Chapter 07

Statistics for Business
and Economics
Anderson Sweeney Williams
Slides by
John Loucks
St. Edwards University
2011 Cengage Learning. All Rights Reserved. May not be scanned, copied
Slide 1
or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 7
Sampling and Sampling Distributions
Selecting a Sample
Point Estimation
Introduction to Sampling Distributions
Sampling Distribution of x
Sampling Distribution of p
Properties of Point Estimators
Other Sampling Methods
Slide 2
Introduction
An
An element
element is
is the
the entity
entity on
on which
which data
data are
are collected.
collected.
A
A population
population is
is aa collection
collection of
of all
all the
the elements
elements of
of
interest.
interest.
A
A sample
sample is
is aa subset
subset of
of the
the population.
population.
The
The sampled
sampled population
population is
is the
the population
population from
from
which
which the
the sample
sample is
is drawn.
drawn.
A
A frame
frame is
is aa list
list of
of the
the elements
elements that
that the
the sample
sample will
will
be
be selected
selected from.
from.
Slide 3
Introduction
The
The reason
reason we
we select
select aa sample
sample is
is to
to collect
collect data
data to
to
answer
answer aa research
research question
question about
about aa population.
population.
The
The sample
sample results
results provide
provide only
only estimates
estimates of
of the
the
values
values of
of the
the population
population characteristics.
characteristics.
The
The reason
reason is
is simply
simply that
that the
the sample
sample contains
contains only
only aa
portion
portion of
of the
the population.
population.
With
With proper
proper sampling
sampling methods
methods,, the
the sample
sample results
results
can
can provide
provide good
good estimates
estimates of
of the
the population
population
characteristics.
characteristics.
Slide 4
Selecting a Sample
n Sampling from a Finite Population

n Sampling from an Infinite Population
Slide 5
Sampling from a Finite Population
n Finite populations are often defined by lists such as:

Organization membership roster
Credit card account numbers
Inventory product numbers
n A simple random sample of size n from a finite
population of size N is a sample selected such that
each possible sample of size n has the same probability
of being selected.
Slide 6
Replacing each sampled element before selecting

subsequent elements is called sampling with
replacement.
Sampling without replacement is the procedure
used most often.
In large sampling projects, computer-generated
random numbers are often used to automate the
sample selection process.
Slide 7
n Example: St. Andrews College

St. Andrews College received 900 applications for
admission in the upcoming year from prospective
students. The applicants were numbered, from 1 to
900, as their applications arrived. The Director of
Admissions would like to select a simple random
sample of 30 applicants.
Slide 8

Step 1: Assign a random number to each of the 900
applicants.
The random numbers generated by Excel s

Excels
RAND function follow a uniform probability
distribution between 0 and 1.
Step 2: Select the 30 applicants corresponding to the

30 smallest random numbers.
Slide 9
Sampling from an Infinite Population
Sometimes we want to select a sample, but find it is

not possible to obtain a list of all elements in the
population.
As a result, we cannot construct a frame for the
population.
Hence, we cannot use the random number selection
procedure.
Most often this situation occurs in infinite population
cases.
Slide 10
n Populations are often generated by an ongoing process

where there is no upper limit on the number of units
that can be generated.
Some examples of on-going processes, with infinite
populations, are:
parts being manufactured on a production line
transactions occurring at a bank
telephone calls arriving at a technical help desk
customers entering a store
Slide 11
In the case of an infinite population, we must select

a random sample in order to make valid statistical
inferences about the population from which the
sample is taken.
n A random sample from an infinite population is a
sample selected such that the following conditions
are satisfied.
Each element selected comes from the population
of interest.
Each element is selected independently.
Slide 12
Point Estimation
Point
Point estimation
estimation is
is aa form
form of
of statistical
statistical inference.
inference.
In
In point
point estimation
estimation wewe use
use the
the data
data from
from the
the sample
sample
to
to compute
compute aa value
value ofof aa sample
sample statistic
statistic that
that serves
serves
as
as an
an estimate
estimate of
of aa population
population parameter.
parameter.
ss is
is the
the point
point estimator
estimator of
of the
the population
population standard
standard
deviation ..
deviation
Slide 13
Point Estimation

