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Statistical Inference:
Hypothesis Testing for
Single Populations

Statistical Inference: Hypothesis Testing for

Single Populations

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

Understand hypothesis-testing procedure using onetailed 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

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

Hypothesis Testing Procedure

Figure 10.1: Seven steps of hypothesis testing

Statistical Inference: Hypothesis Testing for

Single Populations

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

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.

Statistical Inference: Hypothesis Testing for

Single Populations

Step 3: Set the Level of Significance

The level of significance generally denoted by 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.

Statistical Inference: Hypothesis Testing for

Single Populations

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

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.

Statistical Inference: Hypothesis Testing for

Single Populations

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 2.

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Single Populations

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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
organizations goals.

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Single Populations

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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).

Statistical Inference: Hypothesis Testing for

Single Populations

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

Statistical Inference: Hypothesis Testing for

Single Populations

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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
Statistical Inference: Hypothesis Testing for
Figure 10.6).
Single Populations

14

Figure 10.5: Acceptance and rejection regions for one-tailed (left)

test (alpha = 0.05)

Statistical Inference: Hypothesis Testing for

Single Populations

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Figure 10.6: Acceptance and rejection regions for one-tailed (right)

test (alpha = 0.05)

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Single Populations

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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

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

Statistical Inference: Hypothesis Testing for

Single Populations

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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 Guptas doubts using the seven steps of
hypothesis testing. Let = 0.05.
Statistical Inference: Hypothesis Testing for
Single Populations

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Example 10.1 (Solution)

Statistical Inference: Hypothesis Testing for

Single Populations

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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 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

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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 = 0.05 and = 0.1, the null hypothesis is
rejected because 0.0182 < 0.05 and 0.0182 < 0.1.

Statistical Inference: Hypothesis Testing for

Single Populations

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Critical Value Approach for Hypothesis

Testing

Statistical Inference: Hypothesis Testing for

Single Populations

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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.

Statistical Inference: Hypothesis Testing for

Single Populations

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Example 10.3 (Solution)

The null and alternative hypotheses can be set as below:

Statistical Inference: Hypothesis Testing for

Single Populations

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Figure 10.10: Critical value method for testing a hypothesis about

the
population mean for Example 10.3

Statistical Inference: Hypothesis Testing for

Single Populations

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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 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

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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

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Example 10.4 (Solution)

Statistical Inference: Hypothesis Testing for

Single Populations

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Figure 10.18: Computed and critical t values for Example 10.4

Statistical Inference: Hypothesis Testing for

Single Populations

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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

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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 ofStatistical
hypothesis
testing, test his belief.
Inference: Hypothesis Testing for
Single Populations

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Example 10.5 (Solution)

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Single Populations

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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

35