Msb11e PPT ch05

© 2011 Pearson Education, Inc
Statistics for Business and

Economics
Chapter 5
Inferences Based on a Single Sample:
Estimation with Confidence Intervals

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
7. Sample Survey Designs
Learning Objectives
1. Estimate a population parameter (means or
proportion) based on a large sample selected from
the population
2. Use the sampling distribution of a statistic to
form a confidence interval for the population
parameter
3. Show how to select the proper sample size for
estimating a population parameter

Thinking Challenge
Suppose you’re
interested in the
average amount of
money that students in
this class (the
population) have on
them. How would you
find out?

Statistical Methods
Statistical
Methods
Descriptive Inferential
Statistics Statistics
Hypothesis
Estimation
Testing

5.1
Identifying and Estimating

the Target Parameter

Estimation Methods
Estimation
Point Interval
Estimation Estimation

Target Parameter
The unknown population parameter (e.g., mean or

proportion) that we are interested in estimating is called
the target parameter.

Target Parameter
Determining the Target Parameter
Parameter Key Words of Phrase Type of Data
µ Mean; average Quantitative
p Proportion; percentage
fraction; rate Qualitative

Point Estimator
A point estimator of a population parameter is a rule

or formula that tells us how to use the sample data to
calculate a single number that can be used as an
estimate of the target parameter.

Point Estimation
1. Provides a single value
• Based on observations from one sample
2. Gives no information about how close the
value is to the unknown population parameter
3. Example: Sample mean x = 3 is the point
estimate of the unknown population mean

Interval Estimator
An interval estimator (or confidence interval) is a

formula that tells us how to use the sample data to
calculate an interval that estimates the target parameter.

Interval Estimation
1. Provides a range of values
• Based on observations from one sample
2. Gives information about closeness to unknown
population parameter
• Stated in terms of probability
– Knowing exact closeness requires knowing unknown
population parameter
3. Example: Unknown population mean lies between 50
and 70 with 95% confidence

5.2
Confidence Interval for a

Population Mean:
Normal (z) Statistic

Estimation Process
Population Random Sample

I am 95%
Mean confident that 
Mean, , is 
 x = 50 is between 40 &
unknown
 60.
 
 
Sample 

 


Key Elements of
Interval Estimation
Sample statistic
Confidence interval
(point estimate)
Confidence limit Confidence limit

(lower) (upper)
A confidence interval provides a range of

plausible values for the population parameter.
Confidence Interval
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?
Confidence Interval
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 .95. Thus, the
probability that a
randomly selected
interval will contain µ
is equal to .95.
Confidence Coefficient
The confidence coefficient is the probability that a
randomly selected confidence interval encloses the
population parameter - that is, the relative frequency
with which similarly constructed intervals enclose the
population parameter when the estimator is used
repeatedly a very large number of times. The confidence
level is the confidence coefficient expressed as a
percentage.

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 .05. To choose a different confidence coefficient
we increase or decrease the area (call it ) assigned
to the tails. If we place /2 in
each tail and z/2 is the z-value,
the confidence interval with
coefficient coefficient (1 – ) is
 
x  z 2  x .
Conditions Required for a Valid
Large-Sample
Confidence Interval for µ
1. A random sample is selected from the target

population.
2. The sample size n is large (i.e., n ≥ 30). Due to the
Central Limit Theorem, this condition guarantees
that the sampling distribution of x is approximately
normal. Also, for large n, s will be a good estimator
of .
Large-Sample (1 – )% 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
The parameter  is the standard deviation of the sampled
population, and n is the sample size.
Note: When  is unknown and n is large (n ≥ 30), the
confidence interval is approximately equal to
 s 
x  z 2 
 n 
where s is the sample standard deviation.
Thinking Challenge
You’re a Q/C inspector for Gallo.
The  for 2-liter bottles is .05
liters. A random sample of 100
bottles showed x = 1.99 liters.
What is the 90% confidence
interval estimate of the true
mean amount in 2-liter bottles?
22 liter
liter
© 1984-1994 T/Maker Co.

