Slides Prepared by JOHN S. LOUCKS St.

Edwards University

2003 Thomson/South-Western

Slide 1

Chapter 8 Interval Estimation

Interval Estimation of a Population Mean: Large-Sample Case Interval Estimation of a Population Mean: Small-Sample Case Determining the Sample Size Interval Estimation of a Population Proportion
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2003 Thomson/South-Western

Slide 2

Interval Estimation of a Population Mean: Large-Sample Case

Sampling Error Probability Statements about the Sampling Error Interval Estimation: Assumed Known Interval Estimation: Estimated by s

2003 Thomson/South-Western

Slide 3

Sampling Error

The absolute value of the difference between an unbiased point estimate and the population parameter it estimates is called the sampling error. For the case of a sample mean estimating a population mean, the sampling error is Sampling Error = | x |

2003 Thomson/South-Western

Slide 4

Probability Statements About the Sampling Error

Knowledge of the sampling distribution of x enables us to make probability statements about the sampling error even though the population mean is not known. A probability statement about the sampling error is a precision statement.

2003 Thomson/South-Western

Slide 5

Probability Statements About the Sampling Error

Precision Statement There is a 1 - probability that the value of a sample mean will provide a sampling error of z /2 x or less. Sampling distribution of x 1 - of all /2 x values
x

/2

2003 Thomson/South-Western

Slide 6

Interval Estimate of a Population Mean: Large-Sample Case (n > 30)

Assumed Known
x z /2
where:

x is the sample mean

1 - is the confidence coefficient z/2 is the z value providing an area of /2 in the upper tail of the standard normal probability distribution is the population standard deviation n is the sample size

2003 Thomson/South-Western

Slide 7

Interval Estimate of a Population Mean: Large-Sample Case (n > 30)

Estimated by s
In most applications the value of the population standard deviation is unknown. We simply use the value of the sample standard deviation, s, as the point estimate of the population standard deviation.

x z /2

s n

2003 Thomson/South-Western

Slide 8

Example: National Discount, Inc.

National Discount has 260 retail outlets throughout the United States. National evaluates each potential location for a new retail outlet in part on the mean annual income of the individuals in the marketing area of the new location. Sampling can be used to develop an interval estimate of the mean annual income for individuals in a potential marketing area for National Discount. A sample of size n = 36 was taken. The sample mean, x , is $21,100 and the sample standard deviation, s, is $4,500. We will use .95 as the confidence coefficient in our interval estimate.

2003 Thomson/South-Western

Slide 9

Example: National Discount, Inc.

Precision Statement There is a .95 probability that the value of a sample mean for National Discount will provide a sampling error of $1,470 or less. determined as follows: 95% of the sample means that can be observed are within + 1.96 x of the population mean . If x s

4,500

36

750 , then 1.96 x = 1,470.

2003 Thomson/South-Western

Slide 10

Example: National Discount, Inc.

Interval Estimate of Population Mean: Estimated by s Interval Estimate of is:

$21,100 + $1,470 or $19,630 to $22,570 We are 95% confident that the interval contains the population mean.

2003 Thomson/South-Western

Slide 11

Interval Estimation of a Population Mean: Small-Sample Case (n < 30)

Population is Not Normally Distributed The only option is to increase the sample size to n > 30 and use the large-sample interval-estimation procedures.

2003 Thomson/South-Western

Slide 12

Interval Estimation of a Population Mean: Small-Sample Case (n < 30)

Population is Normally Distributed: Assumed Known The large-sample interval-estimation procedure can be used.

x z /2

2003 Thomson/South-Western

Slide 13

Interval Estimation of a Population Mean: Small-Sample Case (n < 30)

Population is Normally Distributed: Estimated by s The appropriate interval estimate is based on a probability distribution known as the t distribution.

2003 Thomson/South-Western

Slide 14

t Distribution

The t distribution is a family of similar probability distributions. A specific t distribution depends on a parameter known as the degrees of freedom. As the number of degrees of freedom increases, the difference between the t distribution and the standard normal probability distribution becomes smaller and smaller. A t distribution with more degrees of freedom has less dispersion. The mean of the t distribution is zero.

2003 Thomson/South-Western

Slide 15

t Distribution
Standard normal distribution
t distribution (20 degrees of freedom) t distribution (10 degrees of freedom)

z, t
0

2003 Thomson/South-Western

Slide 16

t Distribution

/2 Area or Probability in the Upper Tail

/2

t/2

2003 Thomson/South-Western

Slide 17

Interval Estimation of a Population Mean: Small-Sample Case (n < 30) and Estimated by s

Interval Estimate

x t /2
where

s n

1 - = the confidence coefficient t/2 = the t value providing an area of /2 in the upper tail of a t distribution with n - 1 degrees of freedom s = the sample standard deviation

2003 Thomson/South-Western

Slide 18

Example: Apartment Rents

Interval Estimation of a Population Mean: Small-Sample Case (n < 30) with Estimated by s A reporter for a student newspaper is writing an article on the cost of off-campus housing. A sample of 10 one-bedroom units within a half-mile of campus resulted in a sample mean of $550 per month and a sample standard deviation of $60.

2003 Thomson/South-Western

Slide 19

Example: Apartment Rents

Interval Estimation of a Population Mean: Small-Sample Case (n < 30) with Estimated by s Let us provide a 95% confidence interval estimate of the mean rent per month for the population of one-bedroom units within a half-mile of campus. Well assume this population to be normally distributed.