Recall that St. Andrews College received 900
applications from prospective students. The
application form contains a variety of information
including the individuals Scholastic Aptitude Test
(SAT) score and whether or not the individual desires
on-campus housing.
At a meeting in a few hours, the Director of
Admissions would like to announce the average SAT
score and the proportion of applicants that want to
live on campus, for the population of 900 applicants.
Slide 14
Point Estimation

However, the necessary data on the applicants have
not yet been entered in the colleges computerized
database. So, the Director decides to estimate the
values of the population parameters of interest based
on sample statistics. The sample of 30 applicants is
selected using computer-generated random numbers.
Slide 15
Point Estimation
n x as Point Estimator of
x
x
32,910 i
1097
30 30
n s as Point Estimator of
s
i
( x x )2

163, 996
75.2
29 29
n p as Point Estimator of p
p 20 30 .68
Note: Different random numbers would have
identified a different sample which would have
resulted in different point estimates.
Slide 16
Point Estimation
Once all the data for the 900 applicants were entered
in the colleges database, the values of the population
parameters of interest were calculated.
n Population Mean SAT Score
xi
1090
900
n Population Standard Deviation for SAT Score

i
( x )2
80
900
n Population Proportion Wanting On-Campus Housing
648
p .72
900
Slide 17
Summary of Point Estimates
Obtained from a Simple Random Sample
Population Parameter Point Point

Parameter Value Estimator Estimate
= Population mean 1090 x = Sample mean 1097
SAT score SAT score
= Population std. 80 s = Sample std. 75.2

deviation for deviation for
SAT score SAT score
p = Population pro- .72 p = Sample pro- .68

portion wanting portion wanting
campus housing campus housing
Slide 18
Practical Advice
The
The target
target population
population is
is the
the population
population we
we want
want to
to
make
make inferences
inferences about.
about.
The
The sampled
sampled population
population is
is the
the population
population from
from
which
which the
the sample
sample is
is actually
actually taken.
taken.
Whenever
Whenever aa sample
sample is
is used
used to
to make
make inferences
inferences about
about
aa population,
population, we
we should
should make
make sure
sure that
that the
the targeted
targeted
population
population and
and the
the sampled
sampled population
population are
are in
in close
close
agreement.
agreement.
Slide 19
n Process of Statistical Inference
Population A simple random sample

with mean of n elements is selected
=? from the population.
The value of x is used to The sample data

make inferences about provide a value for
the value of . the sample mean x .
Slide 20
The sampling distribution of x is the probability

distribution of all possible values of the sample
mean x .
Expected Value of x
E( x ) =
where: = the population mean

When the expected value of the point estimator
equals the population parameter, we say the point
estimator is unbiased.
Slide 21
Standard Deviation of x
We will use the following notation to define the
standard deviation of the sampling distribution of x .
x = the standard deviation of x

= the standard deviation of the population
n = the sample size
N = the population size
Slide 22
Standard Deviation of x
Finite Population Infinite Population
N n
x ( ) x
N 1 n n
A finite population is treated as being
infinite if n/N < .05.
( N n ) / ( N 1) is the finite population
correction factor.
x is referred to as the standard error of the
mean.
Slide 23
Slide 24
Slide 25
Central Limit Theorem
When the population from which we are selecting

a random sample does not have a normal distribution,
the central limit theorem is helpful in identifying the
shape of the sampling distribution of x .
CENTRAL LIMIT THEOREM

In selecting random samples of size n from a
population, the sampling distribution of the sample
mean x can be approximated by a normal
distribution as the sample size becomes large.
Slide 26
Sampling
Distribution
80
of x x 14.6
n 30
for SAT
Scores
x
E( x ) 1090
Slide 27

