Study Unit 8

Interval Estimation

! Population Mean: s Known

! Population Mean: s Unknown

! Determining the Sample Size

! Population Proportion

© 2020 Cengage EMEA. All Rights Reserved. Slide 1

 Margin of Error and the Interval Estimate

A point estimator cannot be expected to provide the

exact value of the population parameter.

An interval estimate can be computed by adding and

subtracting a margin of error to the point estimate.

Point Estimate +/- Margin of Error

The purpose of an interval estimate is to provide

information about how close the point estimate is to
the value of the parameter.

© 2020 Cengage EMEA. All Rights Reserved. Slide 2

 Margin of Error and the Interval Estimate

The general form of an interval estimate of a

population mean is:
x ± Margin of Error

© 2020 Cengage EMEA. All Rights Reserved. Slide 3

 Interval Estimation of a Population Mean:
s Known

! In order to construct an interval estimate of a

population mean, the margin of error must be
computed using either:
• the population standard deviation s , or
• the sample standard deviation s

! s is rarely known exactly, but often a good estimate

can be obtained based on historical data or other
information.

! We refer to such cases as the s known case.

© 2020 Cengage EMEA. All Rights Reserved. Slide 4

 Interval Estimation of a Population Mean:
s Known
There is a 1 - a probability that the value of the
sample mean will be within za /2s X of the population
mean µ.

Sampling
distribution
of X

a/2 1 - a of all a/2

x values

x
µ
za /2s X za /2s X

© 2020 Cengage EMEA. All Rights Reserved. Slide 5

 Interval Estimate of a Population Mean:
s Known

Sampling
distribution
of X
1 - a of all
a/2 a/2
x values
interval
does not x
µ
include µ interval
za /2s X za /2s X
includes µ
[------------------------- x -------------------------]
[------------------------- x -------------------------]
[------------------------- x -------------------------]
© 2020 Cengage EMEA. All Rights Reserved. Slide 6
 Interval Estimate of a Population Mean:
s Known
! Interval Estimate of µ

s
x ± za /2
n

where: x is the sample mean

1 - a is the confidence coefficient
za/2 is the z value providing an area of
a/2 in the upper tail of the standard
normal probability distribution
s is the population standard deviation
n is the sample size

© 2020 Cengage EMEA. All Rights Reserved. Slide 7

 Interval Estimate of a Population Mean:
s Known

! Adequate Sample Size

In most applications, a sample size of n = 30 is

adequate.

If the population distribution is highly skewed or

contains outliers, a sample size of 50 or more is
recommended.

© 2020 Cengage EMEA. All Rights Reserved. Slide 8

 Interval Estimate of a Population Mean:
s Known

! Adequate Sample Size (continued)

If the population is not normally distributed but is

roughly symmetrical, a sample size as small as 15
will suffice.

If the population is believed to be at least

approximately normal, a sample size of less than 15
can be used.

© 2020 Cengage EMEA. All Rights Reserved. Slide 9

 Interval Estimate of Population Mean:
s Known
! Example: Cool Beats
Cool Beats has 260 retail outlets throughout Northern
Europe. The firm is evaluating a potential
location for a new outlet, based in part on the
Mean annual income of the individuals in C
the marketing area of the new location.
B
A sample of size n = 36 was taken; the
sample mean income is €31,100. The population
is believed to be not highly skewed. The population standard
deviation is estimated to be €4,500, and the confidence coefficient to
be used in the interval estimate is 0.95.

© 2020 Cengage EMEA. All Rights Reserved. Slide 10

 Interval Estimate of Population Mean:
s Known C
95% of the sample means that can be observed
B
are within + 1.96s X of the population mean µ.

The margin of error is:

s æ 4,500 ö
za /2 = 1.96 ç ÷ = 1, 470
n è 36 ø

At the 95% confidence level, the margin of

error is €1,470.

© 2020 Cengage EMEA. All Rights Reserved. Slide 11

 Interval Estimate of Population Mean:
s Known C
B
Interval estimate of µ is:

€31,100 + €1,470
or
€29,630 to €32,570

We are 95% confident that the interval contains the

population mean.

© 2020 Cengage EMEA. All Rights Reserved. Slide 12

 Interval Estimation of a Population Mean:
s Unknown

! If an estimate of the population standard deviation s

cannot be obtained prior to sampling, we use the
sample standard deviation s to estimate s .

! This is the s unknown case.

! In this case, the interval estimate for µ is based on the

t distribution.

! (We shall assume for now that the population is

normally distributed.)

© 2020 Cengage EMEA. All Rights Reserved. Slide 13

 t Distribution

The t distribution is a family of similar probability

distributions.

A specific t distribution depends on a parameter

known as the degrees of freedom.

Degrees of freedom refer to the number of

independent pieces of information that go into the
computation of s.

