Chapter 6 Statistics
Chapter 6 Statistics
Economics
Fourteenth Edition
Chapter 6
Inferences
Based on a
Single Sample
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Content
1. Identifying and Estimating the Target Parameter
2. Confidence Interval for a Population Mean: Normal (z)
Statistic
3. Confidence Interval for a Population Mean: Student’s t-
Statistic
4. Large-Sample Confidence Interval for a Population
Proportion
5. Determining the Sample Size
6. Finite Population Correction for Simple Random Sampling
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Where We’re Going
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Section 6.1 Identifying and
Estimating the Target Parameter
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Target Parameter (1 of 2)
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Target Parameter (2 of 2)
Type of Data
Parameter Key Words of Phrase
Proportion; percentage
p fraction; rate
Qualitative
Variance; variability;
2 spread
Quantitative
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Point Estimator
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Interval Estimator
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Section 6.2 Confidence Interval for
a Population Mean: Normal (z)
Statistic
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Confidence Interval (1 of 2)
According to the Central Limit Theorem, the sampling
distribution of the sample mean is approximately normal for
large samples. Let us calculate the interval estimator:
1.96
x 1.96 x x
n
That is, we form an interval from 1.96 standard deviations
below the sample mean to 1.96 standard deviations above
the mean. Prior to drawing the sample, what are the
chances that this interval will enclose μ, the population
mean?
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Confidence Interval (2 of 2)
If sample measurements yield a value of x that falls
between the two lines on either side of µ, then the interval
x 1.96 x will contain µ.
The area under the normal
curve between these two
boundaries is exactly 0.95.
Thus, the probability that a
randomly selected interval
will contain µ is equal to 0.95.
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Example: Delinquent Debtors (1 of 2)
A large bank that wants to estimate the average amount of
money owed by its delinquent debtors, . The overdue
amounts for the n = 100 accounts are shown in the table
below. Use the data to find a 95% confidence interval for
and interpret the result.
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Example: Delinquent Debtors (2 of 2)
Find the sample mean x and the sample deviation s with
technology:
x 233.28 and s 90.34.
Substituting these values into the interval estimator formula:
x 1.96 / n x 1.96 s / n
233.28 (1.96)(90.34)
233.28 17.71 or (215.57,250.99)
The estimate is that the mean amount of delinquency for
all accounts falls within the interval $215.57 to $250.99.
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Confidence Coefficient
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95% Confidence Level
If our confidence level is 95%, then in the long run, 95% of
our confidence intervals will contain µ and 5% will not.
For a confidence coefficient of 95%, the area in the two
tails is 0.05. To choose a different confidence coefficient we
increase or decrease the area (call it α) assigned to the
tails. If we place / 2 in each tail and
is the z-value, the confidence
interval with coefficient (1 − α) is
x z 2 x .
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Large-Sample (1 − α)% Confidence
Interval for μ
x z 2 x x z 2 / n
where z /2 is the z-value with an area / 2 to its
right and in the standard normal distribution. The
parameter σ is the standard deviation of the sampled
population, and n is the sample size.
Note: When σ is unknown and n is large (n ≥ 30), the
confidence interval is approximately equal to
x z 2 s / n
where s is the sample standard deviation.
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Conditions Required for a Valid Large-
Sample Confidence Interval for μ
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Interpretation of a Confidence
Interval for a Population Mean (1 of 2)
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Interpretation of a Confidence
Interval for a Population Mean (2 of 2)
We know that repeated application of the same procedure
will result in different lower and upper bounds on the
interval. Furthermore, we know that 100(1 – )% of the
resulting intervals will contain . There is (usually) no way
to determine whether any particular interval is one of those
that contain m, or one that does not. However, unlike point
estimators, confidence intervals have some measure of
reliability, the confidence coefficient, associated with them.
For that reason they are generally preferred to point
estimators.
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Section 6.3 Confidence Interval for
a Population Mean: Student’s t-
Statistic
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Small Sample σ Unknown
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Degrees of Freedom
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Student’s t Distribution
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t - Table
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t-value
If we want the t-value with an area of .025 to its right
and 4 df, we look in the table under the column
t.025 for the entry in the row corresponding to 4 df.
