CHAPTER 6

STATISTICAL INFERENCE:
HYPOTHESIS TESTS
1. The Concept of Hypothesis Testing
2. The General Methodology of Hypothesis Testing
2.1. The Procedure
2.1.1. The Null Hypothesis versus the Alternative Hypothesis
2.1.2. The Type I Error versus Type II Error
2.1.3. Two-Tailed Hypothesis Tests versus One-Tailed Hypothesis Tests
2.1.3.1.
Two-Tailed Tests
2.1.3.1.1. Decision Rules
2.1.3.1.2. The Relationship Between the Confidence Interval and the
Acceptance Region for the TOH
2.1.3.1.3. Type I and Type II Errors Revisited
2.1.3.2.
One-Tailed Tests
2.1.3.2.1.
Lower Tail Test
2.1.3.2.2.
Upper Tail Test
2.1.4. How to Set Up the Null and Alternative Hypotheses
3. Hypothesis Test for the Small Samples From Normal Populations
4. Test of Hypothesis on Population Proportion

1. The Concept of Hypothesis Testing

In addition to the confidence interval, the hypothesis test is another approach to making
inferences about a population parameter using a sample statistic. To compare the two
approaches, in the confidence interval we have no prior knowledge, judgment or claim about
the population parameter. We take a sample and build an appropriate interval around the
sample statistic, for a given level of confidence, to estimate the range of values within which
the population parameter may fall.
In the hypothesis test, in contrast, we have some prior knowledge, judgment or claim about
the population parameter. In other words, we have a hypothesis about the population
parameter, which may be accepted or rejected depending on the analysis of the sample
data.

2. The General Methodology of Hypothesis Testing

To explain the theoretical foundation of hypothesis tests we will start with the formula for the
confidence interval for with large sample size n :

L ,U = x z / 2 se( x )
se ( x )=s / n . Note that the interval is built around
z / 2 se( x ) is the familiar marginal errorMOE. The MOE

where

x , where the expression

plays a similar role in the

hypothesis test, as will be seen.

Now, to explain the methodology for the hypothesis test, consider the following example:

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Example 1
Casual observation of vehicle speed on a freeway indicates that most vehicles exceed the
speed limit of 70 mph. Suppose we want to test the hypothesis that mean speed is 75 mph.
Accordingly, a random sample of
n=110 vehicles is secretly clocked, yielding the
following data:
65
74
82
73
80
86
80
69
87
83
78

83
84
66
81
80
90
77
84
80
67
62

91
69
92
84
69
64
65
84
82
68
75

65
88
86
89
85
66
76
92
76
66
85

88
78
84
83
83
81
64
91
76
88
89

69
64
79
66
78
90
81
72
66
77
84

64
65
65
87
62
83
75
78
74
92
84

87
86
89
82
87
78
72
73
68
91
76

90
87
76
72
85
71
67
86
62
89
70

73
68
83
65
89
72
73
70
62
70
72

The mean speed obtained from this data is

x =77.5 mph. Does this sample provide
significant evidence that the mean speed of all vehicles is different from 75 mph? Should
we reject the hypothesis that the population mean speed is 75 mph?
Note that
x =77.5 is obtained from a single sample. Now that we have learned about the
sampling distribution of x , we know that there are infinite number of samples of size
n=110 , each yielding a different
x values. These values are normally distributed
with the population mean as their center of gravity. Therefore, it is inevitable that the
mean obtained from a single sample of size n will deviate from the population mean. The
question is then: is the deviation of the sample mean from the hypothesized population
mean significant? To answer this question, we must determine whether the deviation is due
to sampling error. That is, does
x =77.5 mph fall within the margin of sampling error
( MOE) from the hypothesized population mean? If the deviation is within MOE , then
we can conclude that this is a "natural" deviation, that 77.5 is one of the x values that
fall within the 95% interval in the sampling distribution. Therefore, this x belongs to the
sampling distribution which has the center of gravity = 75 mph, the hypothesized
population mean.
If the sample
x value falls within the MOE from 0=75 (the expression 0
implies that this is the hypothesized, rather than the actual, population mean), then the
deviation of the sample value from the hypothesized population mean is said to be not
significantthe deviation is due to the sampling error. If, however, the
x value falls
outside the interval 0 MOE , then the deviation is said to be significantthe deviation
is not due the sampling error. This x belongs to a different sampling distribution with a
0 . Then it can be argued that the
center of gravity other than the hypothesized
hypothesized 0 is not the true population mean. We should reject the hypothesis that
the population mean is equal to 75 mph.
What constitutes a significant deviation? How do you determine the acceptable
a hypothesis test?

MOE

for

This is the question that the test of hypothesis attempts to answer.

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2.1.

The Procedure

The main task in performing a test of hypothesis is to find the margin of sampling error,
MOE . This would provide us with the decision rule, the criterion, to determine whether
to reject the hypothesis.

