Chapter 1

An Introduction to Business
Statistics

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Outline
1.1 Populations and Samples
1.2 Selecting a Random Sample
1.3 Ratio, Interval, Ordinal, and Nominative
Scales of Measurement (Optional)
1.4 An Introduction to Survey Sampling
(Optional)
1.5 More About Data Acquisition and Survey
Sampling (Optional)

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1.1 Populations and Samples
Population: A set of existing units
(people, objects or events)
Examples
 total of graduate last year (IABF)
 total consumers who bought a cellular
phone
 all fires reported last month to the fire
departmentr

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Variable: Any characteristic of the
population
 Example : starting salary of IABF graduate
last year
Census: An examination all of the
population of measurements, normally
very large, costly and time consuming
Sample: A subset of the units of a
population
Quantitative Versus Qualitative
 Quantitative: Measurements that represent
quantities
 Annual starting salary
 Gasoline mileage
 Qualitative: A descriptive category to which
a population unit belongs: a descriptive
attribute of a population unit
 A person’s gender is qualitative
 Make of automobile
 A person who purchases a product is satisfied with
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the product.
Population of Measurements
Measurement of the variable of interest
for each and every population unit
 Sometimes referred to as an observation
 For example, annual starting salaries of all
graduates from last year’s MBA program
Census: The process of collecting the
population of all measurements
Sample: A subset of population units

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Descriptive Statistics

Descriptive Statistics: The science of

describing the important aspects of a
set of measurements
 how small or larg they tend to be, what a
typical salary might be, how much salaries
differ from each

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Statistical Inference: The science of
using a sample of measurements to
make generalizations about the
important aspects of a population of
measurements
 we might use a sample of starting salaries
to estimate the important aspects of a
population of starting salaries
1.2 Selecting a Random Sample

Random Sample: Selected so that, on

each selection from the population,
every unit remaining in the population
on that selection has the same chance
of being chosen
 Sample with replacement
 Sample without replacement

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Approximately Random Samples

In general, must make a list identifying

each and every individual population
unit
 This may not be possible
Draw a “systematic” sample
Randomly enter the population and
systematically sample every kth unit

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Sampling a Process

A process is a sequence of operations

that takes inputs (labor, materials,
methods, machines) and turns into
outputs.
Finite and Infinite Populations

Finite if it is of fixed and limited size

Finite if it can be counted
Infinite if it is unlimited
Infinite if listing or counting every
element is impossible

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Sampling a Process

Inputs Process Outputs

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Statistical Control

To determine if a process is in control or

not, sample the process often enough
to detect unusual variations
 Issue: How often to sample?
Table 1.7

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Table 1.7
Figure 1.3
A process is in statistical control if it
does not exhibit any unusual process
variations.
Often, this means that the process
displays a constant amount of
variation around a constant, or
horizontal level.
When in state of control, the process
performance is predictable.
Run Plot

Run Plot is a graph of individual process

measurements versus time.
Sometimes referred as “line chart”
Figure 1.4
1.3 Ratio, Interval, Ordinal, and
Nominative Scales of Measurement
(Optional)

Nominative
Ordinal
Interval
Ratio

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Nominal Level

In this level of measurement, the

numbers in the variable are used only
to classify the data.
words, letters, and alpha numeric
symbols can be used
 Example
 F - Female
 M - Male
 T - Transgender
Ordinal Level

This level of measurement depicts some

ordered relationship among the
variable's observations.
Indicates an ordering of the
measurements.
Scores in exam:
 100 - Rank 1
 92 - Rank 2
 81 - Rank 3
Interval Measurement
 It not only clasifies and orders the
measurements, but it also specifies that the
distances between each interval on the scale
are equivalent along the scale from low
interval to high interval
 Examples: Measurement of anxiety in a
student between the score of 10 and 11, this
interval is the same as that of a student who
scores between 40 and 41.
Ratio Level
 In this level of measurement, the observations,
in addition to having equal intervals, can have a
value of zero as well.
 The zero in the scale makes this type of
measurement, although the properties are similar
to that of the interval of measurement
 Examples: 1) a distance of zero miles is “no
distance at all,” and a town that is 30 miles away
is “twice as far” as a town that is 15 miles away.
Illustrative Example
1.4 An Introduction to Survey
Sampling (Optional)
Already know some sampling methods
 Also called sampling designs, they are:
 Random sampling
 Systematic sampling
 Voluntary response sampling

But there are other sample designs

 Stratified random sampling
 Multi-stage cluster sampling

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Stratified Random Sample
Divide the population into non-
overlapping groups, called strata, of
similar units
 Separately, select a random sample from
each and every stratum
 Combine the random samples from each
stratum to make the full sample
Appropriate when the population
consists of two or more different groups
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Example of SRS
Multi-Stage Cluster Sampling
Group a population into subpopulations
 Each cluster is a representative small-scale
version of the population
Pick a random sample of clusters
A simple random sample is chosen from
each chosen cluster
Combine the random samples from
each cluster to make the full sample

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Example of MSCS
Combination
 It is sometimes a good idea to combine
stratification with multistage cluster sampling
 For example, we wish to estimate the
proportion of all registered voters who favor a
presidential candidate
 Divide United States into regions
 Use these regions as strata
 Take a multi-stage cluster sample from each
stratum

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Systematic Sampling

To systematically select n units without

replacement from a frame of N units,
divide N by n and round down to a
whole number
Randomly select one unit within the
first N/n interval
Select every N/nth unit after that

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1.5 More About Data Acquisition and
Survey Sampling (Optional)

Web searches…
 Cheap, fast
 Limited in type of information we are able
to find
Data collection agency
 Cost money
 Buy subscription or individual reports

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Initiating a Study
 First, define the variable of interest, called a
response variable
 Next, define other variables that may be
related to the variable of interest and will be
measured, called independent variables
 If we manipulate the independent variables,
we have an experimental study
 If unable to control independent variables,
the study is observational

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Types of Survey Questions

Dichotomous questions ask for a yes/no

response
Multiple choice questions give the
respondent a list of of choices to select
from
Open-ended questions allow the
respondent to answer in their own
words
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Errors Occurring in Surveys

Random sampling should eliminate bias

But even a random sample may not be
representative because of:
 Sampling error
 Under-coverage
 Non-response
 Response bias

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