Jaggia1e PPT Ch07

1/14/2019
Learning objectives
7.1 Explain common sample biases.
7.2 Describe various sampling methods.
CHAPTER 7 7.3 Describe the sampling distribution of the
sample mean.
Sampling and sampling 7.4 Explain the importance of the central limit
theorem.
distributions
continued
Copyright © 2016 McGraw-Hill Education (Australia) Pty Ltd Copyright © 2016 McGraw-Hill Education (Australia) Pty Ltd
Jaggia, Essentials of Business Statistics, 1e 7-1 Jaggia, Essentials of Business Statistics, 1e 7-2
Updated by: Azizur Rahman Updated by: Azizur Rahman
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Learning objectives Marketing iced coffee

7.5 Describe the sampling distribution of the • In order to capitalise on the iced-coffee trend,
sample proportion. Strange Brew Cafe offered new coffee-flavoured
iced drinks for half price in ‘happy hour’, between
7.6 Use a finite population correction factor. 3.00 and 5.00 pm, for a limited time.
7.7 Construct and interpret control charts for • Angus Jones, the manager, determines the
quantitative and qualitative data. following from historical data
– 43% of iced-coffee customers were men
– 21% were teenage boys
– Customers spent an average of $4.18 on iced coffee,
with a standard deviation of $0.84.
continued
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Marketing iced coffee Sampling

LO 7.1 Explain common sample biases.
• One month after the marketing period, Angus
surveys 50 iced-coffee customers and finds • Population—consists of all items of interest in a
– 23 (46%) were men statistical problem.
– 17 (34%) were teenage boys – Population parameter is unknown.
– They spent an average of $4.26 on the drink.
• Sample—a subset of the population.
• Angus wants to use this information to calculate – Sample statistic is calculated from sample and used to
the probability that make inferences about the population.
– Customers spend an average of $4.26 or more on
iced coffee • Bias—the tendency of a sample statistic to
– 46% or more of iced-coffee customers are men
systematically overestimate or underestimate a
population parameter.
– 34% or more of iced-coffee customers are teenage boys.
continued
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LO 7.1 Sampling LO 7.1 Sampling

• Selection bias—a systematic exclusion of certain
• Classic case of a bad sample: the Literary Digest
groups from the sample.
debacle of 1936
– The Literary Digest created selection bias by excluding a
– Before the 1936 US presidential election, the Literary Digest large portion of the population (e.g. lower-income voters).
predicted a landslide victory for Alf Landon over Franklin D.
Roosevelt (FDR), with only a 1% margin of error. • Non-response bias—a systematic difference in
– They were wrong. FDR won in a landslide! preferences between respondents and non-
respondents to a survey or poll.
– The Literary Digest had created selection bias by randomly
sampling its own subscriber lists, etc. – The Literary Digest poll had only a 24% response rate. This
indicates that only those who cared a great deal about the
– In addition, with only a 24% response rate, the Literary election took the time to respond. Those people may have
Digest sample had a great deal of non-response bias. been atypical of the population as a whole.
continued
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Sampling methods LO 7.2 Sampling methods

LO 7.2 Describe various sampling methods. • Example: In 1961, students invested 24 hours per
• A simple random sample is a sample of n week in their academic pursuits, whereas today’s
observations which has the same probability of students study an average of 14 hours per week.
being selected from the population as any other – A dean at an Australian university wonders if this trend
sample of n observations. applies to the students at her university. The university
has 20,000 students and the dean would like a sample
• Most statistical methods presume simple random of 100. Use Excel to draw a simple random sample of
samples. 100 students.
– In Excel, input ‘=RANDBETWEEN(1, 20000)’ to get the
• However, in some situations other sampling methods first random number to be selected.
have an advantage over simple random samples.
– In order to generate the remaining 99 numbers, select
the cell with the first number, drag it down 99 cells, and
from the Home tab, click Fill and select Down.
continued
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Sampling distribution of the LO 7.3 Sampling distribution of

sample mean the sample mean
LO 7.3 Describe the sampling distribution of the sample • Estimator
mean.
– A statistic that is used to estimate a population parameter.
• Population is described by parameters.
– For example, X , the mean of the sample, is an estimator of
– A parameter is a constant, whose value may be unknown. m, the mean of the population.
– Only one population.
• Estimate
• Sample is described by statistics.
– A particular value of the estimator.
– A statistic is a random variable whose value depends on
the chosen random sample. – For example, the mean of the sample, x , is an estimate of
m, the mean of the population.
– Statistics are used to make inferences about the population
parameters.
– We can draw multiple random samples of size n.
continued continued
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LO 7.3 Sampling distribution of LO 7.3 Sampling distribution of