What is the probability that a simple random
sample of 30 applicants will provide an estimate of
the population mean SAT score that is within +/10
of the actual population mean ?
In other words, what is the probability that x will
be between 1080 and 1100?
Slide 28

Step 1: Calculate the z-value at the upper endpoint of
the interval.
z = (1100 - 1090)/14.6= .68
Step 2: Find the area under the curve to the left of the
upper endpoint.
P(z < .68) = .7517
Slide 29
Cumulative Probabilities for

the Standard Normal Distribution
z .00 .01 .02 .03 .04 .05 .06 .07 .08 .09
. . . . . . . . . . .
.5 .6915 .6950 .6985 .7019 .7054 .7088 .7123 .7157 .7190 .7224
.6 .7257 .7291 .7324 .7357 .7389 .7422 .7454 .7486 .7517 .7549
.7 .7580 .7611 .7642 .7673 .7704 .7734 .7764 .7794 .7823 .7852
.8 .7881 .7910 .7939 .7967 .7995 .8023 .8051 .8078 .8106 .8133
.9 .8159 .8186 .8212 .8238 .8264 .8289 .8315 .8340 .8365 .8389
. . . . . . . . . . .
Slide 30
Sampling
Distribution x 14.6
of x
for SAT
Scores
Area = .7517
x
1090 1100
Slide 31

Step 3: Calculate the z-value at the lower endpoint of
the interval.
z = (1080 - 1090)/14.6= - .68
lower endpoint.
P(z < -.68) = .2483
Slide 32
Sampling Distribution of x for SAT Scores
Sampling
Distribution x 14.6
of x
for SAT
Scores
Area = .2483
x
1080 1090
Slide 33

Step 5: Calculate the area under the curve between
the lower and upper endpoints of the interval.
P(-.68 < z < .68) = P(z < .68) - P(z < -.68)
= .7517 - .2483
= .5034
The probability that the sample mean SAT score will
be between 1080 and 1100 is:
P(1080 < x < 1100) = .5034
Slide 34
Sampling
Distribution x 14.6
of x
for SAT
Scores
Area = .5034
x
1080 1090 1100
Slide 35
Relationship Between the Sample Size
and the Sampling Distribution of x
Suppose we select a simple random sample of 100
applicants instead of the 30 originally considered.
E( x) = regardless of the sample size. In our
example, E( x) remains at 1090.
Whenever the sample size is increased, the standard
error of the mean x is decreased. With the increase
in the sample size to n = 100, the standard error of
the mean is decreased from 14.6 to:
80
x 8.0
n 100
Slide 36
With n = 100,
x 8
With n = 30,
x 14.6
x
E( x ) 1090
Slide 37
Recall that when n = 30, P(1080 < x < 1100) = .5034.
We follow the same steps to solve for P(1080 < x
< 1100) when n = 100 as we showed earlier when
n = 30.
Now, with n = 100, P(1080 < x < 1100) = .7888.
Because the sampling distribution with n = 100 has a
smaller standard error, the values of x have less
variability and tend to be closer to the population
mean than the values of x with n = 30.
Slide 38
Sampling x 8
Distribution
of x
for SAT
Scores
Area = .7888
x
1080 1090 1100
Slide 39
n Making Inferences about a Population Proportion
Population A simple random sample

with proportion of n elements is selected
p=? from the population.
The value of p is used The sample data

to make inferences provide a value for the
about the value of p. sample proportion p.
Slide 40
The sampling distribution of p is the probability

distribution of all possible values of the sample
proportion p .
Expected Value of p
E ( p) p
where:
p = the population proportion
Slide 41
Standard Deviation of p
Finite Population Infinite Population
N n p(1 p) p (1 p )
p p
N 1 n n
p is referred to as the standard error of

the proportion.
( N n ) / ( N 1) is the finite population
correction factor.
Slide 42
Form of the Sampling Distribution of p
The sampling distribution of p can be approximated

by a normal distribution whenever the sample size
is large enough to satisfy the two conditions:
np > 5 and n(1 p) > 5
. . . because when these conditions are satisfied, the

probability distribution of x in the sample proportion,
p = x/n, can be approximated by normal distribution
(and because n is a constant).
Slide 43