2.1.1. The Null Hypothesis versus the Alternative Hypothesis

To obtain the decision rule, first you must state the claim (the hypothesis) about the
population mean in a prescribed way. The claim consists of two components, a null
hypothesis, denoted by H 0 , and an alternative hypothesis, H 1 . For the vehicle
speed example, we state the null and alternative hypotheses as follows.
The null hypothesis:
The alternative hypothesis:

H 0 : =75
H 1 : 75

The null hypothesis states that the population mean is equal to is 75 mph; the alternative
hypothesis states that the population mean is not equal to, or different than, 75 mph.

2.1.2. The Type I Error versus Type II Error

Once you state your hypothesis, you must deal with the following dilemma involving
hypothesis tests. Since the test of hypothesis involves the sampling distribution, in deriving
a conclusion from the results of the test that is based on a random sampling process, there
is always a chance that you may arrive at a wrong conclusion about the hypothesis. A
wrong conclusion can happen in two ways.
1) Reject a true null hypothesis. This is called a Type I Error.
2) Not reject a false null hypothesis. This is called a Type II Error.
There is always a chance or probability that you may commit either one of the two errors.
The probability of committing a Type I error is denoted by and that of committing a Type II
error is denoted by . Reducing , for a given sample size, comes only at the cost of
increasing .
Performing a test of hypothesis is very similar to conducting a trial in a criminal court. Given
the evidence that a crime is committed, the defendant or the accused is charged for or
accused of committing the crime. The purpose of the trial is to establish the defendants
guilt or innocence. The null hypothesis is that the defendant is innocent (the accused is
presumed innocent) and the alternative is that he is guilty. If the jury finds an innocent
person guilty, it has rejected a true null hypothesis; it has, therefore, made a Type I error.
On the other hand, if the jury finds a guilty person not guilty, it has not rejected a false null
hypothesis; it has, therefore, made a Type II error. The following table shows the four
possible situations resulting from a test of hypothesis (or a court trial).
The null hypothesis

H0
H0

is

Chapter 6Hypothesis Tests

is True

Incorrect decision (Type I

H0

(presumed innocent)

H0

is False

Correct decision (no error)

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rejected

H 0 is not
rejected

Error)
The accused is innocent and he
is found guilty.
Probability =
Correct decision (no error)
The accused is innocent and he
is found not guilty.
Probability = 1

The accused is guilty and he is

found guilty.
Probability = 1
Incorrect decision (Type II
Error)
The accused is guilty and he is
found not guilty.
Probability =

In the hypothesis test, the burden of proof is always on the alternative hypothesis. In a
criminal court, the burden of proof is on the prosecutor. The prosecutor must convince the
jury, show beyond a reasonable doubt, that the defendant is guilty. Therefore, we want to
make it unlikely to reject the null hypothesis unless the evidence is "very strong" or
"significant". In a criminal court, significant means beyond a reasonable doubt. We
want to make it unlikely to find the defendant guilty unless guilt is established beyond a
reasonable doubt. For this reason the , the probability of rejecting the null hypothesis, is
always assigned a small valuetypically, 5 percent in statistical hypothesis tests. The
value is also called the level of significance of the test.
Note that in a confidence interval, is the percentage of all possible intervals built around
sample means that do not capture the population mean. That was because % of sample
means fall outside the margin of error MOE=z /2 se ( x ) . In a test of hypothesis plays a
similar role. If the randomly selected sample yields an x value which falls outside the
prescribed margin of error, we would wrongly reject the null hypothesis. And there is always
an % chance of doing that.
Since committing a Type I Error is considered as the more serious of the two errors (finding
an innocent person guilty), the threshold probability (the level of significance ) is set in
advance. The probability of Type II Error (), however, varies based on several factors, one
of the them being .

2.1.3. Two-Tailed Hypothesis Tests

To determine the acceptance region, like the confidence interval, we need a margin of
(sampling) error. The form of the
MOE in the hypothesis test depends on the null
hypothesis to be rejected. If the null hypothesis is that 0=75 (the population mean is
equal to 75), then using the margin of error

MOE=z /2 se ( x )
the interval which would contain

percent of all sample means would be

L ,U =0 z / 2 se ( x )
Here the hypothesis test is said to be a two-tailed test. The reason this is called a twotailed test is that no matter what the value of the sample statistic x , whether it is greater
than or less than the hypothesized mean, there is always some evidence against the null
hypothesis in terms of the difference between the value of the sample statistic and value
stated as the null hypothesis. The purpose of the test (the trial) is to gauge the significance
of the difference in either direction from the null mean. The significance of the difference

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will be measured relative to the margin of error on either side. In the

therefore, you must use z / 2 .

MOE

formula,

The null and alternative hypotheses for a TWO-TAIL TEST

The null hypothesis:
The alternative hypothesis:

H 0 : =0
H 1 : 0

The vehicle speed example is a two-tail test. Test the null hypothesis that the population
mean vehicle speed is equal to 75.

