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Chapter 8:

ESTIMATION OF THE MEAN


AND PROPORTION
ESTIMATION: AN
INTRODUCTION
Definition
The assignment of value(s) to a
population parameter based on a
value of the corresponding sample
statistic is called estimation.

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ESTIMATION: AN
INTRODUCTION cont.
Definition
The value(s) assigned to a population
parameter based on the value of a
sample statistic is called an
estimate.
The sample statistic used to estimate
a population parameter is called an
estimator.
3
ESTIMATION: AN
INTRODUCTION cont.
The estimation procedure involves
the following steps.
1. Select a sample.
2. Collect the required information from
the members of the sample.
3. Calculate the value of the sample
statistic.
4. Assign value(s) to the corresponding
population parameter. 4
POINT AND INTERVAL
ESTIMATES
 A Point Estimate
 An Interval Estimate

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A Point Estimate
Definition
The value of a sample statistic that is
used to estimate a population
parameter is called a point
estimate.

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A Point Estimate cont.
 Usually, whenever we use point estimation,
we calculate the margin of error associated
with that point estimation.
 The margin of error is calculated as follows:

Margin of error = ±1.96σ x or ± 1.96 s x

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An Interval Estimation
Definition
In interval estimation, an interval
is constructed around the point
estimate, and it is stated that this
interval is likely to contain the
corresponding population parameter.

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Figure 8.1 Interval estimation.

µx = µ x = $1370

$1130 $161
0
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An Interval Estimation
cont.
 Definition
 Each interval is constructed with regard to a given
confidence level and is called a confidence
interval. The confidence level associated with a
confidence interval states how much confidence
we have that this interval contains the true
population parameter. The confidence level is
denoted by (1 – α)100%.

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INTERVAL ESTIMATION OF A
POPULATION MEAN: LARGE
SAMPLES
Confidence Interval for μ for Large Samples
The (1 – α)100% confidence interval for
μ is
x ± zσ x if σ is known
x ± zs x if σ is not known
where σ x = σ / n and s x = s / n

The value of z used here is read from the


standard normal distribution table for the
given confidence level.
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INTERVAL ESTIMATION OF A
POPULATION MEAN: LARGE
SAMPLES cont.

Definition
The maximum error of estimate
for μ, denoted by E, is the quantity
that is subtracted from and added to
the value of x to obtain a confidence
interval for μ. Thus,
E = zσ x or zs x
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Figure 8.2 Finding z for a 95% confidence
level.

Total shaded
area is .9500 or
95%

.4750 .4750
μ x

-1.96 0 1.96 z

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Figure 8.3 Area in the tails.

α α
2 2
(1 – α)

-z 0 z z

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Example 8-1
A publishing company has just published a new
college textbook. Before the company decides the
price at which to sell this textbook, it wants to
know the average price of all such textbooks in
the market. The research department at the
company took a sample of 36 comparable
textbooks and collected information on their
prices. This information produces a mean price of
$70.50 for this sample. It is known that the
standard deviation of the prices of all such
textbooks is $4.50.

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Example 8-1
(a) What is the point estimate of the
mean price of all such textbooks?
What is the margin of error for the
estimate?
(b) Construct a 90% confidence interval
for the mean price of all such
college textbooks.

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Solution 8-1
a)
n = 36, x = $70.50, and σ = $4.5
σ 4.50
σx = = = $.75
n 36
Point estimate of μ = x = $70.50

Margin of error =
± 1.96σ x = ±1.96(.75) = ±$1.47
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Solution 8-1
b)
Confidence level is 90% or .90.
z = 1.65.
x ± zσ x = 70.50 ± 1.65(.75) = 70.50 ± 1.24
= (70.50 - 1.24) to (70.50 + 1.24)
= $69.26 to $71.74
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Solution 8-1
We can say that we are 90% confident
that the mean price of all such college
textbooks is between $69.26 and
$71.74.

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Figure 8.4 Confidence intervals.

x3 x2 x1 x
x1 − 1.65σ x x1 x1 + 1.65σ x

x 2 − 1.65σ x x2 x 2 + 1.65σ x
x3 − 1.65σ x x3 x3 + 1.65σ x
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Example 8-2
According to a report by the Consumer
Federation of America, National Credit Union
Foundation, and the Credit Union National
Association, households with negative assets
carried an average of $15,528 in debt in 2002
(CBS.MarketWatch.com, May 14, 2002). Assume
that this mean was based on a random sample
of 400 households and that the standard
deviation of debts for households in this sample
was $4200. Make a 99% confidence interval for
the 2002 mean debt for all such households.

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Solution 8-2
 Confidence level 99% or .99
 s 4200
sx = = = $210
n 400
 The sample is large (n > 30)
 Therefore, we use the normal distribution
 z = 2.58

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Solution 8-2
x ± zs x = 15,528 ± 2.58(210) = 15,528 ± 541.80
= $14,986.20 to $16,069.80

Thus, we can state with 99%


confidence that the 2002 mean debt for
all households with negative assets was
between $14,986.20 and $16,069.80.

