level o f significance

 Step - 2
• Decide which distribution is applicable

• Find critical values for chosen level of

significance from appropriate table.
 Step – 3
• Calculate standard error of sample statistics

• Use standard error to convert the observed

value of sample statistics to standard value.
 Step - 4
• Sketch the distribution and mark the
position of standardized sample value and
critical value of test.
 Step - 5
• Compare the value of standardized sample
statistics with the critical values of this test
and interpret the result
Hypothesis Testing of Means when
Population SD is known:
CPA Net Income Example
A survey of CPAs across the US found that the
average net income for sole proprietor CPAs is
$74, 914. Because this survey is now more than
seven years old, an accounting researcher wants to
test this figure by taking a random sample of 112
sole proprietor accountants in the US with average
net income $78, 695 to determine whether the net
income figure changed. Assume the population
standard deviation of net incomes for sole
proprietor CPAs is $14, 530 and 0.05 level of
significance.
Solution: Two-tailed Test (Part 1)

H 0 :   $74,914 
2
.025

2
.025
Rejection
H a :   $74,914 Rejection
Region
Region

Non Rejection Region

=0

Zc  196
. Zc  1.96
CPA Net Income Example:
Two-tailed Test (Part 2)

If z  zc  1.96, reject H 0 .
If z  zc  1.96, do not reject H 0 .

x   78,695  74,914
z   2.75
 14,530
n 112
z = 2.75  zc = 1.96, reject H 0 .
 CPA Net Income Example:
Critical Value Method (Part 1)
H 0 :   $74,914 Lower

x z
H a :   $74,914
c c
n
14,530
 74,914  1.96
  112
.025 .025
2 2  72,223
Rejection
Rejection Region Upper
Region

Non Rejection Region xc    z c
n
72,223 77,605
14,530
 74,914  1.96
112
Zzcc  196
1..96 0
z=0 zZc c 1196
..96
 77,605
 CPA Net Income Example:
Critical Value Method (Part 2)
 
.025 .025
2 2
Rejection
Rejection Region
Region
Non Rejection Region

72,223 77,605

Zzcc  196
1..96 0
z=0 zZcc 1196
..96

If x  77,223 or x  77,605, reject H 0 .

If 77,223  x  77,605, do not reject H 0 .

Since x  78,695  xc  77,605, reject Ho.

 Hypothesis Testing of Means when
population SD is not known: Example 1
In an attempt to determine why customer
service is important to managers in the UK,
researchers surveyed managing directors of
manufacturing plants in Scotland. One of
the reasons proposed was that customer
service is a means of retaining customers.
Mean response was 4.30. Alpha is set at .
05. Using following data, test whether US
managers rate this reason significantly
lower than 4.30 mean ascertained in UK.
3 4 5 5 4 5 5 4 4 4 4 4 4 4 4 5 4 4
4 3 4 4 4 3 5 4 4 5 4 4 4 5
Solution to Example 1: z Test
(Part 1)

H 0 :   4.30
H a :   4.30
Rejection
Region
=.05

Non Rejection Region

zZcc  1645
1..645 0
 Solution to Example 1: z Test
(Part 2)
Rejection x   4.156  4.30
Region zx   1.42
 0.574
=.05 n 32

Non Rejection Region z  1.42  1.645,

0 do not reject H 0 .
Zzcc  1645
1..645

If z  1.645, reject H 0 .
If z  1.645, do not reject H 0 .
Solution to Example 1: Critical Value
(Part 1)

H 0 :   4.30
Rejection
Region
=.05

H a :   4.30 Non Rejection Region

0
zZc c1645
1..645
 xxcc  44.133
.133 4.30
xc    z
n
0.574
 4.30  ( 1.645)
32
 4.133
Solution to Example 1: Critical Value
(Part 2)
Rejection
Region
=.05

Non Rejection Region

0
Zzcc  1645
1..645

4.30
xxcc  44.133
.133

If x  4.133, reject H 0 .
If x  4.133, do not reject H 0 .

x  4.156  4.133, do not reject H 0 .