H 0 : =75 mph
H 1 : 75 mph
We select = 0.05 (allowing for 5% chance of committing a Type I error, that is, rejecting a
true null hypothesis). Going back to the sample data shown above, the sample mean and
standard deviation are obtained as:
x =77.5 and s=8.94 . To determine the margin of
error, first compute the standard error of x .

se ( x )=8.94 / 110=0.852
Given =0.05 , the other component of MOE,
error is then

z / 2 , is

z 0.025=1.96 . The margin of

MOE=(1.96)(0.852)=1.67
The interval is then

L ,U =75 1.67=[ 73.23,76.67 ]

Since x =77.5 falls outside this interval, we conclude that the deviation is significant, and
reject H 0 : =75 . In the diagram below, the interval [ 73.23,76.67 ] is labeled as the
acceptance region. The sample mean falls outside this region.

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2.1.3.1.
The Relationship Between the Confidence Interval
and the Acceptance Region for the TOH
We can use the above diagram to observe how the confidence interval for and the
acceptance region for a two-tail test of hypothesis are related. The margin of error for a
95% confidence interval for the vehicle speed example is:

MOE=z /2 se ( x )=1.96 0.852=1.67

The lower and upper boundaries of the confidence interval are:

L ,U = x MOE=77.5 1.67=(75.83,79.17)

Note that this interval does not capture the null mean = 75. You can thus use a
confidence interval to observe if the null mean 0 falls within the interval. If it does not,
then you reject the null hypothesis.

2.1.3.2. Type I and Type II Errors Revisited

In this example, we rejected H 0=75 because the sample mean x =77.5 happened to
fall outside the MOE . That is, this sample mean was not one of the 95% of x values
that would fall within the interval 75 1.67 . Now we can ask the question, what if the
population mean were in fact 75 mph?. If that were the case, then 5% of x values would
fall outside the interval 75 1.67 . Therefore, if x =77.5 belonged to this 5%, then we
have rejected a true H 0 ; we have made a Type I error.
Suppose now we take another sample of n=110 and obtain x =76.2 mph and
s=8.66 . Note that with MOE=1.96 ( 8.66 / 110 )=1.6 the boundaries of the
acceptance region are:

x L , x U =75 1.6=(73.4,76.6)

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Then

x =76.2 falls inside the acceptance region under the

Therefore, we conclude that this sample mean belongs to the

H 0 distribution.
H 0 distribution and do not

H 0 : =75 . But, what if the population mean is some number

other than 75? Suppose the true population mean speed is 1 . This is the center of
reject the null hypothesis

gravity of the alternative sampling distribution represented in the following diagram by

H 1 , and x =76.2 belongs to that distribution. Thus, by wrongly concluding that

x =76.2 belongs to the H 0 distribution, we have not rejected a false null hypothesis.
We have, therefore, committed a Type II error.

The following is a graphic representation of the four scenarios involving a hypothesis test:
o
o
o
o

H0
H0
H0
H0

is true and is not rejected: No error.

is true and is rejected: Type I error.
is false and is not rejected: Type II error.
is false and is rejected: No error.

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2.1.3.3. Decision Rules for Rejecting

H0

The decision rule is always set up to reject the null hypothesis. There are two ways to
set up the decision rule. Both are derived from the MOE formula. The role of MOE
here is that, if the null hypothesis H 0 were true, then 1 percent of the sample
means must fall within the MOE . Thus MOE becomes the criterion for rejecting
H 0 . We will reject H 0 , that is, we conclude the deviation x 0 is significant, only
when x falls outside the MOE , when the (absolute value of) deviation of x from
0 exceeds MOE .
We reject

H 0 if,

x 0 > MOE
Substituting for

MOE , we have,

x 0 > z / 2 se ( x )
Dividing both sides of in inequality by

se ( x ) gives us,

x 0
>z
se ( x ) /2
The term on the left-hand-side above is called the test statistic
critical value ( CV ) .

Chapter 6Hypothesis Tests

( TS ) and

z/ 2

is the

Page 8 of 24

Decision Rule (a)Reject H0 if

x 0
>z
s e ( x ) / 2

|TS||z|>CV z /2

Note that the test statistic when you compute the test statistic

x 0
, the result is the
se (x )

z score. Also note the absolute value lines around the test statistic. This means that
when the test statistic is negative, to avoid the confusion arising from the negative sign
regarding the direction of the inequality, use the absolute value.
Now back to the vehicle speed example. The mean obtained from the sample is x =77.5 .
The objective of this exercise is to see if the deviation of the sample mean and the
hypothesized mean ( x 0=2.50) is significant. If this difference exceeds MOE, then the
difference is significant and it will lead us to reject the null hypothesis. The difference is:

x 0=77.57 5=2.5
Using

z=

se ( x )=0.852 , the test statistic is,

x 0
2.5
=
=2.93
se (x ) 0.852

and the critical value is,

z / 2=z 0.025=1.96
TS=2.93>CV =1.96 , then the deviation is significant. Therefore, we reject the null
hypothesis that 0=7 5 . We conclude that the population mean vehicle speed is different
from 75 mph.
The alternative approach for determining if the difference x 0 is significant is to find
the tail area associated with the value of the test statistic. That is, find P( z >TS) . Using
the z table, this tail area is:

