Statistical Inference:

Hypothesis Testing for

Single Populations

Statistical Inference: Hypothesis Testing for

Single Populations 1
 Learning Objectives

Upon completion of this chapter, you will be able to:

 Understand hypothesis-testing procedure using one-tailed and

two- tailed tests
 Understand the concepts of Type I and Type II errors in
hypothesis testing
 Understand the concept of hypothesis testing for a single
population using the z statistic
 Understand the concepts of p-value approach and critical value
approach for hypothesis testing
 Understand the concept of hypothesis testing for a single
population using the t statistic
 Understand the procedure of hypothesis testing for population
proportion
Statistical Inference: Hypothesis Testing for
Single Populations 2
Introduction to Hypothesis Testing

 A statistical hypothesis is an assumption about an unknown

population parameter.
 Hypothesis testing is a well defined procedure which helps us to
decide objectively whether to accept or reject the hypothesis
based on the information available from the sample.
 In statistical analysis, we use the concept of probability to specify
a probability level at which a researcher concludes that the
observed difference between the sample statistic and the
population parameter is not due to chance.

Statistical Inference: Hypothesis Testing for

Single Populations 3
Hypothesis Testing Procedure
Figure 10.1: Seven steps of hypothesis testing

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Single Populations 4
Step 1: Set Null and Alternative Hypotheses
 The null hypothesis generally referred by H0 (H sub-zero), is the hypothesis
which is tested for possible rejection under the assumption that is true.
Theoretically, a null hypothesis is set as no difference or status quo and
considered true, until and unless it is proved wrong by the collected
sample data.
 Symbolically, a null hypothesis is represented as:

 The alternative hypothesis, generally referred by H1 (H sub-one), is a logical

opposite of the null hypothesis. In other words, when null hypothesis is
found to be true, the alternative hypothesis must be false or when the null
hypothesis is found to be false, the alternative hypothesis must be true.
 Symbolically, alternative hypothesis is represented as:

Statistical Inference: Hypothesis Testing for

Single Populations 5
Step 2: Determine the Appropriate
Statistical Test

 Type, number, and the level of data may provide a platform for
deciding the statistical test.
 Apart from these, the statistics used in the study (mean,
proportion, variance, etc.) must also be considered when a
researcher decides on appropriate statistical test, which can be
applied for hypothesis testing in order to obtain the best results.

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Single Populations 6
Step 3: Set the Level of Significance

 The level of significance generally denoted by α is the

probability, which is attached to a null hypothesis, which may be
rejected even when it is true.
 The level of significance is also known as the size of the rejection
region or the size of the critical region.
 The levels of significance which are generally applied by
researchers are: 0.01; 0.05; 0.10.

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Single Populations 7
 Step 4: Set the Decision Rule
Figure 10.2: Acceptance and rejection regions of null hypothesis (two-tailed test)

Critical region is the area under the normal curve, divided into two
mutually exclusive regions. These regions are termed as acceptance
region (when the null hypothesis is accepted) and the rejection
region or critical region (when the null hypothesis is rejected).

Statistical Inference: Hypothesis Testing for

Single Populations 8
 Step 5: Collect the Sample Data

 In this stage of sampling, data are collected and the appropriate

sample statistics are computed.
 The first four steps should be completed before collecting the
data for the study.
 It is not advisable to collect the data first and then decide on the
stages of hypothesis testing.

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Single Populations 9
 Step 6: Analyse the data

 In this step, the researcher has to compute the test statistic. This
involves selection of an appropriate probability distribution for a
particular test.
 Some of the commonly used testing procedures are z, t, F, and
χ2.

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Single Populations 10
Step 7: Arrive at a Statistical Conclusion
and Business Implication

 In this step, the researchers draw a statistical conclusion. A

statistical conclusion is a decision to accept or reject a null
hypothesis.
 Statisticians present the information obtained using hypothesis-
testing procedure to the decision makers. Decisions are made on
the basis of this information. Ultimately, a decision maker
decides that a statistically significant result is a substantive result
and needs to be implemented for meeting the organization’s
goals.

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Single Populations 11
 Two-Tailed Test of Hypothesis

 Let us consider the null and alternative hypotheses as below:

 Two-tailed tests contain the rejection region on both the tails of

the sampling distribution of a test statistic. This means a
researcher will reject the null hypothesis if the computed sample
statistic is significantly higher than or lower than the
hypothesized population parameter (considering both the tails,
right as well as left).

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Single Populations 12
Figure 10.3: Acceptance and rejection regions (alpha = 0.05)

Statistical Inference: Hypothesis Testing for

Single Populations 13
 One-Tailed Test of Hypothesis
Let us consider a null and alternative hypotheses as below:

One-tailed test contains the rejection region on one tail of the

sampling distribution of a test statistic. In case of a left-tailed test, a
researcher rejects the null hypothesis if the computed sample
statistic is significantly lower than the hypothesized population
parameter (considering the left side of the curve in Figure 10.5).
In case of a right-tailed test, a researcher rejects the null hypothesis
if the computed sample statistic is significantly higher than the
hypothesized population parameter (considering the right side of the
curve in Figure 10.6).