Recall that 72% of the prospective students applying
to St. Andrews College desire on-campus housing.
What is the probability that a simple random sample
of 30 applicants will provide an estimate of the
population proportion of applicant desiring on-campus
housing that is within plus or minus .05 of the actual
population proportion?
Slide 44

For our example, with n = 30 and p = .72, the
normal distribution is an acceptable approximation
because:
np = 30(.72) = 21.6 > 5

and
n(1 - p) = 30(.28) = 8.4 > 5
Slide 45
Sampling
.72(1 .72)
Distribution p .082
30
of p
p
E( p ) .72
Slide 46

Step 1: Calculate the z-value at the upper endpoint
of the interval.
z = (.77 - .72)/.082 = .61
Step 2: Find the area under the curve to the left of
the upper endpoint.
P(z < .61) = .7291
Slide 47
Cumulative Probabilities for

the Standard Normal Distribution
z .00 .01 .02 .03 .04 .05 .06 .07 .08 .09
. . . . . . . . . . .
.5 .6915 .6950 .6985 .7019 .7054 .7088 .7123 .7157 .7190 .7224
.6 .7257 .7291 .7324 .7357 .7389 .7422 .7454 .7486 .7517 .7549
.7 .7580 .7611 .7642 .7673 .7704 .7734 .7764 .7794 .7823 .7852
.8 .7881 .7910 .7939 .7967 .7995 .8023 .8051 .8078 .8106 .8133
.9 .8159 .8186 .8212 .8238 .8264 .8289 .8315 .8340 .8365 .8389
. . . . . . . . . . .
Slide 48
Sampling p .082
Distribution
of p
Area = .7291
p
.72 .77
Slide 49

Step 3: Calculate the z-value at the lower endpoint of
the interval.
z = (.67 - .72)/.082 = - .61
lower endpoint.
P(z < -.61) = .2709
Slide 50
Sampling p .082
Distribution
of p
Area = .2709
p
.67 .72
Slide 51

Step 5: Calculate the area under the curve between
the lower and upper endpoints of the interval.
P(-.61 < z < .61) = P(z < .61) - P(z < -.61)
= .7291 - .2709
= .4582
The probability that the sample proportion of applicants
wanting on-campus housing will be within +/-.05 of the
actual population proportion :
P(.67 < p < .77) = .4582
Slide 52
Sampling p .082
Distribution
of p
Area = .4582
p
.67 .72 .77
Slide 53
n Before using a sample statistic as a point estimator,

statisticians check to see whether the sample statistic
has the following properties associated with good
point estimators.
Unbiased
Efficiency
Consistency
Slide 54
n Unbiased
If the expected value of the sample statistic is
equal to the population parameter being estimated,
the sample statistic is said to be an unbiased
estimator of the population parameter.
Slide 55
n Efficiency
Given the choice of two unbiased estimators of
the same population parameter, we would prefer to
use the point estimator with the smaller standard
deviation, since it tends to provide estimates closer to
the population parameter.
The point estimator with the smaller standard
deviation is said to have greater relative efficiency
than the other.
Slide 56
n Consistency
A point estimator is consistent if the values of
the point estimator tend to become closer to the
population parameter as the sample size becomes
larger.
In other words, a large sample size tends to
provide a better point estimate than a small sample
size.
Slide 57
Other Sampling Methods
n Stratified Random Sampling