P ( z TS )=P(z 2.93)=0.0017
When the test is a two-tail test, double the computed probability ( 2 0.0017=0.0034 ) and
compare it to = 0.05. Note that 0.0034 is now the computed probability of Type I error.
With prob value=0.0034 , there is about 0.58% probability that we might reject a true null
hypothesis. Since we are allowing 5% as the comfort zone or threshold probability for
rejecting a true null, the computed probability 0.0034 is clearly within this comfort zone.
There is only a 0.34% chance that we will be rejecting a true null, or committing a Type I
error. This approach to the hypothesis test is the probability ( prob) value approach.

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Decision Rule (b)Reject H0 if

2 P ( z >TS )<
p-value < level of significance

For a two-tail test, in Decision Rule (b) the prob value is twice the tail area
corresponding to TS. If the p value < , then reject H 0 .

Summary of Steps For a Two-Tail Tests

a. State the null and alternative hypotheses.

H 0 : =0
H 1 : 0
a. Specify the level of significance .
b. Use any of the two methods to reject or not reject the null hypothesis
Decision Rule (a)Test Statistic

x 0
se (x )

i.

Compute the test statistic

TS=

ii.

Determine the critical value

CV =z / 2

iii.

Reject H0 if

TS>CV

Decision Rule (b)The

prob value

x 0
se (x )

i.

Compute the test statistic

TS=

ii.

Find the probability value

2 P( z >TS)

iii.

Reject H0 if

(The two tail areas for TS)

p-value <

2.1.4.One-Tailed Tests
In many cases the null hypothesis is that the population mean is either at least (greater than
or equal to), or is at most (less than or equal to) some value. In these cases the sample
statistic x may contradict the null hypothesis in only one direction. For example, if H 0
is 75 , the test is of interest only if x is less than 75. Only this way does the sample

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statistic contradict the null hypothesis and we want to test whether this is a significant
contradiction. If the sample mean turns out to be greater than 75, then it confirms the null
and, therefore, there is no need for the test.1 This is why the significance of the deviation
will be measured relative to the margin of error only in one direction. Regarding the level of
significance , to maintain the same probability of rejecting a true null hypothesis as in a
two-tailed test, the whole must be used. Thus, in the MOE formula we use z

z/ 2 .

instead of

MOE=z se ( x )
Here the hypothesis test is said to be a one-tail test.
In the above example, we conducted a two-tail test, testing the null hypothesis

H 0 : =75

mph against the alternative H 1 : 75 mph. What if the concern was the mean vehicle
speed is 75 mph or more (at least 75 mph). In this case we would be conducting a one-tail
test, testing the null hypothesis H 0 : 75 mph against the alternative H 1 : <75 mph.

2.1.4.1. Lower Tail Test

If the sample of 110 vehicles yields a mean which is less than 75 mph, this may be evidence
that the population mean speed is less than 75 mph. The question is, however, is the
evidence conclusive? Is the sample mean significantly less than 75? How far should the
sample mean fall below the null mean, 0 75 , before we conclude that the evidence is
significant?
To set up the test, the null hypothesis H 0 must be that the mean is equal to or greater
than 75 mph. To reject this hypothesis, the sample evidence must be significant. That is, the
sample mean must be significantly less than 75 mph. Generally, for a lower-tail test, the
null and alternative hypotheses are written as
The null and alternative hypotheses for a LOWER-TAIL TEST

H 0 : 0
H 1 : < 0
The alternative hypothesis:
The null hypothesis:

For this example, the null and alternative hypotheses are written as:

H o : 75
H 1 : <75
This is a lower-tail test, as indicated by "<" (a strict inequality) in the alternative hypothesis.
Example 2
To perform a test, let us continue with the example of clocking a random sample of
n=110 vehicles. Suppose the sample yields x =73.9 mph and s=8.82 . Note that

1 If there is no evidence the defendant has committed the crime, then there would be no trial.

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x =73.9< 0=75

implies that the evidence from the sample contradicts

question is, is this a significant evidence contradicting the null hypothesis?

H0 .

The

Let us compute the MOE , determine the acceptance region for the test, and see where
x falls relative to the acceptance region.

se ( x )=

8.82
=0.841
110

MOE=z se ( x )=1.64 0.841=1.38

The following diagram shows the acceptance region and where the
that the acceptance region is now bounded only on the left tail.

value falls. Note

x L = 0MOE=751.38=73.62

The sample statistic x =73.90 falls inside the acceptance region bounded on the left by
x L =73.62 mph. We do not reject the null hypothesis and conclude that the population
mean is not less than 75 mph.
The following show the decision rules for a lower tail test.