the sample mean the sample mean
• Sampling distribution of the mean X • Expected value and standard deviation of the
sample mean
– Each random sample of size n drawn from the population
provides an estimate of m, namely, the sample mean x . – Expected value of X, E(X) = m
– Drawing many samples of size n results in many different
sample means, one for each sample.
– Expected value of the mean, E X = E ( X ) = m ( )
– Variance of X, Var ( X ) =  2
– The sampling distribution of the mean is the frequency or
– Standard deviation of X, SD ( X ) = 
probability distribution of these sample means. 2
=
– Standard error of X , se X =
σ
( )
n
where n is the sample size.
continued continued
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• Example: Given that m = 16 inches and  = 0.8 • Sampling from a normal population
inches, calculate the expected value and standard – For any sample size n, the sampling distribution of X is
error of the sample mean derived from a random normal if the population X from which the sample is drawn
sample of is normally distributed.
– If X is normal, then we can transform it into the standard
– 2 pizzas: ( )
E X = m = 16 ( )
se X =
σ
=
0.8
= 0.57 normal random variable as
n 2
For a sampling For a distribution of
– 4 pizzas: ( )
E X = m = 16 ( )
se X =
σ
=
0.8
= 0.40 distribution the values of X
n 4
Z =
X −E X ( ) = X−μ Z =
x −E(X)
=
x−m
se X ( ) σ n SD ( X ) 
continued continued
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LO 7.3 Sampling distribution of Sampling distribution of the

the sample mean sample mean
• Example: Given that m = 16 inches and  = 0.8 LO 7.4 Explain the importance of the central limit theorem.
inches:
– What is the probability a randomly selected pizza is less • Central limit theorem
than 15.5 inches? – For any population X with expected value m and standard
deviation , the sampling distribution of X will be
x − m 15.5 − 16 P( X  15.5) = P(Z  −0.63)
Z= = = −0.63 approximately normal if the sample size n is sufficiently
 0.8 = 0.2643 or 26.43% large.
– What is the probability 2 randomly selected pizzas average – As a general guideline, the normal distribution
less than 15.5 inches? approximation is justified when n > 30.
x −m 15.5 − 16 – If X is approximately normal, X −m

P ( X  15.5) = P (Z  −0.88)
Z= = = −0.88 then we can transform it to Z=
 n 0.8 2 = 0.1894 or 18.94%  n
continued
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• Central limit theorem • Example: From the introductory case, Angus
wants to see whether the marketing campaign
had a lasting effect on the amount customers
spend on iced coffee.
– Before the campaign, m = $4.18 and  = $0.84.

Based on 50 customers sampled after the
campaign,
m = $4.26.
continued continued
19 20
LO 7.4 Sampling distribution of Sampling distribution of the sample

the sample mean proportion
• How likely is this to be simply the result of LO 7.5 Describe the sampling distribution of the sample
proportion.
chance?
• Estimator: Sample proportion P is used to estimate
– Let’s find P ( X  4.26 ) . the population parameter p.
Since n > 30, the central limit theorem states that X is • Estimate: A particular value of the estimator p .
approximately normal. So, the probability Angus would
see such a change by chance is: • The expected value of P is
 X −m  4.26 − 4.18 

( )
E P =p
(
P X  4.26 = P  Z ) n
 = P Z  
  0.84 50  • The standard error of P is
= P ( Z  0.67 ) = 1 − 0.7486 = 0.2514 p(1 − p )
se P =( ) n
continued
21 22
LO 7.5 Sampling distribution of the LO 7.5 Sampling distribution of the

sample proportion sample proportion
Central limit theorem for the sample proportion • If P is normal, we can transform it into the
• For any population proportion p, the sampling standard normal random variable as
distribution of P is approximately normal if the
Z=
P −E P
=
( ) P −p
sample size n is sufficiently large. se P ( ) p(1 − p )
• As a general guideline, the normal distribution n
approximation is justified when • Therefore any value p on P
np > 5 and n(1 − p) > 5. has a corresponding value p−p
z=
z on Z given by p (1 − p )
n
continued continued
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LO 7.5 Sampling distribution of the LO 7.5 Sampling distribution of the

sample proportion sample proportion
Central limit theorem for the sample proportion • Example: From the introductory case, Angus wants
to see whether the marketing campaign had a
lasting effect on the proportion of customers who
are men.
– Before the campaign the proportion of customers who were
men was p = 0.43. Based on 50 customers sampled after
the campaign it is p = 0.46.
– Let’s find P ( P  0.46 ) . Since n > 30, the central limit
theorem states that P is approximately normal.
continued continued
25 26
LO 7.5 Sampling distribution of the

Finite population correction factor
sample proportion
    LO 7.6 Use a finite population correction factor.
   
p−p  0.46 − 0.43
( 
)
P P  0.46 = P  Z 
p (1 − p ) 
= P Z 
 0.43 (1 − 0.43 )


   
• The finite population correction factor
 n   50 
= P ( Z  0.43 ) = 1 − 0.6664 = 0.3336 – Used to reduce the sampling variation of X
 N −n 
– The resulting standard error is sw X = ( ) σ