This entry is t.025 2.776. The corresponding
standard normal z-score is z.025 1.96.
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Small-Sample Confidence Interval for μ
s
x t 2
n
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Conditions Required for a Valid Small-
Sample Confidence Interval for μ
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Estimation Example Mean (σ Unknown)
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Section 6.4 Large-Sample
Confidence Interval for a
Population Proportion
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Sampling Distribution of p hat
1. The mean of the sampling distribution of p̂
is p; that is, p̂ is an unbiased estimator of p.
2. The standard deviation of the sampling
distribution of pˆ is pq n that is, p̂ pq n
where q = 1−p.
3. For large samples, the sampling distribution of p̂
is approximately normal. A sample size is
considered large if both npˆ 15 and nqˆ 15.
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Large-Sample Confidence Interval
for p hat
pq ˆˆ
pq
pˆ z 2 pˆ pˆ z 2 pˆ z 2
n n
x
where pˆ and qˆ 1 pˆ .
n
Note: When n is large, p̂ can approximate the
value of p in the formula for pˆ .
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Conditions Required for a Valid Large-
Sample Confidence Interval for p
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Example: Estimation of Proportion
A random sample of 1,000 consumers showed 313 prefer
the company’s cereal brand. Set up a 95% confidence
interval estimate for p.
ˆˆ
pq ˆˆ
pq 313
pˆ Z /2 p pˆ Z /2 pˆ 0.313
n n 1000
0.313 0.687 0.313 0.687
0.313 1.96 pˆ 0.313 1.96
1000 1000
0.284 pˆ 0.342
The company can be 95% confident that the interval from
28.4% to 34.2% contains the true percentage of all
consumers who prefer its brand.
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Adjusted left parenthesis 1 minus alpha
right parenthesis 100% Confidence
Interval for a Population Proportion, p
p1 p
p z 2
n4
x2
where p n 4 is the adjusted sample proportion
of observations with the characteristic of interest, x
is the number of successes in the sample, and n is
the sample size.
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Section 6.5 Determining the Sample
Size
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Sampling Error
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Sample Size Determination for 100 left
parenthesis 1 minus alpha right
parenthesis% Confidence Interval for µ
In order to estimate µ with a sampling error (SE)
and with 100(1 – )% confidence, the required
sample size is found as follows:
z 2 SE
n
The solution for n is given by the equation
2
z /2
n
SE
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Example: Mean Inflation Pressure of
Footballs (1 of 2)
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Example: Mean Inflation Pressure of
Footballs (2 of 2)
Given that SE = 0.025 pound.
Define a 99% confidence interval: z 2 z0.005 2.576
No estimate of s is given; however know range
R = 13.7 – 13.3 = 0.4. A conservative estimate
(based on Chebychev’s Rule) is
2 2
( z 2 ) 2.576 0.1
Find n: n 106.17 107
( SE ) 0.025
n 3006.69 3007
0.015
2 2
( SE )
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Finite Population Correction Factor
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Rule of Thumb for Finite Population
Correction Factor
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Simple Random Sampling with Finite
Population of Size N (1 of 2)
s N n
ˆ x
n N
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Simple Random Sampling with Finite
Population of Size N (2 of 2)
p̂(1 p̂) N n
̂ p̂
n N
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Finite Population Correction Factor Example
(1 of 2)
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Finite Population Correction Factor Example
(2 of 2)
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Section 6.7 Confidence Interval for
a Population Variance
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Confidence Interval for a Population
Variance
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Conditions Required for a Valid
Confidence Interval for sigma squared
1. A random sample is selected from the target
population.
2. The population of interest has a relative
frequency distribution that is approximately
normal.
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Key Ideas (1 of 8)
Population Parameters, Estimators, and
Standard Errors
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Key Ideas (2 of 8)
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Key Ideas (3 of 8)
2 - Variance
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Key Ideas (4 of 8)
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Key Ideas (5 of 8)
Estimating μ: n z 2 SE
2 2
2
Estimating p: n z 2 pq SE
2 2
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Key Ideas (6 of 8)
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Key Ideas (7 of 8)
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Key Ideas (8 of 8)
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