To: Dr.

Andy Pennock From: Kelsey Sherman Date: November 5, 2012 Subject: Statistics Assignment 5 Chi-Squared Test In 2012 the US Energy Information Administration released a dataset that included the average prices paid for electricity in each of the 50 states in the United States. This dataset included prices for residential, commercial, industrial, and transportation sectors for 2010. This memo uses a contingency table to present and analyze the residential price data for 2010 by answering the question, does region, (East or West) affect the price paid (High or Low) by residential consumers for electricity?

Table 1: Price Paid for Electricity by Region East West High Price Low Price Total 25.0% (5) 75.0% (15) 100% (20) 12.9% (4) 87.1% (27) 100% (31)

Total 17.65% (9) 82.35% (42) 100% (51)

The rows in Table 1 indicate the price paid by residential consumers for electricity. Prices are either High Price, meaning that the consumer pays more than 15 cents per kilowatt-hour for electricity, or Low Price, meaning that the consumer pays less than 15 cents per kilowatt-hour for electricity. The columns in Table 1 indicate the regions, East or West. According to the data, there are 31 states in the Western region. The remaining 20 states are in the Eastern region. This data includes Washington D.C. as a state. Table 1 shows that 17.65% or 9 states in the United States are in the High Price category and 82.35% or 42 states are in the Low Price category. Additionally, we can see that 25% of Eastern states or 5 states pay High Price and only 12.9% of Western states or 4 states in the West pay High Price. Conversely, the remaining 75% of Eastern states or 15 states pay Low Price and 87.1% of Western states or 27 states pay low price. According to a Chi-square test conducted on the data, the p-value is .269. Based on this calculation, the test does not show us that there direct relationship between price paid by consumers and region in which they live. It is not statistically significant. Nevertheless, we can be 73% sure that there is a relationship between the price paid for electricity by residential consumers and the region in which they live.

We could be more confident of the relationship between the two variables if we were to increase the number of observations. This could be done by dividing the states into counties and then placing each county in each state in a geographical region. However, doing so would not show us the direction of the relationship.