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INTERVAL ESTIMATION OF A
POPULATION MEAN: SMALL
SAMPLES
 The t Distribution
 Confidence Interval for μ Using the
t Distribution

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The t Distribution
Conditions Under Which the t Distribution Is Used to
Make a Confidence Interval About μ
The t distribution is used to make a
confidence interval about μ if
1. The population from which the sample is
drawn is (approximately) normally distributed
2. The sample size is small (that is, n < 30)
3. The population standard deviation , σ , is not
known

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The t Distribution cont.
The t distribution is a specific type of bell-
shaped distribution with a lower height and a
wider spread than the standard normal
distribution. As the sample size becomes larger,
the t distribution approaches the standard
normal distribution. The t distribution has only
one parameter, called the degrees of freedom
(df). The mean of the t distribution is equal to 0
and its standard deviation is .
df /(df − 2)

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Figure 8.5 The t distribution for df = 9 and the
standard normal distribution.

The standard
The standard deviation deviation of the t
of the standard normal 9 /(9 − 2) = 1is.134
distribution
distribution is 1.0

μ=0

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Example 8-3
Find the value of t for 16 degrees of
freedom and .05 area in the right tail
of a t distribution curve.

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Table 8.1 Determining t for 16 df and .05 Area
in the Right Tail

Area in the right tail


Area in the Right Tail Under the t Distribution Curve
df .10 .05 .025 … .001
1 3.078 6.314 12.706 … 318.309
2 1.886 2.920 4.303 … 22.327
3 1.638 2.353 3.182 … 10.215
. … … … … …
df 16 1.337 1.746 2.120 … 3.686
. … … … … …

The required value of t for 16 df and .05 area


in the right tail
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Figure 8.6 The value of t for 16 df and .05 area
in the right tail.

.05
df = 16

0 1.746 t
This is the
required value of t

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Figure 8.7 The value of t for 16 df and .05 area
in the left tail.

.05 df = 16

-1.746 0 t

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Confidence Interval for μ
Using the t Distribution
The (1 – α)100% confidence interval for μ is

s
x ± ts x where s x =
The value of t is obtained fromn the t distribution
table for n – 1 degrees of freedom and the
given confidence level.

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Example 8-4
Dr. Moore wanted to estimate the mean
cholesterol level for all adult men living in
Hartford. He took a sample of 25 adult men
from Hartford and found that the mean
cholesterol level for this sample is 186 with
a standard deviation of 12. Assume that
the cholesterol levels for all adult men in
Hartford are (approximately) normally
distributed. Construct a 95% confidence
interval for the population mean μ.

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Solution 8-4
 Confidence level is 95% or .95
 s 12
sx = = = 2.40
n 25

 df = n – 1 = 25 – 1 = 24
 Area in each tail = .5 – (.95/2)
= .5 - .4750 = .025
 The value of t in the right tail is 2.064
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Figure 8.8 The value of t.

df = 24
.025
.025

.4750 .4750

-2.064 0 2.064 t

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Solution 8-4

x ± ts x = 186 ± 2.064(2.40) = 186 ± 4.95


= 181.05 to 190.95

Thus, we can state with 95% confidence


that the mean cholesterol level for all
adult men living in Harford lies between
181.05 and 190.95.
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Example 8-5
Twenty-five randomly selected adults who
buy books for general reading were asked
how much they usually spend on books per
year. The sample produced a mean of $1450
and a standard deviation of $300 for such
annual expenses. Assume that such
expenses for all adults who buy books for
general reading have an approximate normal
distribution. Determine a 99% confidence
interval for the corresponding population
mean.
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Solution 8-5
 Confidence level is 99% or .99
 s 300
sx = = = $60
n 25
 df = n – 1 = 25 – 1 = 24
 Area in each tail = .5 – (.99/2)
= .5 - .4950 = .005
 The values of t are 2.797 and -2.797

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Solution 8-5
The 99% confidence interval for
μ is
x ± ts x = $1450 ± 2.797(60)
= $1450 ± $167.82
= $1282.18 to $1617.82

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INTERVAL ESTIMATION OF A
POPULATION PROPORTION: LARGE
SAMPLES


Estimator of the Standard Deviation
of
s pˆ
σ p̂ , which gives a point
The value of
estimate of , is calculated as
pˆ qˆ
s pˆ =
n
40
INTERVAL ESTIMATION OF A
POPULATION PROPORTION: LARGE
SAMPLES cont.

Confidence Interval for the Population


Proportion, p
The (1 – α)100% confidence interval
for the population proportion, p, is
pˆ ± zs pˆ
The value of z used here is obtained from
the standard normal distribution table for
the given confidence level,
s pˆ and
= pˆ qˆ/n
.
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Example 8-6
According to a 2002 survey by FindLaw.com,
20% of Americans needed legal advice during
the past year to resolve such thorny issues as
family trusts and landlord disputes
(CBS.MarketWach.com, August 6, 2002).
Suppose a recent sample of 1000 adult
Americans showed that 20% of them needed
legal advice during the past year to resolve
such family-related issues.