n Cluster Sampling
n Systematic Sampling
n Convenience Sampling
n Judgment Sampling
Slide 58
Stratified Random Sampling
The
The population
population is
is first
first divided
divided into
into groups
groups of
of
elements
elements called strata..
called strata
Each
Each element
element in
in the
the population
population belongs
belongs to
to one
one and
and
only
only one
one stratum.
stratum.
Best
Best results
results are
are obtained
obtained when
when the
the elements
elements within
within
each
each stratum
stratum are
are as
as much
much alike
alike as
as possible
possible
(i.e.
(i.e. aa homogeneous
homogeneous group ).
group).
Slide 59
Stratified Random Sampling
A
A simple
simple random
random sample
sample is
is taken
taken from
from each
each stratum.
stratum.
Formulas
Formulas are
are available
available for
for combining
combining the
the stratum
stratum
sample
sample results
results into
into one
one population
population parameter
parameter
estimate.
estimate.
Advantage
Advantage:: If If strata
strata are
are homogeneous,
homogeneous, this
this method
method
is
is as
as precise
precise as
as simple
simple random
random sampling
sampling but
but with
with
aa smaller
smaller total
total sample
sample size.
size.
Example
Example:: The
The basis
basis for
for forming
forming the
the strata
strata might
might be
be
department,
department, location,
location, age,
age, industry
industry type,
type, and
and so
so on.
on.
Slide 60
Cluster Sampling
The
The population
population is
is first
first divided
divided into
into separate
separate groups
groups
of
of elements
elements called clusters..
called clusters
Ideally,
Ideally, each
each cluster
cluster is
is aa representative
representative small -scale
small-scale
version
version of
of the
the population
population (i.e.
(i.e. heterogeneous
heterogeneous group).
group).
A
A simple
simple random
random sample
sample of
of the
the clusters
clusters is
is then
then taken.
taken.
All
All elements
elements within
within each
each sampled
sampled (chosen)
(chosen) cluster
cluster
form
form the
the sample.
sample.
Slide 61
Cluster Sampling
Example
Example:: AA primary
primary application
application is
is area
area sampling,
sampling,
where
where clusters
clusters are
are city
city blocks
blocks or
or other
other well -defined
well-defined
areas.
areas.
Advantage
Advantage:: The The close
close proximity
proximity of
of elements
elements can
can be
be
cost
cost effective
effective (i.e.
(i.e. many
many sample
sample observations
observations can
can be
be
obtained
obtained inin aa short
short time).
time).
Disadvantage
Disadvantage:: This
This method
method generally
generally requires
requires aa
larger
larger total
total sample
sample size
size than
than simple
simple or
or stratified
stratified
random
random sampling.
sampling.
Slide 62
Systematic Sampling
If
If aa sample
sample size
size of
of nn is
is desired
desired from
from aa population
population
containing
containing N N elements,
elements, we we might
might sample
sample one
one
element
element for
for every
every nn//N N elements
elements in
in the
the population.
population.
We
We randomly
randomly select
select one
one of of the
the first
first nn//N
N elements
elements
from
from the
the population
population list.
list.
We
We then
then select
select every
every nn//N
Nth
th element
element that
that follows
follows in
in
the
the population
population list.
list.
Slide 63
Systematic Sampling
This
This method
method hashas the
the properties
properties ofof aa simple
simple random
random
sample,
sample, especially
especially ifif the
the list
list of
of the
the population
population
elements
elements is
is aa random
random ordering.
ordering.
Advantage
Advantage:: The
The sample
sample usually
usually will
will be
be easier
easier to
to
identify
identify than
than itit would
would be
be ifif simple
simple random
random sampling
sampling
were
were used.
used.
Example
Example:: Selecting
Selecting every
every 100
100thth listing
listing in
in aa telephone
telephone
book
book after
after the
the first
first randomly
randomly selected
selected listing
listing
Slide 64
Convenience Sampling
It
It is
is aa nonprobability
nonprobability sampling
sampling technique
technique.. Items
Items are
are
included
included in in the
the sample
sample without
without known
known probabilities
probabilities
of
of being
being selected.
selected.
The
The sample
sample is
is identified
identified primarily
primarily by
by convenience
convenience..
Example
Example:: A
A professor
professor conducting
conducting research
research might
might use
use
student
student volunteers
volunteers to
to constitute
constitute aa sample.
sample.
Slide 65
Convenience Sampling
Advantage
Advantage:: Sample
Sample selection
selection and
and data
data collection
collection are
are
relatively
relatively easy.
easy.
Disadvantage
Disadvantage:: It
It is
is impossible
impossible to
to determine
determine how
how
representative
representative of
of the
the population
population the
the sample
sample is.
is.
Slide 66
Judgment Sampling
The
The person
person most
most knowledgeable
knowledgeable onon the
the subject
subject of
of the
the
study
study selects
selects elements
elements of
of the
the population
population that
that he
he or
or
she
she feels
feels are
are most
most representative
representative of
of the
the population.
population.
It
It is
is aa nonprobability
nonprobability sampling
sampling technique
technique..
Example
Example:: A A reporter
reporter might
might sample
sample three
three or
or four
four
senators,
senators, judging
judging them
them as
as reflecting
reflecting the
the general
general
opinion
opinion of
of the
the senate.
senate.
Slide 67
Judgment Sampling
Advantage
Advantage:: It
It is
is aa relatively
relatively easy
easy way
way of
of selecting
selecting aa
sample.
sample.
Disadvantage
Disadvantage:: The
The quality
quality of
of the
the sample
sample results
results
depends
depends on
on the
the judgment
judgment of
of the
the person
person selecting
selecting the
the
sample.
sample.
Slide 68
Recommendation
It is recommended that probability sampling methods