Decision Rule (a) for a Lower Tail TestReject H0 if

x 0
>z
se( x )

|TS||z|>CV z
For our example,

TS=

x 0 73.975
=
=1.31
se (x )
0.841

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To avoid the confusion arising with the negative sign of the test statistic, use the absolute
value of TS to compare to the CV . Thus,

|TS|=1.31<CV =z 0.05=1.64
We do not reject the null hypothesis and conclude that the population mean speed is not
less than 75 mph.

Decision Rule (b)Reject H0 if

P ( z <TS )<
p-value < level of significance

To find the p-value

P ( z <1.31 )=0.0951
Since this is a one-tail test, we do not double the tail area. Thus,

p value=0.0951> =0.05
i.
ii.

We do not reject the null hypothesis.

Find the critical value.
Find the test statistic:

CV =z =z 0.05=1.64

TS=( x 0 ) / se (x )=1.10/ 0.841=1.31

iii.

Reject H0 if TS <CV , or
Do not reject H0 since

|TS|>CV

TS=1.25>CV =1.64|TS|=1.25<CV =1.64

2.1.4.2. Upper Tail Test
The upper-tail test applies when we want to test if the sample evidence is significantly
greater than the value stated in the null hypothesis for the population mean.
Example 3
A random sample n = 115 reimbursements for office visits to physicians paid by Medicare
yielded a sample mean of x =$ 104.9 and a standard deviation of s=$ 25.30 . Does
the sample provide significant evidence that the mean reimbursement is greater than $100?
Perform the test of hypothesis at a 5% level of significance.
Since we want to determine if the sample mean x =$ 104.9 is significantly greater than
() $100, the null hypothesis should be 0 $ 100 . Therefore, we must write the null
and alternative hypotheses as:

H 0 : $ 100

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H 1 : > $ 100
Let us compute the MOE , determine the acceptance region for the test, and see where
x falls relative to the acceptance region.

se ( x )=

25.3
=2.36
115

MOE=z se ( x )=1.64 2.36=3.87

The following diagram shows the acceptance region and where the
that the acceptance region is now bounded only on the right tail.

value falls. Note

x U = 0+ MOE=100+3.87=103.87

The sample mean x =$ 104.9 falls outside the acceptance region. Hence, we reject the
null hypothesis, H 0 : $ 100 , and conclude that the mean reimbursement is greater than
$100.
Now lets use the test statistic and p-value decision rules.
Decision Rule: Reject

TS=z=

H 0 , if

TS>CV

x 0 104.9100
=
=2.08
se ( x )
2.36

CV =z =z 0.05=1.64
Since

TS=2.08>CV =1.64 , reject

Decision Rule: Reject

H0

H 0 , if p- value<

p- value=P ( z >TS )=P ( z >2.08 )=0.0188

Reject H0 since p- value=0.0188<=0.05

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Remark:
What would the conclusion be if = 0.01?

TS=2.08<CV =z 0.01=2.33 , do not reject

H0 .

Since p- value=0.0188< =0.01 , do not reject

H0 .

Since

MOE=z se ( x )=2.33 ( 8.82/ 115 )=5.56

Example 4
A light bulb manufacturer claims the mean life of its light bulbs is at least 1,000 hours. To
perform a test of hypothesis at 5 percent level of significance, a sample of n=105 light
bulbs yields an average life of 989.2 and a standard deviation of 56 hours. Should the
manufacturer's claim be rejected? Use =0.05 .
The problem is asking if we should reject the manufacturers claim that the mean life is at
least 1,000. At least means no less than or greater than or equal to, the symbol for
which is . This is the null hypothesis symbol. The alternative is .

H 0 : 1,000
H 1 : <1,000
n=49

s=56
se ( x )=56/ 105=5.465
z =z 0.05=1.64
=0.05
Decision Rule (a)Reject H if |TS|< CV
i.
ii.

CV =z =z 0.05=1.6 4

Find the critical value:

Find the test statistic:

|TS|=( x 0 ) / se( x )=10.8/5.465=1.98

iii.

Reject H0 if |TS|>CV
Reject
H0 since |TS|=1.98>CV =1.64

Decision Rule (b)Reject H if p-value

i.
ii.

iii.

Find the test statistic:

TS=( x 0 ) / se (x )=10.8/ 5.465=1.98

Find the
prob value:
P( z <TS)
P ( z <1.98 )=0.0239
Reject H0 if prob value< Reject H 0
since p-value 0.0239< =0.05

Reject the manufacturers claim that the mean life is at least 1,000 hours and conclude that
it is less the 1,000 hours.