 Solution to Example 1: Using the
p-Value
H 0 :   4.30 Rejection
Region
=.05

H a :   4.30 Non Rejection Region

0
If p - value <  , reject H 0 .
If p - value   , do not reject H 0 .

x   4.156  4.30 Since p - value = .0778 >  = .05,

z   1.42
 0.574 do not reject H 0 .
n 32
p ( z  1.42)  .0778
 t Test:
Two-tailed Test:  Unknown,  = .05
(Part 1)
Weights in Pounds of a Sample of 20 Plates
22.6 22.2 23.2 27.4 24.5
27.0 26.6 28.1 26.9 24.9
26.2 25.3 23.1 24.2 26.1
25.8 30.4 28.6 23.5 23.6

x  25.51, s = 2.1933, and n = 20

 Two-tailed Test:
 Unknown,  = .05 (part 2)

Ho0: :2525 Rejection Regions

Haa: : 2525 
.025

2
.025
2
Non Rejection Region
df  n  1  19 t  2.093 t c
 2.093
c

Critical Values
 Two-tailed Test:
 Unknown,  = .05 (part 3)

Rejection Regions If tt  2.093,

2.093, reject
reject Ho0 .
If t  2.093,
2.093, do not reject
reject H
Ho0..

  Xx  2551
. .51
25 . 25.0
250
.025
.025 2 t   .  1.04
 104
2 Ss 21933
. 2.1933
Non Rejection Region
nn 20 20
t c
 2.093 t c
 2.093

Critical Values Since tt 1104

.04  2.093
093,, do not reject Ho0..
 Example 2: (Part 1)
Size in Acres of 23 Farms
445 489 474 505 553 477 545
463 466 557 502 449 438 500
466 477 557 433 545 511 590
561 560

x  498.78, s = 46.94, and n = 23

 Solution to Example 2: (Part 2)

H 0 :   471 Rejection Region

H a :   471
 .05

Non Rejection Region

df  n  1  22
t c
 1717
.

Critical Value
Solution to Example 2: (Part 3)

Rejection Region If t  1.717, reject H 0 .

If t  1.717, do not reject H 0 .

 .05 x   498.78  471

t   2.84
s 46.94
Non Rejection Region n 23

t c
 1717
.

Critical Value Since t  2.84  1.717, reject H 0 .

Hypothesis Testing of Proportions: Large
Samples:
z Test of Population Proportion

z
pˆ  p n  p  5, and
pq nq  5
n
where : pˆ  sample proportion
p  population proportion
q  1- p
 Testing Hypotheses about a
Proportion: Manufacturer Example
(Part 1)
Rejection Regions

H 0 : p  .08 
.05

.05
2 2
H a : p  .08 Z
zc  1645
c
.
Non Rejection Region
Zzc  1645
c
.

Critical Values
 Testing Hypotheses about a
Proportion: Manufacturer Example
(Part 2)
Rejection Regions If Zz  11645
. 645,, reject Ho..
0

If Zz  1.645,
1645
. , do not reject Ho.. 0

33
33
  pˆ  .165
.165
.05 .05 200
200
2 2
Non Rejection Region pˆ  Pp 165.08
.165 .08
zZ    4.43
4.43
Zzc  1645
c
. zZcc  1645
.
Pp Q
q (.(.08
08)(.)(.9292
))
Critical Values n 200
200
Since zZ  44..43  11645
.645,, reject
reject H
Ho0..
 Example 3
A survey of the morning beverage market shows
that the primary breakfast beverage for 17% of
Americans is milk. A milk producer in Wisconsin,
where milk is plentiful, believes the figure is
higher for Wisconsin. To test this idea, she
contacts a random sample of 550 Wisconsin
residents and asks which primary beverage they
consumed for breakfast that day. Suppose 115
replied that milk was the primary beverage. Using
a level of significance of .05, test the idea that the
milk figure is higher for Wisconsin.
 Solution to Example 3: (Part 1)

H0o:: Pp  .17
H 17 Rejection Region

Haa::Pp  ..17
H 17  .05

Non Rejection Region

zZcc  1645
.

Critical Value
Solution to Example 3: (Part 2)
If Zz 1645
If 1..645, ,reject
rejectHHo.0 .
Rejection Region If Zz  1645
If 1..645, ,do
donot
notreject
rejectHHo.0 .

115
115
 .05 ppˆ  .209
.209
550
550
ppˆ Pp .209
.209  .17
.17
Non Rejection Region Zz    2.442.44
PpQq (.17
(.17 )(.)83)
)(.83
Zzc  1645
c
.
nn 550
550
Critical Value
Since
Since Z
z = 22.44  11645
.44  ..645,, reject
reject H
Ho0..
 Deciding which distribution to use in
Hypothesis Testing:
When population When population
Standard deviation Standard deviation
is Known is Not Known

Sample size n is Normal Normal

larger than 30 Distribution Distribution
z table z table
Sample size n is Normal t Distribution
30 or less and we Distribution t table
assume population z table
is normal or
approximately so