 N −1


n  
continued
27 28
LO 7.6 Finite population correction LO 7.6 Finite population correction

factor factor
• Example: A large introductory marketing class with • Solution:
340 students has been divided up into 10 groups. ( )
– E X = m = 73
Amy is in a group of 34 students that averaged 72
on the last exam. The class average was 73 with a – Since n = 34 is more than 5% of the population size
standard deviation of 10. N = 340, we need to use the finite population correction
factor.
– The population parameters are m = 73 and  = 10.
σ  N − n  10  340 − 34 
– Calculate the expected value and standard error of the ( )
se X =  =   = 1.63
sample mean based on a random sample of 34 students.
n  N − 1  34  340 − 1 
continued
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LO 7.6 Finite population correction

Statistical quality control
factor
LO 7.7 Construct and interpret control charts for
• The finite population correction factor for the quantitative and qualitative data.
sample proportion • Statistical quality control
– Used to reduce the sampling variation of the sample – Statistical techniques used to develop and maintain a
proportion P business’s ability to produce high-quality goods and
services.
p(1 − p )  N − n 
– The resulting standard error is se(P ) =  
– Two approaches for statistical quality control
n  N − 1 
▪ Acceptance sampling
– Transformations of X and P to Z are made as before.
▪ Detection approach
continued continued
31 32
LO 7.7 Statistical quality control LO 7.7 Statistical quality control

• Acceptance sampling • Detection approach
– Used at the completion of a production process or service. – Inspection occurs during the production process in order to
detect any non-conformance with specifications.
– If a particular product does not conform to certain
specifications, then it is either discarded or repaired. – Goal is to determine whether the production process should
be continued or adjusted before producing a large number
– Disadvantages of defects.
▪ It is costly to discard or repair a product.
– Types of variation
▪ The detection of all defective products is not guaranteed.
▪ Chance variation
▪ Assignable variation
continued continued
33 34

• Types of variation • Control charts
– Chance variation (common variation) – Developed by Walter A. Shewhart.
▪ Caused by a number of randomly occurring events that are – A plot of calculated statistics of the production process
part of the production process. over time.
▪ Not controllable by the individual worker or machine. – Production process is ‘in control’ if calculated statistics fall
▪ Expected, so not a source of alarm as long as its magnitude in an expected range.
is tolerable and the end product meets specifications.
– Production process is ‘out of control’ if calculated statistics
– Assignable variation (special-cause variation) reveal an undesirable trend. In such case, adjustment of the
production process is likely to be necessary.
▪ Caused by specific events or factors that can usually be
identified and eliminated. – Types of control charts x
▪ Identified and corrected or removed. ▪ For quantitative data:p chart.
▪ For qualitative data: chart.
continued continued
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• Control charts for quantitative data • Control charts for quantitative data
– x control charts – x control chart
– Centerline: the mean when the process is under control ▪ Upper control
limit (UCL):
– Upper control limit: set at +3 standard error from mean 
m +3
▪ Points falling above the upper control limit are considered to n
signal out of control.
▪ Lower control
– Lower control limit: set at −3 standard error from mean limit (LCL):
▪ Points falling below the lower control limit are considered to 
signal out of control. m −3
n
continued continued
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• Control charts for qualitative data • Control charts for qualitative data
– p control chart
– p chart (fraction or percentage defective chart) p (1 − p )
▪ Upper control limit (UCL): p + 3
n
– Tracks proportion of defects in a production process
p (1 − p )
▪ Lower control limit (LCL): p − 3
– Relies on central limit theorem for normal approximation n
of the sampling distribution of the sample proportion.
continued
39 40

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1/14/2019

Learning objectives Marketing iced coffee

Marketing iced coffee Sampling

LO 7.1 Sampling LO 7.1 Sampling

Sampling methods LO 7.2 Sampling methods

Sampling distribution of the LO 7.3 Sampling distribution of

LO 7.3 Sampling distribution of LO 7.3 Sampling distribution of

LO 7.3 Sampling distribution of LO 7.3 Sampling distribution of

LO 7.3 Sampling distribution of Sampling distribution of the

x −m 15.5 − 16 – If X is approximately normal, X −m

LO 7.4 Sampling distribution of LO 7.4 Sampling distribution of

– Before the campaign, m = $4.18 and  = $0.84.

LO 7.4 Sampling distribution of Sampling distribution of the sample

 X −m  4.26 − 4.18 

LO 7.5 Sampling distribution of the LO 7.5 Sampling distribution of the

LO 7.5 Sampling distribution of the LO 7.5 Sampling distribution of the

LO 7.5 Sampling distribution of the

LO 7.6 Finite population correction LO 7.6 Finite population correction

LO 7.6 Finite population correction

LO 7.7 Statistical quality control LO 7.7 Statistical quality control

LO 7.7 Statistical quality control LO 7.7 Statistical quality control

LO 7.7 Statistical quality control LO 7.7 Statistical quality control

LO 7.7 Statistical quality control LO 7.7 Statistical quality control

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