2.1.5.How to Set Up the Null and Alternative Hypotheses

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The most important part of performing a hypothesis test is stating the correct null and
alternative hypotheses. The incorrect statement of the hypotheses will invariably lead you
to a wrong conclusion about the test. If you are confused about setting up the hypotheses,
hopefully the following guidelines will help.

Never put the equal sign in the alternative hypothesis. The following symbols
should not appear in the alternative hypothesis: "=", "", "". These symbols
belong to the null hypothesis. Depending on the nature of the test, the alternative
hypothesis may contain any of the following: " ", ">", "<".

Following the above directions, after you state your null and alternative hypotheses,
make certain that the sample evidence contradicts the null hypothesis (and agrees
with the alternative). Remember, the reason we conduct a hypothesis test is to
determine if the sample evidence is significant in order to reject the null. In a two tail
test, the sample evidence will always be different, or contradict, the null. So, there is
no confusion. However, in a one tail test the reason we conduct the test is that there
is evidence against the null, and we want to determine if the evidence is significant.
For example, if in a problem you set your null and alternative hypothesis as, say,

H 0 : 100
H 1 : <100
and the sample evidence is

xx =$ 110 ,
then the sample evidence does not contradict the null. There is no evidence that the
population mean is less than $100; there is no evidence to reject the null. This
should be a warning that your hypotheses statement is incorrect. The correct
statement should be,

H : $ 100
H : > $ 100
Now the sample evidence, xx =$ 110 , contradicts the null. There is evidence the
mean is greater than $100, but you want to determine if xx
is significantly greater
than 100 in order for you to reject the null.

Generally, any hypothesis test which involves challenging the status quo, the
prevailing practice or belief, the challenger's viewpoint should be the alternative
hypothesis. If you want to prove the prevailing practice or belief wrong, you have to
provide significant proof, a proof which is "beyond a reasonable doubt". Consider the
following examples
o The production team of a manufacturing company has designed a new
production process which is supposed to lower the average production cost.
To implement the new process, the production team must convince the
management that the average cost is lower with the proposed process than
the current process. Suppose the current average cost is $10. The production
team must provide significant evidence that the average cost under their
proposed process is lower. Therefore, the null and alternative hypotheses
must be stated as:

H : $ 10

Chapter 6Hypothesis Tests

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H : < $ 10
Note that the null hypothesis states that the average cost is "no less than" $10. The
task of the production team is to show significant evidence to reject the null.
o

A pharmaceutical company has developed new drug to treat a certain type of cancer.
Suppose 60% of patients who take the existing drug experience remission. To prove
that the new drug is more effective than the current treatment, the company must
convince, must provide significant evidence to the medical community that the new
drug is better, that the remission rate is higher. The null hypothesis, to be rejected,
then must be the new drug is no better:

H : 60
H : >60
An interesting point to keep in mind in this example is that the medical community
would require a smaller level of significance for the test, say, =0.01 , compared
to the typical =0.05 . This is to reduce the probability of Type I error, to lower the
likelihood of rejecting the "no better" hypothesis, when it may be true.

Another issue you should keep in mind in choosing the null and alternative
hypothesis is: choose H 0 such that, if the hypothesis is true, the consequence of
rejecting it is costly, dire, etc...

In the problems that you deal with in this course, you should mainly be concerned about how
the problem is stated. The problem may be stated as the null hypothesis or the alternative
hypothesis. For example, if you are asked to test the hypothesis that the mean is "at least",
say, $50, then you should recognize this as a null statement:
H : 0 . The same
problem may be state as: test the hypothesis that the mean is "less than" $50. This is an
alternative hypothesis statement:
H : < 0 . Just be careful to use the appropriate
symbol corresponding to the statement of the hypothesis. Then make sure that the equality
sign in any form, " ", " ", or " ", does not appear in the alternative hypothesis
statement.

3. Hypothesis Test for the Small Samples From Normal

Populations
Like for confidence intervals, when the standard deviation of the population is unknown, the
test of hypothesis will use the t distribution, if the sample size is small.
Example 5
A filling machine fills bottles with a target mean of 12 ounces of beer. To test whether the
target mean is being achieved, a random sample of 20 bottles is selected with the following
results (in ounces):
12.06
11.86

11.84
11.98

12.00
11.96

11.83
11.95

12.03
11.82

11.91
11.75

11.96
11.95

11.86
11.97

11.85
11.92

11.89
12.02

Perform the test at 5% level of significance.

Achieving the target mean implies that our null hypothesis should be =12 , and we want
to find out if the sample mean deviated from the target mean significantly.

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H 0 : =12
H 1 : 12
First we must compute the sample mean
the sample:

and the sample standard deviation

from

2
( x x )
x
x =
=12.032 s=
=0.100
n
n1

se ( x )=0.100/ 20=0.022
t /2,(n1)=t 0.025, (19) =2.093

Find the standard error:

Find the t score:

Note that the margin of error is now computed using the

distribution.

