ECO 304:

Intermediate Statistics II

Sampling Distributions

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-1

 Lesson Objectives

After completing this lesson, you should be

able to:
 Define the concept of sampling error
 Determine the mean and standard deviation _ for the
sampling distribution of the sample mean, x
 Determine the mean and standard deviation for_the
sampling distribution of the sample proportion, p
 Describe the Central Limit Theorem and its importance
_ _
 Apply sampling distributions for both x and p
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-2
 Sampling Error
Sample Statistics are used to estimate
Population Parameters
ex: X is an estimate of the population mean, μ
 Problems:
 Different samples provide different estimates of
the population parameter
 Sample results have potential variability, thus
sampling error exits

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-3

 Calculating Sampling Error
 Sampling Error:
The difference between a value (a statistic)
computed from a sample and the corresponding
value (a parameter) computed from a population

Example: (for the mean)

Sampling Error  x - μ
where:
x  sample mean
μ  population mean

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-4

 Review

 Population mean: Sample Mean:

μ
 x i
x
 x i

N n
where:
μ = Population mean
x = sample mean
xi = Values in the population or sample
N = Population size
n = sample size
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-5
 Example

If the population mean is μ = 98.6 degrees

and a sample of n = 5 temperatures yields a
sample mean of x = 99.2 degrees, then the
sampling error is

x  μ  99.2  98.6  0.6 degrees

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-6

 Sampling Errors

 Different samples will yield different sampling

errors
 The sampling error may be positive or negative
( x may be greater than or less than μ)
 The expected sampling error decreases as the
sample size increases

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-7

 Sampling Distribution

 A sampling distribution is a
distribution of the possible values of
a statistic for a given size sample
selected from a population

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-8

 Developing a
Sampling Distribution
 Assume there is a population …
 Population size N=4 A B C D
 Random variable, x,
is age of individuals
 Values of x: 18, 20,
22, 24 (years)

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-9

 Developing a
Sampling Distribution
(continued)

Summary Measures for the Population Distribution:

μ
 x i P(x)
N .3
18  20  22  24 .2
  21
4 .1
0
σ
 i
(x  μ) 2

 2.236 18 20 22 24 x
N A B C D
Uniform Distribution

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-10

 Developing a
Sampling Distribution
(continued)
Now consider all possible samples of size n=2
1st 2nd Observation
Obs 18 20 22 24 16 Sample
18 18,18 18,20 18,22 18,24 Means

20 20,18 20,20 20,22 20,24 1st 2nd Observation

Obs 18 20 22 24
22 22,18 22,20 22,22 22,24
18 18 19 20 21
24 24,18 24,20 24,22 24,24
20 19 20 21 22
16 possible samples
(sampling with
22 20 21 22 23
replacement) 24 21 22 23 24
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-11
 Developing a
Sampling Distribution
(continued)

Sampling Distribution of All Sample Means

16 Sample Means Sample Means

Distribution
1st 2nd Observation
Obs 18 20 22 24 P(x)
.3
18 18 19 20 21
.2
20 19 20 21 22
.1
22 20 21 22 23
0 _
24 21 22 23 24 18 19 20 21 22 23 24 x
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. (no longer uniform) Chap 7-12
 Developing a
Sampling Distribution
(continued)

Summary Measures of this Sampling Distribution:

μx 
 x

18  19  21   24
i
 21
N 16

σx 
 i x
(x  μ ) 2

N
2 2 2
(18 - 21)  (19 - 21)    (24 - 21)
  1.58
16
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-13
 Comparing the Population with
its Sampling Distribution
Population Sample Means Distribution
N=4 n=2
μ  21 σ  2.236 μx  21 σ x  1.58
P(x) P(x)
.3 .3
.2 .2
.1 .1

0 x 0 18 19 20 21 22 23 24
_
18 20 22 24 x
A B C D
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-14
 Properties of a Sampling
Distribution
 For any population,
 the average value of all possible sample means computed from
all possible random samples of a given size from the population
is equal to the population mean:
μx  μ Theorem 1

 The standard deviation of the possible sample means

computed from all random samples of size n is equal to the
population standard deviation divided by the square root of the
sample size:
σ
σx 
n Theorem 2

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-15

 If the Population is Normal
If a population is normal with mean μ and
standard deviation σ, the sampling distribution

of x is also normally distributed with

σ
μx  μ and
σx 
n Theorem 3

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-16

 z-value for Sampling Distribution
of x
 Z-value for the sampling distribution of x:
(x  μ)
z
σ
n
where: x = sample mean
μ = population mean
σ = population standard deviation
n = sample size

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-17

 Finite Population Correction
 Apply the Finite Population Correction if:
 the sample is large relative to the population

(n is greater than 5% of N)
and…
 Sampling is without replacement

(x  μ)
Then z
σ Nn
n N 1
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-18
 Sampling Distribution Properties
 The sample mean is an unbiased estimator
Normal Population
Distribution

μ x
Normal Sampling
μx  μ Distribution
(has the same mean)