2003 Thomson/South-Western

Slide 20

Example: Apartment Rents

t Value At 95% confidence, 1 - = .95, = .05, and /2 = .025. t.025 is based on n - 1 = 10 - 1 = 9 degrees of freedom. In the t distribution table we see that t.025 = 2.262.
Degrees of Freedom . 7 8 9 10 . .10 . 1.415 1.397 1.383 1.372 . .05 . 1.895 1.860 1.833 1.812 . Area in Upper Tail .025 . 2.365 2.306 2.262 2.228 . .01 . 2.998 2.896 2.821 2.764 . .005 . 3.499 3.355 3.250 3.169 .
Slide 21

2003 Thomson/South-Western

Example: Apartment Rents

Interval Estimation of a Population Mean: Small-Sample Case (n < 30) with Estimated by s

x t.025
550 2.262

s n
60 10

or

550 + 42.92 $507.08 to $592.92

We are 95% confident that the mean rent per month for the population of one-bedroom units within a half-mile of campus is between $507.08 and $592.92.
2003 Thomson/South-Western Slide 22

Summary of Interval Estimation Procedures for a Population Mean

Yes
n > 30 ?

No

s known ?
Yes

No
Yes Use s to estimate s

s known ?
Yes

No Use s to estimate s

Popul. approx. normal ? No

x z /2

x z /2

s n

x t /2

x t /2

s n

Increase n to > 30
Slide 23

2003 Thomson/South-Western

Sample Size for an Interval Estimate of a Population Mean

Let E = the maximum sampling error mentioned in the precision statement. E is the amount added to and subtracted from the point estimate to obtain an interval estimate. E is often referred to as the margin of error.

2003 Thomson/South-Western

Slide 24

Sample Size for an Interval Estimate of a Population Mean

Margin of Error

E z /2

Necessary Sample Size

( z / 2 ) 2 2 n E2

2003 Thomson/South-Western

Slide 25

Example: National Discount, Inc.

Sample Size for an Interval Estimate of a Population Mean Suppose that Nationals management team wants an estimate of the population mean such that there is a .95 probability that the sampling error is $500 or less. How large a sample size is needed to meet the required precision?

2003 Thomson/South-Western

Slide 26

Example: National Discount, Inc.

Sample Size for Interval Estimate of a Population Mean

z /2

500

At 95% confidence, z.025 = 1.96. Recall that = 4,500.

(1.96)2 (4,500)2 n 311.17 312 2 (500)

We need to sample 312 to reach a desired precision of + $500 at 95% confidence.

2003 Thomson/South-Western

Slide 27

Interval Estimation of a Population Proportion

Normal Approximation of Sampling Distribution of p When np > 5 and n(1 p) > 5 Sampling distribution of p
p(1 p) p n

/2

/2

z /2 p
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z /2 p
Slide 28

Interval Estimation of a Population Proportion

Interval Estimate
p z / 2 p (1 p ) n

where:

1 - is the confidence coefficient z/2 is the z value providing an area of /2 in the upper tail of the standard normal probability distribution p is the sample proportion

2003 Thomson/South-Western

Slide 29

Example: Political Science, Inc.

Interval Estimation of a Population Proportion Political Science, Inc. (PSI) specializes in voter polls and surveys designed to keep political office seekers informed of their position in a race. Using telephone surveys, interviewers ask registered voters who they would vote for if the election were held that day. In a recent election campaign, PSI found that 220 registered voters, out of 500 contacted, favored a particular candidate. PSI wants to develop a 95% confidence interval estimate for the proportion of the population of registered voters that favors the candidate.
Slide 30

2003 Thomson/South-Western

Example: Political Science, Inc.

Interval Estimate of a Population Proportion

p z / 2 p (1 p ) n

where:

n = 500, p = 220/500 = .44, z/2 = 1.96

. 44(1. 44) . 44 1. 96 500

.44 + .0435 PSI is 95% confident that the proportion of all voters that favors the candidate is between .3965 and .4835.

2003 Thomson/South-Western

Slide 31

Sample Size for an Interval Estimate of a Population Proportion

Let E = the maximum sampling error mentioned in the precision statement. Margin of Error
E z / 2 p(1 p) n

Necessary Sample Size

( z / 2 ) 2 p(1 p) n E2

2003 Thomson/South-Western

Slide 32

Example: Political Science, Inc.

Sample Size for an Interval Estimate of a Population Proportion Suppose that PSI would like a .99 probability that the sample proportion is within + .03 of the population proportion. How large a sample size is needed to meet the required precision?

2003 Thomson/South-Western

Slide 33

Example: Political Science, Inc.

Sample Size for Interval Estimate of a Population Proportion At 99% confidence, z.005 = 2.576.

( z /2 )2 p(1 p) E2

(2.576)2 (.44)(.56) 1817 2 (.03)

2003 Thomson/South-Western

Slide 34

Example: Political Science, Inc.

Sample Size for Interval Estimate of a Population Proportion Note: We used .44 as the best estimate of p in the preceding expression. If no information is available about p, then .5 is often assumed because it provides the highest possible sample size. If we had used p = .5, the recommended n would have been 1843.

2003 Thomson/South-Western

Slide 35

End of Chapter 8

2003 Thomson/South-Western

Slide 36