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Chapter 1

Chapter 1

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G O A L S
When you have completedthis chapter,you will beable to:
1Organize data into a fre-quency distribution.2Portray a frequency distribu-tion in a histogram,frequencypolygon,and cumulative fre-quency polygon.3Present data using suchgraphical techniques as linecharts,bar charts,and piecharts.
FPO
1
 
G O A L S
When you have completedthis chapter you will beable to:
1Understand why we studystatistics.2Explain what is meant by
descriptive statistics 
and
inferential statistics.
3Distinguish between a
qualitative variable 
and a
quantitative variable.
4Describe how a
discrete variable 
is different from a
continuous variable.
5Distinguish among the
nominal, ordinal, interval,
and
ratio 
levels of measurement.
What Is Statistics?
 A poll solicits a large number of college undergraduates forinformation on the following variables:the name of their cell phoneprovider,the number of minutes used last month,and their satisfactionwith the service.What is the data scale for each of these threevariables? (See Exercise 10,Goal 5)
 
2
Chapter 1
Introduction
More than 100 years ago H. G. Wells, an English author and historian, suggestedthat one day quantitative reasoning will be as necessary for effective citizenship asthe ability to read. He made no mention of business because the Industrial Revo-lution was just beginning. Mr. Wells could not have been more correct. While “busi-ness experience,” some “thoughtful guesswork,” and “intuition” are keyattributes of successful managers, today’s business problems tend tobe too complex for this type of decision making alone.One of the tools used to make decisions is statistics. Statistics isused not only by businesspeople; we all also apply statistical conceptsin our lives. For example, to start the day you turn on the shower andlet it run for a few moments. Then you put your hand in the shower tosample the temperature and decide to add more hot water or more coldwater, or that the temperature is just right and to enter the shower. As asecond example, suppose you are at Costco wholesale and wish to buya frozen pizza. One of the pizza makers has a stand, and they offer asmall wedge of their pizza. After sampling the pizza, you decide whetherto purchase the pizza or not. In both the shower and pizza examples, you make adecision and select a course of action based on a sample.Businesses face similar situations. The Kellogg Company must ensure that themean amount of Raisin Bran in the 25.5-gram box meets label specifications. To doso, it sets a “target” weight somewhat higher than the amount specified on the label.Each box is then weighed after it is filled. The weighing machine reports a distribu-tion of the content weights for each hour as well as the number “kicked-out” forbeing under the label specification during the hour. The Quality Inspection Depart-ment also randomly selects samples from the production line and checks the qual-ity of the product and the weight of the contents of the box. If the mean productweight differs significantly from the target weight or the percent of kick-outs is toolarge, the process is adjusted. Alan Greenspan, former chairman of the Federal Reserve Board, knows andunderstands the importance of statistical tools and techniques to provide accurateand timely information to make public statements that have the power to move globalstock markets and influence political thinking. Dr. Greenspan, speaking before aNational Skills Summit, stated: “Workers must be equipped not simply with techni-cal know-how, but also with the ability to create, analyze, and transform informationand to interact effectively with others. That is, separate the facts from opinions, andthen organize these facts in an appropriate manner and analyze the information.” As a student of business or economics, you will need basic knowledge andskills to organize, analyze, and transform data and to present the information. In thistext, we will show you basic statistical techniques and methods that will developyour ability to make good personal and business decisions.
Why Study Statistics?
If you look through your university catalog, you will find that statistics is requiredfor many college programs. Why is this so? What are the differences in the sta-tistics courses taught in the Engineering College, the Psychology or SociologyDepartments in the Liberal Arts College, and the College of Business? The biggestdifference is the examples used. The course content is basically the same. In theCollege of Business we are interested in such things as profits, hours worked, andwages. Psychologists are interested in test scores, and engineers are interestedin how many units are manufactured on a particular machine. However, all threeare interested in what is a typical value and how much variation there is in thedata. There may also be a difference in the level of mathematics required. An engi-neering statistics course usually requires calculus. Statistics courses in collegesof business and education usually teach the course at a more applied level. You
 
What Is Statistics?
3
should be able to handle the mathematics in this text if you have completed highschool algebra.So why is statistics required in so many majors? The first reason is that numer-ical information is everywhere. Look in the newspapers
(USA Today),
news maga-zines
(Time, Newsweek, U.S. News and World Report),
business magazines
(Busi- nessWeek, Forbes),
or general interest magazines
(People),
women’s magazines
(Ladies Home Journal
or
Elle),
or sports magazines
(Sports Illustrated, ESPN TheMagazine),
and you will be bombarded with numerical information.Here are some examples:In 2006 the typical household income in the United States was $48,201. Forhouseholds in the Northeast the typical income was $52,057, $47,836 in the Mid-west, $43,884 in the South, and $52,249 in the West. You can check the latestinformation by going tohttp://www.census.gov/prod/2007pubs/p60-233.pdf.In 2006 Boeing, Inc., an aircraft manufacturer, built 1,057 aircraft and in 2007they built 1,423. The table below summarizes the information by year and air-craft type.
Examples of why westudy statistics
More studentstake collegecoursesonline
20029.7%19.8%11.7%13.5%18.2%2003200420052006
USA TODAY Snapshot
Enrollment in onlinecollege courses keepsclimbing. Amongthe reasons:convenience forstudents with jobsand families tosupport.05/02/2008-Updated 12:40 AMET
By David Stuckey and Keith Carter, USA TodaySource: National Association for College Admission Counselling
Sales of Boeing AircraftAircraftYear737747767777787Total
20067387210771601,057200785025361433691,423
You can view the sales for the most recent periods by going to the Boeingwebsiteatwww.boeing.comand searching for “Orders and Deliveries.”
USA Today 
(www.usatoday.com ) prints “Snapshots” that are the result of sur-veys conducted by various research organizations, foundations, and the federalgovernment. The following chart summarizes the increase in college coursestaken online. A second reason for taking a statistics course is that statistical techniques areused to make decisions that affect our daily lives. That is, they affect our personalwelfare. Here are a few examples:Insurance companies use statistical analysis to set rates for home, automobile,life, and health insurance. Tables are available showing estimates that a 20-year-old female has 60.25 years of life remaining, an 87-year-old woman 4.56 yearsremaining, and a 50-year-old man 27.85 years remaining. Life insurance premi-ums are established based on these estimates of life expectancy. These tables

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