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Single Populations 14
Figure 10.5: Acceptance and rejection regions for one-tailed (left)
test (alpha = 0.05)

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Single Populations 15
Figure 10.6: Acceptance and rejection regions for one-tailed (right)
test (alpha = 0.05)

Statistical Inference: Hypothesis Testing for

Single Populations 16
 Type I and Type II Errors

When a researcher tests statistical hypotheses, there can be four

possible outcomes as follows:
1. Rejecting a true null hypothesis (Type I error)
2. Accepting a false null hypothesis (Type II error)
3. Accepting a true null hypothesis (Correct decision)
4. Rejecting a false null hypothesis (Correct decision)

Statistical Inference: Hypothesis Testing for

Single Populations 17
Table 10.3: Errors in hypothesis testing and power of the test

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Single Populations 18
Hypothesis Testing for a Single Population
Mean Using the Z Statistic

Example 10.1
A marketing research firm conducted a survey 10 years ago and
found that the average household income of a particular geographic
region is Rs 10,000. Mr Gupta, who has recently joined the firm as a
vice president has expressed doubts about the accuracy of the data.
For verifying the data, the firm has decided to take a random sample
of 200 households that yield a sample mean (for household income)
of Rs 11,000. Assume that the population standard deviation of the
household income is Rs 1200.
Verify Mr Gupta’s doubts using the seven steps of hypothesis testing.
Let α = 0.05.

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Single Populations 19
Example 10.1 (Solution)

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Single Populations 20
p-Value Approach for Hypothesis Testing
 The p-value approach of hypothesis testing for large samples is
some times referred to as the observed level of significance. The
p-value defines the smallest value of α for which the null
hypothesis can be rejected.

Example 10.2
For Example 10.1, use the p-value method to test the hypothesis
using alpha = 0.01 as the level of significance. Assume that the
sample mean is 10,200.

Statistical Inference: Hypothesis Testing for

Single Populations 21
 Example 10.2 (Solution)

The observed test statistic is computed as 2.36. From the normal table, the
corresponding probability area for z value 2.36 is 0.4909. So, the probability
of obtaining a z value greater than or equal to 2.36 is 0.5000 – 0.4909 =
0.0091 (shown in Figure 10.9). For a two-tailed test, this value is multiplied
by 2 (as discussed above). Thus, for a two-tailed test, this value is (0.0091 × 2
= 0.0182). So, the null hypothesis is accepted because (0.01 < 0.0182). It has
to be noted that for α = 0.05 and α = 0.1, the null hypothesis is rejected
because 0.0182 < 0.05 and 0.0182 < 0.1.

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Single Populations 22
Critical Value Approach for Hypothesis
Testing

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Single Populations 23
 Example 10.3

A cable TV network company wants to provide modern facilities to its

consumers. The company has five-year old data which reveals that
the average household income is Rs 120,000. Company officials
believe that due to the fast development in the region, the average
household income might have increased. The company takes a
random sample of 40 households to verify this assumption. From the
sample the average income of the households is calculated as
125,000. From historical data, population standard deviation is
obtained as 1200. Use alpha = 0.05 to verify the finding.

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Single Populations 24
 Example 10.3 (Solution)

The null and alternative hypotheses can be set as below:

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Single Populations 25
Figure 10.10: Critical value method for testing a hypothesis about the
population mean for Example 10.3

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Single Populations 26
 Solved Examples\Excel\Ex 10.1.xls
 Solved Examples\Excel\Ex 10.2.xls
 Solved Examples\Excel\Ex 10.3.xls

 Solved Examples\Minitab\Ex 10.1.MPJ

 Solved Examples\Minitab\Ex 10.2.MPJ
 Solved Examples\Minitab\Ex 10.3.MPJ

Statistical Inference: Hypothesis Testing for

Single Populations 27
Hypothesis Testing for a Single Population
Mean Using the T Statistic (Case of a
Small Random Sample When N < 30)
When a researcher draw a small random sample (n < 30) to estimate
the population mean μ and when the population standard deviation
is unknown and population is normally distributed, t-test can be
applied.

Statistical Inference: Hypothesis Testing for

Single Populations 28
 Example 10.4
Royal Tyres has launched a new brand of tyres for tractors and claims
that under normal circumstances the average life of the tyres is
40,000 km. A retailer wants to test this claim and has taken a
random sample of 8 tyres. He tests the life of the tyres under normal
circumstance. The results obtained are presented in Table 10.4.

Statistical Inference: Hypothesis Testing for

Single Populations 29
Statistical Inference: Hypothesis Testing for
Single Populations 30
Example 10.4 (Solution)

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Single Populations 31
Figure 10.18: Computed and critical t values for Example 10.4

Statistical Inference: Hypothesis Testing for

Single Populations 32
 Solved Examples\Excel\Ex 10.4.xls
 Solved Examples\Minitab\Ex 10.4.MPJ
 Ch 10 Solved Examples\SPSS\Ex 10.4.sav
 Ch 10 Solved Examples\SPSS\Output Ex 10.4.spv

Statistical Inference: Hypothesis Testing for

Single Populations 33
Hypothesis Testing for a Population
Proportion

Example 10.5
The production manager of a company that manufacturers electric
heaters believes that at least 10% of the heaters are defective. For
testing his belief, he takes a random sample of 100 heaters and finds
that 12 heaters are defective. He takes the level of significance as 5%
for testing the hypothesis. Applying the seven steps of hypothesis
testing, test his belief.
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Single Populations 34
Example 10.5 (Solution)

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Single Populations 35
Using Minitab for Hypothesis Testing for a
Population Proportion

 Solved Examples\Excel\Ex 10.5.xls

 Solved Examples\Minitab\Ex 10.5.MPJ

Statistical Inference: Hypothesis Testing for

Single Populations 36