Introduction to Hypothesis

Testing
Lecture 4: The Test Statistic
Approach

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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2. The test statistic approach

There are four steps involved:
1. Define/state the hypotheses
2. Compute the sample test statistic (z-statistic)
3. State the decision rule
4. Compare sample evidence to the decision rule and
conclude

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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2. The test statistic approach: Example (1)

A Grocery Retailer Association (GRA) believes that grocery
shoppers in Cape Town spend on average R175 during each
visit to a supermarket. To test this belief, a survey of 360
grocery shoppers at supermarkets in Cape Town was
conducted.
The survey found that the average value of grocery
purchases was R182.40. Assume that the population of
grocery purchase values is normally distributed and that the
standard deviation of the values of the grocery purchase is
R67.50
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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2. The test statistic approach: Example (1)

Can the GRA conclude that grocery shoppers spends R175,
on, average, on each visit to a supermarket? In other words,
test whether the mean value for grocery purchases in Cape
Town is R175. Use 5% significance level
Four steps involved:
1. Define/state the hypotheses
2. Compute the sample test statistic (z-statistic)
3. State the decision rule
4. Compare sample evidence to the decision rule and
conclude
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

11.4

2. The test statistic approach: Example (1)

The four steps involved:
1. Define/state the hypotheses
0 : = 175
1 : 175
2. Compute the sample test statistic (z-statistic)
182.4 175
7.4
=
=
=
= 2.08
3.558

67.5 360

/2 = 0.05/2 = 0.025 = 1.96

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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2. The test statistic approach: Example (1)

4. Compare sample evidence to the decision rule and
conclude
Since the Z-statistic = 2.08 is greater than -critical = 1.96,
we reject 0 and conclude that there is enough statistical
evidence to infer that the mean value for grocery purchases
in Cape Town is not (or not equal to) R175.

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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2. The test statistic approach: Example (2)

The manager of a department store is thinking about
establishing a new billing system for the stores credit
customers. After a thorough financial analysis, she
determines that the new system will be cost-effective only if
the mean monthly account is more than $170. A random
sample of 400 monthly accounts is drawn, for which the
sample mean is $178.

The manager knows that the accounts are approximately

normally distributed with a standard deviation of $65. Is the
sample mean of 178 sufficiently greater than 170 to allow us
to infer that that the population mean is greater than 170?
Use 5% significance level.
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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2. The test statistic approach: Example (2)

The four steps involved:
1. Define/state the hypotheses
0 : 170 (do not install the new system)
1 : > 170 (install the new system)
2. Compute the sample test statistic (z-statistic)
178 170
8
=
=
=
= 2.46
3.25

65 400

= 0.05 = 1.65
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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2. The test statistic approach: Example (2)

3. State the decision rule
Reject 0 if the Z test statistic is > (Z critical value),
otherwise do not reject 0 .

4. Compare sample evidence to the decision rule and

conclude
Since the Z test statistic of 2.46 is greater than the
1.65, we reject 0 and conclude that there is sufficient
statistical evidence to infer that the mean monthly account is
greater than $170. ( the new billing system will be costeffective and therefore should be installed).
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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2. The test statistic approach: Example (3)

Federal Express (FedEx) sends invoices to customers
requesting payment within 30 days. Each bill lists an
address, and customers are expected to use their own
envelopes to return their payments. Currently the mean and
standard deviation of the amount of time taken to pay bills is
24 days and 6 days, respectively.
The chief financial officer (CFO) believes that including a
stamped self-addressed (SSA) would decrease the amount of
time. She calculates that the improved cash flow from a 2day decrease in the payment period would pay for the costs
of the envelopes and stamps. Any further decrease in the
payment period would generate a profit.
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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2. The test statistic approach: Example (3)

To test her belief she randomly selects 220 customers and
includes a stamped self-addressed envelope with their
invoices.
The numbers of days until payment is received were
recorded and the sample mean was found to be 21.63.
Can the CFO conclude that the plan will be profitable?

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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2. The test statistic approach: Example (3)

The four steps involved:
1. Define/state the hypotheses
0 : = 22
1 : < 22
2. Compute the sample test statistic (z-statistic)
21.63 22 0.37
=
=
=
= 0.91
0.4045

6 220

Using = 0.1
= 0.1 = 1.29
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

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2. The test statistic approach: Example (3)

3. State the decision rule
Reject 0 if z-statistic is less than , otherwise do not reject
0 .

4. Compare sample evidence to the decision rule and

conclude
Since the Z-statistic (-0.91) is greater than (1.29), we
do not reject 0 and conclude that there is no sufficient
statistical evidence to infer that the mean is less than 22
days.
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

11.13