μx
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc.
x
Chap 7-19
 Sampling Distribution Properties
(continued)
 The sample mean is a consistent estimator
(the value of x becomes closer to μ as n increases):
Population

x
Small
sample size
As n increases, x
σ x  σ/ n
Larger
sample size

decreases
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc.
μ x Chap 7-20
 If the Population is not Normal
 We can apply the Central Limit Theorem:
 Even if the population is not normal,
 …sample means from the population will be
approximately normal as long as the sample size is
large enough
 …and the sampling distribution will have

σ
μx  μ and σx 
n Theorem 4

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-21

 Central Limit Theorem

the sampling
As the n↑
distribution
sample
becomes
size gets
almost normal
large
regardless of
enough…
shape of
population

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc.

x
Chap 7-22
 If the Population is not Normal
(continued)

Population Distribution
Sampling distribution
properties:
Central Tendency
μx  μ
μ x
Variation Sampling Distribution
σ (becomes normal as n increases)
σx  Larger
n Smaller
sample size
sample
size
(Sampling with
replacement)
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc.
μx x
Chap 7-23
 How Large is Large Enough?

 For most distributions, n > 30 will give a

sampling distribution that is nearly normal
 For fairly symmetric distributions, n > 15 is
sufficient
 For normal population distributions, the
sampling distribution of the mean is always
normally distributed

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-24

 Example

 Suppose a population has mean μ = 8 and

standard deviation σ = 3. Suppose a random
sample of size n = 36 is selected.

 What is the probability that the sample mean is

between 7.8 and 8.2?

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-25

 Example
(continued)

Solution:
 Even if the population is not normally distributed,
the central limit theorem can be used (n > 30)
 … so the sampling distribution of is
approximately normal x
 … with mean =μ= 8
μx
 …and standard deviation
σ 3
σx    0.5
n 36
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-26
 Example
(continued)
Solution (continued) -- find z-scores:
 
 7.8 - 8 μ x
- μ 8.2 - 8 
P(7.8  μ x  8.2)  P   
 3 σ 3 
 36 n 36 
 P(-0.4  z  0.4)  0.3108
Population Sampling Standard Normal
Distribution Distribution Distribution .1554
??? +.1554
? ??
? ? Sample Standardize
? ? ?
?
7.8 8.2 -0.4 0.4
μ8 x μx  8 x μz  0 z
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-27
 Population Proportions, π
π = the proportion of the population having
some characteristic
 Sample proportion ( p ) provides an estimate
of π :

x number of successes in the sample

p 
n sample size
 If two outcomes, p has a binomial distribution

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-28

 Sampling Distribution of p

 Approximated by a
Sampling Distribution
normal distribution if: P( p )
.3
 nπ  5 .2
.1
0
n(1 π)  5 0 .2 .4 .6 8 1 p

where
π(1 π)
μp  π and
σp 
n
(where π = population proportion)
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-29
 z-Value for Proportions
Standardize p to a z value with the formula:

pπ pπ
z 
σp π(1 π)
n
 If sampling is without replacement
and n is greater than 5% of the
π(1  π) N  n
population size, then σ p must use σp 
the finite population correction n N 1
factor:
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-30
 Example

 If the true proportion of voters who support

Proposition A is π = .4, what is the probability
that a sample of size 200 yields a sample
proportion between .40 and .45?

 i.e.: if π = .4 and n = 200, what is

P(.40 ≤ p ≤ .45) ?

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-31

 Example
(continued)
 if π = .4 and n = 200, what is
P(.40 ≤ p ≤ .45) ?

π(1 π) .4(1 .4)

Find σ p : σp    .03464
n 200

Convert to  .40  .40 .45  .40 

P(.40  p  .45)  P z 
standard  .03464 .03464 
normal:
 P(0  z  1.44)
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-32
 Example
(continued)
 if π = .4 and n = 200, what is
P(.40 ≤ p ≤ .45) ?

Use standard normal table: P(0 ≤ z ≤ 1.44) = .4251

Standardized
Sampling Distribution Normal Distribution

.4251

Standardize

.40 .45 0 1.44

p z

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-33

 Chapter Summary
 Discussed sampling error
 Introduced sampling distributions
 Described the sampling distribution of the mean
 For normal populations
 Using the Central Limit Theorem
 Described the sampling distribution of a
proportion
 Calculated probabilities using sampling
distributions
 Discussed sampling from finite populations
Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-34
 EXAMPLE 1
 An electrical firm makes light bulbs with lives
which are normally distributed. The firm claims
they have a mean life of 800 hours and
standard deviation 40 hours. What is the
probability that a random sample of 16 light
bulbs have an average life of less than 775
hours?

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-35

 Example 2

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-36

 Example 3
 The prices of all houses in Cape Coast have a
skewed probability distribution with a mean of
GH¢200,000 and standard deviation of GH
¢60,000. Suppose a sample of 400 houses are
selected at random:
 What is the probability that the mean price from
this sample will be within GH¢6000 of the
population mean?

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-37

 Example 4

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-38

 Example 5
 If 10% of a population of alternators is
defective, (i) what is the probability of randomly
selecting 100 alternators and finding that 12 or
more alternators are defective? (ii) What is the
probability that less than 15 are defective?

Business Statistics: A Decision-Making Approach, 7e © 2008 Prentice-Hall, Inc. Chap 7-39