17

Confidence Interval and

Determination of
Sample Size

2013 Cengage Learning. All Rights Reserved. May

not be scanned, copied or duplicated, or posted to a
publicly accessible
website,
in whole
or in part.
2013
Cengage
Learning.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Federal Reserve Finds Cards are

Replacing Cash
Payment options have gone
high-tech and research
supports that.
The Federal Reserve
conducted surveys of
depository institutions,
asking them to report the
number of each type of
payment the institutions
processed.
A sample of 2,700 was drawn
from the 14,117 institutions
in the population, with a
95% confidence interval and
accuracy of 5 percent.

2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

17-2

Introduction
Descriptive Statistics
Describe characteristics of populations or samples.

Inferential Statistics
Make inferences about whole populations from a
sample.

Sample Statistics
Variables in a sample or measures computed from
sample data.

Population Parameters
Variables in a population or measured
characteristics of the population.
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173

Making Data Usable

Measures of Central Tendency
Mean: the arithmetic average.
Population mean:
Sample mean:
Median: the midpoint; the value below which
half the values in a distribution fall.
Mode: the value that occurs most often.

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174

The Well-Chosen Average

Average pay could mean
theres a highly paid
executive and many lowpaid employees.
Median or mode may be
more informative.

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17-5

EXHIBIT 17.5

Sales Levels for Two Products with Identical

Average Sales

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176

EXHIBIT 17.6

Low Dispersion versus High Dispersion

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177

Measures of Dispersion
Range: Max-Min
Variance
A measure of variability or dispersion.
The average of the amount of variance for a
distribution.

Standard deviation
A quantitative measurement of a distributions
spread, or variability; the square root of the
variance for a distribution.
Population standard deviation:
Sample standard deviation: s

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178

The Normal Distribution

Normal Distribution
A symmetrical, bell-shaped distribution (normal
curve)
The bell-shaped curve is the probability density
function curve, which denotes the relative
frequency/probability for certain range of
values
99% of its values are within 3 standard
deviations from its mean.
Example: IQ scores

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179

EXHIBIT 17.8

Normal Distribution

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1710

The Normal Distribution (contd)

Characteristics of a Normal Distribution
1. It is symmetrical about its mean.
2. The mode, the mean and median are the same.
3. The normal curve has an infinite number of cases (it is
a continuous distribution), and the total area under
the curve is equal to 1.0.

Standardized Normal Distribution

Mean = 0; standard deviation: = 1
Denoted by z.

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1711

EXHIBIT 17.9

Standardized Normal Distribution

2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

1712

Converting to standard normal

2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

17-(#)

Population Distribution, Sample

Distribution, and Sampling Distribution
Population Distribution
A frequency distribution of the elements of a population.

Sample Distribution
A frequency distribution of a sample.

Sampling Distribution of the mean

A theoretical probability distribution of sample means for all
possible samples of a certain size drawn from a particular
population.

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1714

Central-limit Theorem
Central-limit Theorem
As sample size increases, the distribution of
sample means of size n, randomly selected,
approaches a normal distribution.
Theoretically speaking, the mean of the sample
means is equal to the population mean.
The Standard Error of the sample mean is given
by
,

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1715

Estimation of Parameters and

Confidence Intervals
Point Estimates
An estimate of the population mean in the form
of a single value, usually the sample mean.
Gives no information about the possible magnitude of
random sampling error.

Confidence Interval Estimate

A specified range of numbers within which a
population mean is expected to lie.
An estimate of the population mean based on
the knowledge that it will be equal to the sample
mean plus or minus a small sampling error.
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1716

Confidence Intervals
Confidence Level
A percentage or decimal value that tells how confident
a researcher can be about being correct.
It states the long-run percentage of confidence
intervals that will include the true population mean.
Traditionally, researchers have used the 95%
confidence level (a 5% tolerance for error).
The 95% confidence interval for the population mean is
constructed as

1.96

where 1.96 is called the sample error or the margin of error,

and 1.96 if found using Excel.

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1717

Confidence Intervals
Confidence Level
A percentage or decimal value that tells how
confident a researcher can be about being correct.
It states the long-run percentage of confidence
intervals that will include the true population
mean.
The crux of the problem for a researcher is to
determine how much random sampling error to
tolerate.
Traditionally, researchers have used the 95%
confidence level (a 5% tolerance for error).

2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

1718

Confidence Intervals
The confidence interval for the population mean
is constructed as

where

is called the sample error or the margin of

error.

For 95% confidence interval, 1.96, found using

Excel [norm.s.inv(1-.025)].

For 99% confidence interval, the number is 2.576

For 90% confidence interval, the number is 1.645
2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

1719

Choosing Sample Size

Estimating sample size:

Variation (s)
A population with high variation (high standard
deviation) which will require a larger sample.

Margin of Error (E)

How precise must the estimate be?

Confidence Level (Z)

How much error will be tolerated?
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1720

Sample Size Example

Suppose a survey researcher, studying expenditures on
lipstick, wishes to have a 95 percent confident level (Z)
and a range of error (E) of less than $2.00. The estimate of
the standard deviation is $29.00. What is the calculated
sample size?

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1721

Sample Size Example

Suppose, in the same example as the one before, the
range of error (E) is acceptable at $4.00. Sample size is
reduced.

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1722

Calculating Sample Size at the 99

Percent Confidence Level

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17-23