MOE=t / 2,(n1) se ( x )=2.093 0.0 22=0.05

The acceptance region is

L ,U =H 0 MOE

L=120.05=11.0 5
U=12+0.0 5=12.0 5

Decision Rule (a)Reject H if

i.

CV =t / 2,(n1)=t 0.025, (19) =2.093

TS=( xx 0 ) /se (xx )=1.431
Do not reject H 0 since 1.431<2.093

Find the critical value in terms of t

ii. Find the test statistic:

iii. Reject

H0

TS>CV

if

Decision Rule (b)Reject

i.

TS>CV

H0

Find the test statistic

ii. Find
iii. Reject

2 P(t> TS)
H 0 if

p value< .

Chapter 6Hypothesis Tests

if probability value

TS=( xx 0 ) /se (xx )=1.431

2 P (t >1.431 )=0. 1687
(See the footnote and the note below)
Do not reject H 0 since 0. 1687>0.05 .

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IMPORTANT NOTE
Note that to compute P(t> 1.43) you must use a computer program that finds the tail
area under the t curve for a given t score and degrees of freedom. There are no tables to
determine such areas (probabilities). However, you can estimate this probability
ordinally using the t table as shown below:
df
16
17
18
19
20
21
22
23

0.100
1.337
1.333
1.330
1.328
1.325
1.323
1.321
1.319

0.050
1.746
1.740
1.734
1.729
1.725
1.721
1.717
1.714

0.025
2.120
2.110
2.101
2.093
2.086
2.080
2.074
2.069

0.010
2.583
2.567
2.552
2.539
2.528
2.518
2.508
2.500

0.005
2.921
2.898
2.878
2.861
2.845
2.831
2.819
2.807

You can still correctly guess, from a given t value, whether the prob value is greater
or less than a given level of significance (for a one-tail test) or /2 (for a two-tail test).
In the last example t=1.431 . Given df =19 , the t score increases as the tail area
in the top row decreases (as we move to the right in the table). In the above example,
t=1.431 is greater than 1.328, the smallest t score shown in the table associated with
df =19 . This means that the tail area associated with t score of 1.431 must be greater
than 0.100. So, the combined tail areas is definitely greater than the level of significance .
Therefore, we do not reject the null hypothesis.
Example 6
A light bulb manufacturer claims the average life of its light bulbs is at least 1,000 hours. To
perform a test of hypothesis at 5 percent level of significance, a sample of 25 light bulbs
yields an average life of 992.6 hours with a sample standard deviation s=49.3 hours.
Should the manufacturer's claim be rejected?

H 0 : 1,000
H 1 : <1,000
Note that this is a lower tail test because

n=25
x =992.6

s=49.3
=0.05

x 0=992.61000=7.40<0 .
se ( x )=49.3 / 25=9.86

T S=t ,(n1)=t 0.05,(24 )=1.711 . [Here you must use t ,(n1) , rather than
t /2 ,(n1) , because you are performing a one-tail test.]

Find the t score:

Decision Rule (b)Reject H if TSCV

i. Find the critical value in terms of t
ii. Find the test statistic:

H 0 if TSCV
0.751<1.711

iii. Reject

Chapter 6Hypothesis Tests

CV =t ,(n1) =t 0.05,(24)=1.711
|TS|=|xx 0|/se ( xx )=0.751
Do not reject H 0 since

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Decision Rule (c)Reject

i.

H0

Find the test statistic

ii. Find P(t< TS)

iii. Reject H 0 if p-value

TS=( xx 0 ) /se ( xx )=0.751

P(t<0.751)=0.230 0 (See the note below)
Do not reject H 0 since 0.230 0>0.05 .

if probability value

NOTE: Using Excel, =T.DIST.RT(0.751,24) = 0.2300. If a computer is not available, you can
use the t table to determine if the p-value is greater than or less than the level of
significance:
df
23
24
25

0.100
1.319
1.318
1.316

0.050
1.714
1.711
1.708

0.025
2.069
2.064
2.060

0.010
2.500
2.492
2.485

0.005
2.807
2.797
2.787

Note that |t| = 0.751 is less than 1.318, the smallest of the shown t scores corresponding to
df = 24, which is associated with a tail area of 0.10, the largest of the shown tail areas.
Thus, |t| = 0.751 must be associated with a much larger tail area than 0.10, which, in turn,
would exceed = 0.05.

4. Test of Hypothesis on Population Proportion

The hypothesis test about the population proportion follows a pattern similar to that for the
population mean. You compare the sample proportion p to the value stated in the null
hypothesis regarding . If the difference between p and 0 exceeds MOE, then
this difference is statistically significant and you reject the null hypothesis.
Example 7
To test the hypothesis that the proportion of all Hoosier adults in the labor force with a 4year college degree is 26 percent, a sample of 600 Hoosier adults in the labor force is
selected. The sample proportion is 27.3 percent. Test the hypothesis at 5 percent level of
significance.