(simple random, stratified, cluster, or systematic) be
used.
For these methods, formulas are available for

evaluating the goodness of the sample results in
terms of the closeness of the results to the population
parameters being estimated.
An evaluation of the goodness cannot be made with

non-probability (convenience or judgment) sampling
methods.
Slide 69
End of Chapter 7
Slide 70

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Statistics for Business

n Sampling from a Finite Population

n Finite populations are often defined by lists such as:

Replacing each sampled element before selecting

n Example: St. Andrews College

n Example: St. Andrews College

The random numbers generated by Excel s

Step 2: Select the 30 applicants corresponding to the

Sometimes we want to select a sample, but find it is

n Populations are often generated by an ongoing process

In the case of an infinite population, we must select

n Example: St. Andrews College

n Example: St. Andrews College

Population Parameter Point Point

= Population std. 80 s = Sample std. 75.2

p = Population pro- .72 p = Sample pro- .68

n Process of Statistical Inference

Population A simple random sample

The value of x is used to The sample data

The sampling distribution of x is the probability

where: = the population mean

x = the standard deviation of x

When the population from which we are selecting

CENTRAL LIMIT THEOREM

n Example: St. Andrews College

n Example: St. Andrews College

n Example: St. Andrews College

n Example: St. Andrews College

Cumulative Probabilities for

n Example: St. Andrews College

n Example: St. Andrews College

n Example: St. Andrews College

n Example: St. Andrews College

P(1080 < x < 1100) = .5034

n Example: St. Andrews College

n Making Inferences about a Population Proportion

Population A simple random sample

The value of p is used The sample data

The sampling distribution of p is the probability

p is referred to as the standard error of

The sampling distribution of p can be approximated

np > 5 and n(1 p) > 5

. . . because when these conditions are satisfied, the

n Example: St. Andrews College

n Example: St. Andrews College

np = 30(.72) = 21.6 > 5

n Example: St. Andrews College

n Example: St. Andrews College

n Example: St. Andrews College

Cumulative Probabilities for

n Example: St. Andrews College

n Example: St. Andrews College

n Example: St. Andrews College

n Example: St. Andrews College

P(.67 < p < .77) = .4582

n Example: St. Andrews College

n Before using a sample statistic as a point estimator,

n Stratified Random Sampling

It is recommended that probability sampling methods

For these methods, formulas are available for

An evaluation of the goodness cannot be made with

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