Confidence Interval
Solution*
 
x  z /2     x  z /2 
n n
.05 .05
1.99  1.645    1.99  1.645
100 100
1.982    1.998

5.3

Population Mean:

Small Sample  Unknown
Instead of using the standard normal statistic
xµ xµ
z 
x  n
use the t–statistic

xµ
t
s n
in which the sample standard deviation, s, replaces the
population standard deviation, .
The t-statistic has a sampling distribution very much like
that of the z-statistic: mound-shaped, symmetric, with
mean 0.
The primary
difference between
the sampling
distributions of t and
z is that the t-statistic
is more variable than
the z-statistic.
Degrees of Freedom
The actual amount of variability in the sampling

distribution of t depends on the sample size n. A
convenient way of expressing this dependence is to say
that the t-statistic has (n – 1) degrees of freedom (df).

Student’s t Distribution
Standard
Normal
Bell-Shaped
t (df = 13)
Symmetric
‘Fatter’ Tails t (df = 5)
z
t
0
t - Table

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.

Small-Sample
 s 
x  t 2 
 n 
where ta/2 is based on (n – 1) degrees of freedom.

Conditions Required for a
Valid Small-Sample
1. A random sample is selected from the target

population.
2. The population has a relative frequency
distribution that is approximately normal.

Estimation Example
Mean ( Unknown)
A random sample of n = 25 has x = 50 and s = 8.
Set up a 95% confidence interval estimate for .
s s
x  t /2     x  t /2 
n n
8 8
50  2.064     50  2.064 
25 25
46.70    53.30

Thinking Challenge
You’re a time study analyst in
manufacturing. You’ve
recorded the following task
times (min.):
3.6, 4.2, 4.0, 3.5, 3.8, 3.1.
interval estimate of the
population mean task time?

Confidence Interval Solution*
• x = 3.7
• s = 3.8987
• n = 6, df = n – 1 = 6 – 1 = 5
• t.05 = 2.015
.38987 .38987
3.7  2.015    3.7  2.015
6 6
.492    6.908
5.4
Large-Sample Confidence Interval

for a Population Proportion

Sampling Distribution of pö
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 p̂ 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 np̂  15 and nq̂  15.
Large-Sample Confidence
Interval for pö
pq p̂q̂
p̂  z 2 p̂  p̂  z 2   p̂  z 2 
n n
x
where p̂  and q̂  1  p̂.
n
Note: When n is large, p̂ can approximate the value of p

in the formula for  p̂ .

Conditions Required for a
Valid Large-Sample
Confidence Interval for p
1. A random sample is selected from the target population.
2. The sample size n is large. (This condition will be

satisfied if both np̂  15 and nq̂  15 . Note that np̂ and
nq̂ are simply the number of successes and number of
failures, respectively, in the sample.).

Estimation Example
Proportion
A random sample of 400 graduates showed 32
went to graduate school. Set up a 95%
confidence interval estimate for p.
pöqö pöqö 32
pö  Z / 2   p  pö  Z / 2  pö   0.08
n n 400
.08  1.96 
  p 
.08 .92
.08  1.96 
 
.08 .92
400 400
.053  p  .107
Thinking Challenge
You’re a production manager
for a newspaper. You want to
find the % defective. Of 200
newspapers, 35 had defects.
interval estimate of the
population proportion
defective?

Confidence Interval
Solution*
pö  qö pö  qö
pö  z / 2   p  pö  z / 2 
n n
.175(.825) .175(.825)
.175  1.645   p  .175  1.645 
200 200
.1308  p  .2192

Adjusted (1 – )100%
Population Proportion, p
p%1  p%
p  z 2
n4
x2
where p  is the adjusted sample proportion of
n4
observations with the characteristic of interest, x is the
number of successes in the sample, and n is the sample
size.
5.5
Determining the Sample Size

Sampling Error
In general, we express the reliability associated with a

confidence interval for the population mean µ by
specifying the sampling error within which we want to
estimate µ with 100(1 – )% confidence. The sampling
error (denoted SE), then, is equal to the half-width of the
confidence interval.