H 0 : =0.26
H 1 : 0.26
This is a two-tail test, because we are testing the hypothesis that the population proportion
is 26 percent.

n=600

=0.05

px =0.273

z / 2=1.96

To perform the test you need to determine the standard error of

formula:

se ( p )=

px . Use the following

0 (1 0)
n

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Note that to find se ( px ) , unlike the standard error in the confidence interval problems,
instead of the sample proportion p you use 0 in the formula. This is logical because
we are presuming the population proportion is the value specified in the null hypothesis.

se ( p )=

0.26(10.26)
=0.0179
600

The margin of error and the acceptance region for the test are determined as follows:

MOE=z /2 se ( p ) =1.96 0.0179=0.035

L ,U = 0 MOE
L=0.260.035=0.225
U=0.26+0.035=0.295

The sample pp = 0.273 falls within the acceptance region.

Decision Rule (a)Reject
i. Find the critical value
ii. Find the test statistic TS

H0

if

TS>CV

CV =z / 2=z 0.025=1.96

TS=( p 0 ) / se ( px )=( 0.2730.26 ) / 0.0179=0.73

iii. Reject H0, if TS>CV
Do not reject

H 0 since 0.73 < 1.96

Decision Rule (b)Reject H if probability value <

i. Find TS
TS=0.73
ii. Find the prob value
2 P( z >TS)
2 P( z >0.73)=2 0.2327=0.4654
iii. Reject H 0 , if
:
Do not reject since 0.4654 > 0.05
prob value<

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The test of hypothesis provides that we should not reject the null hypothesis that
H 0 : =0.26 . Therefore we conclude that the proportion of all Hoosier adults in the labor
force with a 4-year college degree is 26 percent.
Example 8
A pest control company claims that no more than 15% of its customers need repeated
treatment after a 90-day warranty period. To test the validity of this claim, a consumer
organization selected a sample of 300 customers and found that 57 needed repeated
treatment after the 90-day warranty period. Is there evidence, at 5% level of significance,
that the claims is not valid?
Here the claim is "no more than" 15%... The symbol for "no more than" or "at most" is .
This symbol must be stated in the null hypothesis. The alternative is then "greater than"
15%, which is shown as 15 . This makes the test an upper tail test.

H 0 : 0.15
H 1 : >0.15
n=200

px =57/200=0.19
0.15(10.15)
se ( p )=
=0.0 206
3 00

=0.05

z =1.64

Compute
rather than

MOE . Note that since this is a one tail test. Therefore, you must use
z / 2 , to obtain MOE .

z ,

MOE=z se ( p )=1.64 0.0206=0.0 34

For the acceptance region:

U= 0 + MOE=0.15+0.034=0.18 4

The sample statistic

H0.

px =0.19 falls inside the acceptance region. Therefore, do not reject

Decision Rule (a)Reject H if

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TS>CV

Page 22 of 24

i.

Find the critical value

ii. Find the test statistic

iii. Reject H0, if

TS>CV .

CV =z =z 0.05=1.64
TS=( p 0)/ se ( px )=1.94
Reject H 0 since TS=1.94 >CV =1.64

Decision Rule (b)Reject H if probability value <

i. Find the test statistic
ii. Find the prob value
iii. Reject H 0 , if prob value<

prob value=0. 0262<=0.05

TS=( p 0)/ se ( px )=1. 94

P(z > 1.94) = 0.0.0262
Reject H 0 since

Both methods indicate that the null hypothesis H0: 0.15 should be rejected. The test
does not support the companys claim that no more than 15% of its customers need
repeated treatment after a 90-day warranty period.
Example 9
To test the hypothesis that less than 40% of drivers on a certain highway obey the legal
speed limit, in a random sample of 700 vehicles clocked secretly, 252 observed the legal
speed limit. Is there significant evidence that less than 40% of drivers observe the legal
speed limit? Perform the test at a 5 percent level of significance.
Since the hypothesis to be tested is less than 40 percent (
tail test:

0 <0.40 ), then this is a lower

H 0 : 0.40
H 1 : <0.40
Compute the sample proportion:

p=x / n=252/700=0.36
Since this is a lower tail test, the deviation of the sample proportion from the null value for
the proportion should be a negative value.

p 0=0.360.40=0.04
se ( p )= 0 ( 1 0 ) /n= 0.40(10.40)/700=0.0185
MOE=1.64 0.0185=0.03

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The test statistic is then,

TS=( p 0)/ se ( p )

|TS|=|0.360.40|/0.0185=2.16
At

=0.05 , the critical value is,

CV =z 0.05=1.64
Decision rule: reject

H 0 , if

TSCV :

Since |TS|=2.16>CV =1.64 , reject

observe the legal speed limit.

H 0 . Conclude that less than 40 percent of drivers

The pvalue for the test is

P( z <2.16)=0.0154
Since

p value=0.0154< =0.05 , reject

Chapter 6Hypothesis Tests

H0 .

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