Professional Documents
Culture Documents
Intervals
s_
x
a/2 1-a a/2
_
X
Course 2 Econometrics
Professor Erika Marin
Chapter Topics
• The estimation process
•Confidence Interval Estimation for the Mean
(s Known)
•Confidence Interval Estimation for the Mean
(s Unknown)
•Confidence Interval Estimation for the Proportion
•The Situation of Finite Populations
•Sample Size Estimation
Introduction
Statistical inference is the process by
which we acquire information about
populations from samples.
There are two types of inference:
Estimation
Hypotheses testing
Concepts of Estimation
The objective of estimation is to determine the
value of a population parameter on the basis of a
sample statistic.
There are two types of estimators:
Point Estimator
Interval estimator
Estimation Process
Sample
Point Estimator
A point estimator draws inference about a
population by estimating the value of an
unknown parameter using a single value
or point.
Point Estimator
A point estimator draws inference about a
population by estimating the value of an
unknown parameter using a single value
or point.
Parameter
Population distribution
Sampling distribution
Point estimator
Interval Estimator
An interval estimator draws inferences
about a population by estimating the value
of an unknown parameter using an
interval.
Population distribution Parameter
Sample distribution
Interval estimator
Population Parameters
Estimated
Estimate Population with Sample
Parameter... Statistic
_
Mean m X
Proportion p ps
s 2 2
Variance s
_ _
Difference m - m x - x
1 2 1 2
Confidence Interval Estimation
Confidence
level a a/2 za/2
0,90 0,10 0,05 1,645
0,95 0,05 0,025 1,96
0,99 0,01 0,005 2,58
Confidence Intervals
s
X Z s X X Z
n sx_
_
X
m 1.645 s x m 1.645 s x
90% Samples
m 1 . 96 s x m 1 . 96 s x
95% Samples
m 2 .58s x m 2 .58s x
99% Samples
Intervals &
Level of Confidence
Sampling
Distribution of s_
x
the Mean a/2 1-a a/2
_
X
Intervals mX m
Extend from
(1 - a) % of
X Zs X Intervals
Contain m.
to
a % Do Not.
X Zs X
Confidence Intervals
Factors Affecting
Interval Width
Data Variation
Intervals Extend from
measured by s
X - Zs to X + Z s
x x
Sample Size
sX sX / n
Level of Confidence
(1 - a)
Confidence
Intervals
Mean Proportion
Finite
s Known s Unknown Population
Confidence Intervals (s Known)
Assumptions
Population Standard Deviation Is Known
Population Is Normally Distributed
If Not Normal, use large samples
s s
X Za / 2
n
m X Za / 2
n
The Confidence Interval for m
( s is known)
Example
Doll Computer Company delivers computers directly
to its customers who order via the Internet.
To reduce inventory costs in its warehouses Doll
employs an inventory model, that requires the
estimate of the mean demand during lead time.
It is found that lead time demand is normally
distributed with a standard deviation of 75 computers
per lead time.
Estimate the lead time demand with 95% confidence,
knowing that the sample mean is 370.16.
The Confidence Interval for m
( s is known)
Example – Solution
The parameter to be estimated is m, the mean demand
during lead time.
We need to compute the interval estimation for m.
The sample mean is
x 370.16.
Since 1 - a =.95, a = .05.
s 75
x za 2 370.16 z .025 Thus a/2 = .025. Z.025 = 1.96
n 25
75
370.16 1.96 370.16 29.40 340.76, 399.56
25
Confidence Interval Estimates
Confidence
Intervals
Mean Proportion
Finite
s Known s Unknown Population
Confidence Intervals (s Unknown)
Assumptions
Population Standard Deviation Is Unknown
Population Must Be Normally Distributed
Use Student’s t Distribution
Confidence Interval Estimate
S S
X ta / 2,n 1 m X ta / 2,n 1
n
n
Student’s t Distribution
Standard
Normal
Z
t
0
Degrees of Freedom (df)
a/2 Assume: n = 3 df
=n-1=2
Upper Tail Area
a = .10
df .25 .10 .05 a/2 =.05
50 2.0639
8
25
m
m
50 2.0639
8
25
46 . 69 m 53 . 30
Confidence Interval Estimates
Confidence
Intervals
Mean Proportion
Finite
s Known s Unknown Population
Estimation for
Finite Populations
Assumptions
Sample Is Large Relative to Population
n / N > .05
Use Finite Population Correction Factor
Confidence Interval (Mean, sX Unknown)
m X X ta / 2,n 1 S N n
S N n
X ta / 2,n 1
n N 1 n N 1
Confidence Interval Estimates
Confidence
Intervals
Mean Proportion
Finite
s Known s Unknown Population
Confidence Interval Estimate
Proportion
Assumptions
Two Categorical Outcomes
ps (1 ps ) ps (1 ps )
p s Za / 2 p p s Za / 2
n n
Example: Estimating Proportion
ps (1 ps ) ps (1 ps )
p s Za / 2 p p s Za / 2
n n
.053 p .107
Sample Size
2 2
Z s
2 2
1645
. 45
n 219.2 @ 220
2 2
Error 5
Round Up
Example: Sample Size
for Proportion
What sample size is needed to be within ± 5 with 90%
confidence? Out of a population of 1,000, we randomly
selected 100 of which 30 were defective.
@ 228
Round Up
Example: Sample Size
for Mean Using fpc
What sample size is needed to be 90% confident of
being correct within ± 5? Suppose the population size
N = 500.
n0 N 219.2 500
n 152.6
n0 ( N 1) 219.2 (500 1)
@ 153
where Z s2 2 Round Up
n0 2
219.2
error