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Example 8-6
a) What is the point estimate of the
population proportion? What is the
margin of error of this estimate?
b) Find, with a 99% confidence level,
the percentage of all adult
Americans who needed legal
advice during the past year to
resolve such family-related issues.
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Solution 8-6
 n = 1000, p̂ = .20, and, q̂ = .80

pˆ qˆ (.20)(.80)
 s pˆ = = = .01264911
n 1000
 ˆ andnqˆ
Note that np are both
greater than 5.

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Solution 8-6
a)
Point estimate of p =p̂ = .20
Margin of error = ±1.96s pˆ
=
±1.96(.01264911)
= ± .025 or ±2.5%

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Solution 8-6
b)
The confidence level is 99%, or .99.
The z value for .4950 is approximately
2.58.
pˆ ± zs pˆ = .20 ± 2.58(.01264911) = .20 ± .033
= .167 to .233 or 16.7% to 23.3%

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Example 8-7
According to the analysis of a CNN–USA TODAY–
Gallup poll conducted in October 2002, “Stress
has become a common part of everyday life in the
United States. The demands of work, family, and
home place an increasing burden on the average
American.” According to this poll, 40% of
Americans included in the survey indicated that
they had a limited amount of time to relax
(Gallup.com, November 8, 2002). The poll was
based on a randomly selected national sample of
1502 adults aged 18 and older. Construct a 95%
confidence interval for the corresponding
population proportion.
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Solution 8-7
 Confidence level = 95% or .95

pˆ qˆ (.40)(.60)
 s pˆ = = = .01264069
n 1502
 The value of z for .95 / 2 = .4750 is
1.96.

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Solution 8-7

pˆ ± zs pˆ = .40 ± 1.96(.01264069)
= .40 ± .025
= .375 to .425 or 37.5% to 42.5%

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DETERMINING THE SAMPLE SIZE FOR
THE ESTIMATION OF THE MEAN

Given the confidence level and the


standard deviation of the population, the
sample size that will produce a
predetermined maximum error E of the
confidence interval estimate of μ is
zσ 2 2
n= 2
E
Where E is
σ
E = zσ x = z.
n 50
Example 8-8
An alumni association wants to estimate the
mean debt of this year’s college graduates. It
is known that the population standard
deviation of the debts of this year’s college
graduates is $11,800. How large a sample
should be selected so that the estimate with a
99% confidence level is within $800 of the
population mean?

51
Solution 8-8

z σ
2 2 2
(2.58) (11,800) 2
n= 2
= 2
E (800)
= 1448.18 ≈ 1449

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DETERMINING THE SAMPLE SIZE FOR
THE ESTIMATION OF PROPORTION

Given the confidence level and the


values of p and q, the sample size that
will produce a predetermined
maximum error E of the confidence
2
interval estimatez ofpq p is
n= 2
E
Where E is
pq
E = zσ pˆ = z ×
n 53
DETERMINING THE SAMPLE SIZE FOR
THE ESTIMATION OF PROPORTION
cont.

In case the values of p and q are not known:


1. Take the most conservative estimate of the

sample size n by using p = .5 and q = .5. For a


given E, these values of p and q will give the
largest sample size in comparison to any other
pair of values of p = .5 and q = .5 since their
product is greater than the product of any
other pair.

54
DETERMINING THE SAMPLE SIZE FOR
THE ESTIMATION OF PROPORTION
cont.

2. Take a preliminary sample of


arbitrarily determined size and
p̂ q̂
calculate and from this
sample. Then use them to find n.

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Example 8-9
Lombard Electronics Company has just installed a
new machine that makes a part that is used in
clocks. The company wants to estimate the
proportion of these parts produced by this
machine that are defective. The company
manager wants this estimate to be within .02 of
the population proportion for a 95% confidence
level. What is the most conservative estimate of
the sample size that will limit the maximum error
to within .02 of the population proportion?

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Solution 8-9
 The value of z for a 95% confidence level
is 1.96.
 p = .50 and q = .50
 z 2 pq (1.96) 2 (.50)(.50)
n= 2
= 2
= 2401
E (.02)
 Thus, if the company takes a sample of 2401
parts, there is 95% chance that the estimate of
p will be within .02 of the population proportion.
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Example 8-10
Consider Example 8-9 again. Suppose
a preliminary sample of 200 parts
produced by this machine showed
that 7% of them are defective. How
large a sample should the company
select so that the 95% confidence
interval for p is within .02 of the
population proportion?
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Solution 8-10
p̂ = .07 and q̂ = .93

2 2
z pˆ qˆ (1.96) (.07)(.93)
n= 2
= 2
E (.02)
(3.8416)(.07)(.93)
= = 625.22 ≈ 626
.0004

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