© 2020 Cengage EMEA. All Rights Reserved. Slide 14

 t Distribution

A t distribution with more degrees of freedom has

less dispersion.

As the number of degrees of freedom increases, the

difference between the t distribution and the
standard normal probability distribution becomes
smaller and smaller.

© 2020 Cengage EMEA. All Rights Reserved. Slide 15

 t Distribution

t distribution
Standard (20 degrees
normal of freedom)
distribution

t distribution
(10 degrees
of freedom)

z, t
0

© 2020 Cengage EMEA. All Rights Reserved. Slide 16

 t Distribution

For more than 100 degrees of freedom, the standard

normal z value provides a good approximation to
the t value.

The standard normal z values can be found in the

infinite degrees ( ¥ ) row of the t distribution table.

© 2020 Cengage EMEA. All Rights Reserved. Slide 17

 t Distribution

Degrees Area in Upper Tail

of Freedom .20 .10 .05 .025 .01 .005
. . . . . . .
50 .849 1.299 1.676 2.009 2.403 2.678
60 .848 1.296 1.671 2.000 2.390 2.660
80 .846 1.292 1.664 1.990 2.374 2.639
100 .845 1.290 1.660 1.984 2.364 2.626
¥ .842 1.282 1.645 1.960 2.326 2.576

Standard normal
z values

© 2020 Cengage EMEA. All Rights Reserved. Slide 18

 Interval Estimation of a Population Mean:
s Unknown
! Interval Estimate

s
x ± ta /2
n

where: 1 - a = the confidence coefficient

ta/2 = the t value providing an area of a/2
in the upper tail of a t distribution
with n - 1 degrees of freedom
s = the sample standard deviation

© 2020 Cengage EMEA. All Rights Reserved. Slide 19

 Interval Estimation of a Population Mean:
s Unknown
! Example: Apartment Rents

A reporter for a student newspaper is writing an

article on the cost of off-campus

housing. A sample of 16

apartments within one kilometer

of the campus resulted in a sample mean of €650 per

month and a sample standard deviation of €55.

© 2020 Cengage EMEA. All Rights Reserved. Slide 20

 Interval Estimation of a Population Mean:
s Unknown
! Example: Apartment Rents

Let us provide a 95% confidence interval

estimate of the mean rent per

month for the population of

apartments within one kilometer of campus.

We shall assume this population to be normally

distributed.

© 2020 Cengage EMEA. All Rights Reserved. Slide 21

 Interval Estimation of a Population Mean:
s Unknown
At 95% confidence, a = 0.05, and a/2 = 0.025.
t.025 is based on n - 1 = 16 - 1 = 15 degrees of freedom.
In the t distribution table we see that t.025 = 2.131.
Degrees Area in Upper Tail
of Freedom .20 .100 .050 .025 .010 .005
15 .866 1.341 1.753 2.131 2.602 2.947
16 .865 1.337 1.746 2.120 2.583 2.921
17 .863 1.333 1.740 2.110 2.567 2.898
18 .862 1.330 1.734 2.101 2.520 2.878
19 .861 1.328 1.729 2.093 2.539 2.861
. . . . . . .

© 2020 Cengage EMEA. All Rights Reserved. Slide 22

 Interval Estimation of a Population Mean:
s Unknown
! Interval Estimate

s
x ± t.025 Margin
n of Error

55
650 ± 2.131 = 650 ± 29.30
16

We are 95% confident that the mean rent per month

for the population of efficiency apartments within a
half-mile of campus is between €620.70 and €679.30.

© 2020 Cengage EMEA. All Rights Reserved. Slide 23

 Summary of Interval Estimation Procedures
for a Population Mean

Can the
Yes No
population standard
deviation s be assumed
known ?
Use the sample
standard deviation
s to estimate !
s Known
Case
Use Use
s s Unknown s
x ± za /2 Case x ± ta /2
n n

© 2020 Cengage EMEA. All Rights Reserved. Slide 24

 Sample Size for an Interval Estimate
of a Population Mean

Let E = the desired margin of error.

E is the amount added to and subtracted from the

point estimate to obtain an interval estimate.

© 2020 Cengage EMEA. All Rights Reserved. Slide 25

 Sample Size for an Interval Estimate
of a Population Mean

! Margin of Error

s
E = za /2
n

! Necessary Sample Size

( za / 2 ) 2 s 2
n=
E2

© 2020 Cengage EMEA. All Rights Reserved. Slide 26

 Sample Size for an Interval Estimate
of a Population Mean C
B
Recall that Cool Beats is evaluating a potential
location for a new retail outlet, based in part on the
mean annual income of the individuals in
the marketing area of the new location.
Suppose that Cool Beats’ management team
wants an estimate of the population mean such that
there is a 0.95 probability that the sampling error is
€500 or less.
How large a sample size is needed to meet the
required precision?