Sample Size Determination
for 100(1 – ) %
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
z   
2 2
 2
n
SE  2

Sample Size Example
What sample size is needed to be 90% confident
the mean is within  5? A pilot study suggested
that the standard deviation is 45.
1.645 45
2 2
(z 2 ) 
2 2
n   219.2  220
(SE) 2 5
2

Sample Size Determination
for 100(1 – ) %
Confidence Interval for p
In order to estimate p with a sampling error SE and with
100(1 – )% confidence, the required sample size is
found by solving the following equation for n:
pq
z 2  SE
n
The solution for n can be written as follows:
z   pq 
2
 2
n
SE  2
Note: Always round©n2011upPearson Education, Inc

to the nearest integer value.
Sample Size Example
What sample size is needed to estimate p within
.03 with 90% confidence?
width .03
SE    .015
2 2
(Z 2 )  pq 
2
1.645  .5 .5 
2
n   3006.69  3007
(SE) 2 .015 2

Thinking Challenge
You work in Human Resources
at Merrill Lynch. You plan to
survey employees to find their
average medical expenses. You
want to be 95% confident that
the sample mean is within ± $50.
A pilot study showed that  was
about $400. What sample size
do you use?

Sample Size Solution*
(z 2 )2  2
n
(SE)2
1.96  400 
2 2

50
2
 245.86  246

5.6
Finite Population Correction for

Simple Random Sample

Finite Population Correction Factor
In some sampling situations, the sample size n may

represent 5% or perhaps 10% of the total number N of
sampling units in the population. When the sample size
is large relative to the number of measurements in the
population (see the next slide), the standard errors of the
estimators of µ and p should be multiplied by a finite
population correction factor.

Rule of Thumb for Finite
Population Correction Factor
Use the finite population correction factor when

n/N > .05.

Simple Random Sampling with
Finite Population of Size N
Estimation of the Population Mean
Estimated standard error:
s N n
̂ x 
n N
Approximate 95% confidence interval: x  2̂ x

Simple Random Sampling with
Finite Population of Size N
Estimation of the Population Proportion
Estimated standard error:
p̂(1  p̂) N  n
̂ p̂ 
n N
Approximate 95% confidence interval: p̂  2̂ p̂

Finite Population Correction
Factor Example
You want to estimate a population mean, μ, where
x =115, s =18, N =700, and n = 60. Find an approximate
95% confidence interval for μ.
Since
n  60  .086
N 700
is greater than .05 use the finite correction factor

Finite Population Correction
Factor Example
You want to estimate a population mean, μ, where
x =115, s =18, N =700, and n = 60. Find an approximate
95% confidence interval for μ.
s N n 18 700  60
x 2  115  2 
n N 60 700
 115  4.4
 110.6, 119.4 

5.7
Sample Survey Designs

Simple Random Sample
If n elements are selected from a population in

such a way that every set of n elements in the
population has an equal probability of being
selected, the n elements are said to be a simple
random sample.

Stratified Random Sampling
Stratified random sampling is used when the

sampling units (i.e., the units that are sampled)
associated with the population can be physically
separated into two or more groups of sampling
units (called strata) where the within-stratum
response variation is less than the variation
within the entire population.

Systematic Sample
Sometimes it is difficult or too costly to select
random samples. For example, it would be easier
to obtain a sample of student opinions at a large
university by systematically selecting every
hundredth name from the student directory. This
type of sample design is called a systematic
sample. Although systematic samples are usually
easier to select than other types of samples, one
difficulty is the possibility of a systematic
sampling bias.
Randomized Response Sampling
Randomized response sampling is particularly
useful when the questions of the pollsters are
likely to elicit false answers. One method of
coping with the false responses produced by
sensitive questions is randomized response
sampling. Each person is presented two
questions; one question is the object of the
survey, and the other is an innocuous question to
which the interviewee will give an honest
answer.
Key Ideas
Population Parameters, Estimators, and
Standard Errors
Parameter Estimator Standard Estimated
  ̂  Error of Std Error
Estimator
 ̂
̂ 
̂
Mean, µ x  n s n
Proportion, p p̂ pq n p̂q̂ n
Key Ideas
Population Parameters, Estimators, and
Standard Errors
Confidence Interval: An interval that encloses an
unknown population parameter with a certain level of
confidence (1 – )
Confidence Coefficient: The probability (1 – ) that a

