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)
 Variable: Any characteristic of the
population
 Census: An examination all of the
population of measurements
 Sample: A subset of the units of a
population

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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

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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
 Statistical Inference: The science of
describing the important aspects a set
of measurements

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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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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?
 See Example 1.3, “The Car Mileage
Case: Estimating Mileage,” in the
textbook

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 Runs Plot

Figure 1.2 1-12

 Out of Control (Level Decreasing)

Figure 1.3 1-13

 Out of Control (Variation Increasing)

Figure 1.4 1-14

1.3 Ratio, Interval, Ordinal, and
Nominative Scales of Measurement
(Optional)

 Nominative
 Ordinal
 Interval
 Ratio

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Qualitative Variables
 Nominative: A qualitative variable for
which there is no meaningful ordering,
or ranking, of the categories
 Example: gender, car color
 Ordinal: A qualitative variable for
which there is a meaningful ordering, or
ranking, of the categories
 Example: teaching effectiveness

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Interval Variable
 All of the characteristics of ordinal
plus…
 Measurements are on a numerical scale
with an arbitrary zero point
 The “zero” is assigned: it is nonphysical
and not meaningful
 Zero does not mean the absence of the
quantity that we are trying to measure
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Interval Variable Continued

 Can only meaningfully compare values

by the interval between them
 Cannot compare values by taking their
ratios
 “Interval” is the arithmetic difference
between the values
 Example: temperature
 0 F means “cold,” not “no heat”
 60 F is not twice as warm as 30 F

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Ratio Variable
 All the characteristics of interval plus…
 Measurements are on a numerical scale
with a meaningful zero point
 Zero means “none” or “nothing”
 Values can be compared in terms of
their interval and ratio
 $30 is $20 more than $10
 $0 means no money

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Ratio Variable Continued

 In business and finance, most

quantitative variables are ratio
variables, such as anything to do with
money
 Examples: Earnings, profit, loss, age,
distance, height, weight

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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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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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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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 About Word Of Statistics The word statistics seems to
have been derived from the Latin word “Status” or the
Italian word “Statista”. Both the words mean a political
state. 2. Statistics Statistics is defined as the science of
collection, presentation, analysis and interpretation of
numerical data. 3. Statistician A statistician is an
expert with at least a master’s degree in mathematics
or statistics or a trained professional in a related field
4. What Do You Mean By Statistical Method A method
of analyzing or representing statistical data; a
procedure for calculating a statistic

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