Handout Lec 7: Statistical Inference by Dr.

Javed Iqbal
Test of hypothesis on Population Mean μ when σ is known:
Basic Logic of Hypothesis Testing: Take a random sample from the population. If the sample
data are consistent with the null hypothesis, do not reject the null hypothesis; if the sample data
are inconsistent with the null hypothesis and supportive of the alternative hypothesis, reject the
null hypothesis in favor of the alternative hypothesis.

Critical Value approach: For testing that a population mean has a specified value μ0, i.e.
H 0 :μ=μ0 against the alternative that H 1 : μ> μ 0, we observe if the sample mean x́ obtained is
sufficiently close to μ0.
How far x́ has to be from μ0 so that we are able to reject the null hypothesis? The answer lies in
the sampling distribution of x́. Assume level of significance (probability of Type I error) of α say
0.05, find the value of x́ say x́ 0, such that P( x́ > x́ 0 ¿=0.05. This value will be called critical value.
x́ −μ 0
Z=
Equivalently on Z scale if σ exceeds value z 0 such that P(Z ¿ z 0 ¿=0.05, we reject the
√n
null hypothesis.
x́ −μ 0
Z=
For a left tail alternative H 1 : μ< μ 0, we will reject the null hypothesis if σ is less than
√n
value z 0 such that P(Z ¿ z 0 ¿=0.05. For a two tail alternative H 1 : μ ≠ μ0, we will reject H 0if either
Z has value less than z 0such that P(Z ¿ z 0 ¿=0.025 or if Z has value greater than z 0such that P(Z
¿ z 0 ¿=0.025. These cases are illustrated by the following figure.

Weiss p-398 Example 9.5: p-400, Definition 9.4 and Fig 9.4 Critical Value and Critical
(Rejection) Region
Some Important Critical Values for Test Statistic with Standard Normal Distribution
z0.10 z0.05 z0.025 z0.01 z0.005
1.28 1.645 1.96 2.33 2.575
Steps in Testing a Hypothesis (Critical Value Approach):
Step 1: State the null and alternative hypotheses.
Step 2: Compute the value of the test statistic.
Step 3: Determine the critical value(s) given the level of significanceα.
Step 4: Conclusion: If the value of the test statistic falls in the rejection region, reject H0;
otherwise, do not reject H0.
Ex 9.85 p-419 Ex 9.92 p-420 (Note from the ‘WeissStats’ website the sample size is n = 90 and
sample mean is found as $56.703 (thousands)
P-value approach to hypothesis Testing: P-value of a test is defined as the probability of
obtaining a test statistic value as or more extreme than the observed test statistic value obtained
from the sample given that the null hypothesis is true. Thus for a right tail Z test, p -value will be
the probability that the Z random variable has a value greater than or equal to the z test statistic
value computed from the sample e.g. Pvalue=P( Z> z0 ). For a left tail alternative the p-value will
be P( Z< z0 ) and for a two tail alternative p-value will be P( Z ←z 0 ) + P( Z> z0 ). Given the true
null hypothesis a small p-value indicates that the sample data are inconsistent with the null
hypothesis so H0 should be rejected.

Steps in Testing a Hypothesis (P-Value Approach):

Step 1: State the null and alternative hypotheses.
Step 2: Compute the value of the test statistic.
Step 3: Determine p-value of the test
Step 4: Conclusion: If the p-value is less than the specified level of significance α reject H0;
otherwise, do not reject H0.

Weiss Example 9.7 p-404: Anderson Ex 15, 16, 17 p-369