randomly selected confidence interval encloses the true
value of the population parameter.
Key Ideas
Key Words for Identifying the Target
Parameter
µ – Mean, Average
p – Proportion, Fraction, Percentage, Rate, Probability

Key Ideas
Sample Survey Designs
1. Simple random sampling

2. Stratified random sampling
3. Systematic sampling
4. Random response sampling

Key Ideas
Commonly Used z-Values for a Large-Sample
Confidence Interval
90% CI: (1 – ) = .10 z.05 = 1.645
95% CI: (1 – ) = .05 z.025 = 1.96
99% CI: (1 – ) = .01 z.005 = 2.575

Key Ideas
Determining the Sample Size n
    SE 
2
Estimating µ: n  z 2 2 2
   pq  SE 
2
Estimating p: n  z 2
2

Key Ideas
Finite Population Correction Factor
Required when n/N > .05

Key Ideas
Illustrating the Notion of “95% Confidence”

Key Ideas
Illustrating the Notion of “95% Confidence”

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© 2011 Pearson Education, Inc

Statistics for Business and

© 2011 Pearson Education, Inc

© 2011 Pearson Education, Inc

© 2011 Pearson Education, Inc

© 2011 Pearson Education, Inc

Identifying and Estimating

© 2011 Pearson Education, Inc

© 2011 Pearson Education, Inc

The unknown population parameter (e.g., mean or

© 2011 Pearson Education, Inc

Parameter Key Words of Phrase Type of Data

µ Mean; average Quantitative

© 2011 Pearson Education, Inc

A point estimator of a population parameter is a rule

© 2011 Pearson Education, Inc

© 2011 Pearson Education, Inc

An interval estimator (or confidence interval) is a

© 2011 Pearson Education, Inc

© 2011 Pearson Education, Inc

Confidence Interval for a

© 2011 Pearson Education, Inc

Population Random Sample

Confidence limit Confidence limit

A confidence interval provides a range of

© 2011 Pearson Education, Inc

1. A random sample is selected from the target

© 1984-1994 T/Maker Co.

© 2011 Pearson Education, Inc

Confidence Interval for a

© 2011 Pearson Education, Inc

use the t–statistic

The actual amount of variability in the sampling

© 2011 Pearson Education, Inc

© 2011 Pearson Education, Inc

© 2011 Pearson Education, Inc

where ta/2 is based on (n – 1) degrees of freedom.

© 2011 Pearson Education, Inc

1. A random sample is selected from the target

© 2011 Pearson Education, Inc

© 2011 Pearson Education, Inc

© 2011 Pearson Education, Inc

Large-Sample Confidence Interval

© 2011 Pearson Education, Inc

2. The standard deviation of the sampling distribution

3. For large samples, the sampling distribution of p̂ is

Note: When n is large, p̂ can approximate the value of p

© 2011 Pearson Education, Inc

2. The sample size n is large. (This condition will be

© 2011 Pearson Education, Inc

© 2011 Pearson Education, Inc

© 2011 Pearson Education, Inc

Determining the Sample Size

© 2011 Pearson Education, Inc

In general, we express the reliability associated with a

© 2011 Pearson Education, Inc

© 2011 Pearson Education, Inc

© 2011 Pearson Education, Inc

Note: Always round©n2011upPearson Education, Inc

© 2011 Pearson Education, Inc

© 2011 Pearson Education, Inc

© 2011 Pearson Education, Inc

Finite Population Correction for