© 2020 Cengage EMEA. All Rights Reserved. Slide 27

 Sample Size for an Interval Estimate
of a Population Mean C
B
s
za /2 = 500
n

At 95% confidence, z.025 = 1.96. Recall that s = 4,500.

(1.96)2 (4, 500)2
n= 2
= 311.17 = 312
(500)

A sample of size 312 is needed to reach a desired

precision of + €500 at 95% confidence.

© 2020 Cengage EMEA. All Rights Reserved. Slide 28

 Interval Estimation
of a Population Proportion

The general form of an interval estimate of a

population proportion is:

p ± Margin of Error

© 2020 Cengage EMEA. All Rights Reserved. Slide 29

 Interval Estimation
of a Population Proportion

The sampling distribution of P plays a key role in

computing the margin of error for this interval
estimate.

The sampling distribution of P can be approximated

by a normal distribution whenever np > 5 and
n(1 – p) > 5.

© 2020 Cengage EMEA. All Rights Reserved. Slide 30

 Interval Estimation
of a Population Proportion
! Normal Approximation of Sampling Distribution of P

Sampling
p (1 - p )
distribution sP =
of P n

a/2 1 - a of all a/2

p values

!
p
za /2s P za /2s P

© 2020 Cengage EMEA. All Rights Reserved. Slide 31

 Interval Estimation
of a Population Proportion

! Interval Estimate

p(1 - p)
p ± za /2
n

where: 1 -a is the confidence coefficient

za/2 is the z value providing an area of
a/2 in the upper tail of the standard
normal probability distribution
p is the sample proportion

© 2020 Cengage EMEA. All Rights Reserved. Slide 32

 Interval Estimation
of a Population Proportion

! Example: Political Science International

Political Science International

(PSI) specializes in voter polls
and surveys designed to keep
political office seekers informed
of their position in a race.
Using telephone surveys, PSI interviewers ask
registered voters who they would vote for if the
election were held that day.

© 2020 Cengage EMEA. All Rights Reserved. Slide 33

 Interval Estimation
of a Population Proportion

! Example: Political Science International

In a current election campaign,

PSI has just found that 220
registered voters, out of 500
contacted, favour a particular
candidate.
PSI wants to construct a 95% confidence interval
estimate for the proportion of the population of
registered voters that favour the candidate.

© 2020 Cengage EMEA. All Rights Reserved. Slide 34

 Interval Estimation
of a Population Proportion

p(1 - p)
p ± za /2
n

where: n = 500, p = 220/500 = 0.44, za/2 = 1.96

0.44(1 - 0.44)
0.44 ± 1.96 = 0.44 + 0.0435
500

PSI is 95% confident that the proportion of all voters

that favour the candidate is between 0.3965 and 0.4835.

© 2020 Cengage EMEA. All Rights Reserved. Slide 35

 Sample Size for an Interval Estimate
of a Population Proportion
! Margin of Error

p(1 - p)
E = za /2
n

Solving for the necessary sample size, we get

( za /2 )2 p(1 - p)
n=
E2
However, p will not be known until after we have
selected the sample. We will use the planning value
p* for p.

© 2020 Cengage EMEA. All Rights Reserved. Slide 36

 Sample Size for an Interval Estimate
of a Population Proportion
! Necessary Sample Size

( za / 2 ) 2 p* (1 - p* )
n=
E2

The planning value p* can be chosen by:

1. Using the sample proportion from a previous
sample of the same or similar units, or
2. Selecting a preliminary sample and using the
sample proportion from this sample.

© 2020 Cengage EMEA. All Rights Reserved. Slide 37

 Sample Size for an Interval Estimate
of a Population Proportion

Suppose that PSI would like a 0.99 probability

that the sample proportion is within ±0.03 of the
population proportion.
How large a sample size is needed to meet the
required precision? (A previous sample of similar
units yielded 0.44 for the sample proportion.)

© 2020 Cengage EMEA. All Rights Reserved. Slide 38

 Sample Size for an Interval Estimate
of a Population Proportion

p * (1 - p *)
za /2 = 0.03
n

At 99% confidence, z.005 = 2.576. Recall that p* = 0.44.

( za /2 )2 p * (1 - p*) (2.576)2 (0.44)(0.56)
n= = @ 1817
E2 (0.03) 2

A sample of size 1817 is needed to reach a desired

precision of + 0.03 at 99% confidence.

© 2020 Cengage EMEA. All Rights Reserved. Slide 39

 Sample Size for an Interval Estimate
of a Population Proportion

Note: We used 0.44 as the best estimate of p in the

preceding expression. If no information is available

about p, then 0.5 is often assumed because it provides

the highest possible sample size. If we had used

p = 0.5, the recommended n would have been 1843.

© 2020 Cengage EMEA. All Rights Reserved. Slide 40

 End of Study Unit 8

© 2020 Cengage EMEA. All Rights Reserved. Slide 41