Economics Dr.

Sauer
Ch 7: Confidence Intervals For Means and Proportions

Chapter Overview:
I. Confidence Intervals for the Population Mean
II. Confidence Intervals for Proportions
III. The Precision of Confidence Intervals
IV. Confidence Intervals for Differences between Means and Proportions
____________________________________________________________________
We have seen that the sample mean can vary greatly from the population mean.
We have also seen that as the sample size increases, the variation decreases.

Sometimes we dont know the population mean.
- we cant know if our sample mean is close to the population mean

We can estimate an interval estimate for the mean.




I. Confidence Intervals for the Population Mean
When the population mean is know, an interval that contains 95% of sample means is



This can also be written as where

This interval has a fixed center point of and total width of 2 that contains 95% of all sample means.


If we dont know the population mean, we have to estimate it.

In this case, the center is no longer fixed.
-it will move according to the value of each new point estimate of the sample mean




Observations:
An interval estimate will contain the population mean if the sample mean is one of the 95% of sample
means within the interval.
- sample means 1, 2, and 4 from the diagram
x
o u 96 . 1
x
x o 96 . 1



Each of the sample means that is within the interval will result in an interval that contains the population
mean somewhere within the interval.

An interval estimate will not contain the population mean if the sample mean lies in either tail.
- sample means 3 and 5 from the diagram




A. How To Construct a Confidence Interval
A Confidence Interval is
point estimate + (critical Z value)(standard error)

For a 95% confidence interval:
5% is divided into two tails 0.025 each
Z
0.025
= 1.96 and the margin of error is

For a 99% confidence interval:
1% is divided into two tails 0.005 each
Z
0.005
= 2.5758 and the margin of error is



Denote the area in the two tails as .
The area between the two tails is (1 - ).

In general, if we denote the area in each tail as /2 then the corresponding critical Z value is Z/2 and
the margin of error is



(1 - )(100%) is called the level of confidence.
The (1 - )(100%) confidence interval is given by:



What if we dont know ?
For n > 30, we will estimate by calculating s from the sample data.
The (1 - )(100%) confidence interval when is unknown is given by:




Note: we are assuming that the sample means are normally distributed.
____________________________________________________________________
x
o c 96 . 1 =
x
o c 5758 . 2 =
x
Z x o
o 2 /

Example: An importer of Herbs and Spices claims that the average weight of packets of saffron is 20
grams. A random sample of 36 packets is selected. The sample average is calculated to be 19.35 grams.
The populations standard deviation is 1.8 grams.
Calculate the 99% confidence interval for the population average weight.

Step 1: find









Step 2: construct the interval






The manufacturer makes the claim that the average weight of a packet is 20 grams.
Does our confidence interval support this claim?




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B. One-Sided Confidence Intervals
Sometimes we wish to know the lower limit, above which we are (1 )(100%) confident the
population mean lies.

Sometimes we wish to know the upper limit, below which we are (1 )(100%) confident the
population mean lies.


Ex: Suppose a property investor claims that the average rental income per room in student housing is at
most $5000 per year. The average rent paid by a sample of 36 students was calculated to be $5200. The
sample standard deviation is $735.
Calculate a 90% confidence interval for the true mean annual rental income.

Step 1: find







2 /
, ,
o
o Z x
x
x
Z x o
o 2 /

x
Z x o
o 2 /

x
Z x o
o 2 /
+
2 /
, ,
o
Z s x
x


Step 2: construct the interval







The investor makes the claim that the average rent is at most $5000.
Does our confidence interval support this claim?




_____________________________________________________________________
II. Confidence Intervals for Proportions
The (1 )(100%) confidence interval for a population proportion is given by




Example: In a poll of 200 voters, 88 stated that they will vote for the Green party candidate. Construct
a 95% confidence interval for the true proportion of support for the Green party candidate.

Step 1: find









Step 2: construct the interval








Meaning, we are 95% confident that the population proportion is between


That is, we are 95% sure that between ______ and ______ of the voters will vote for the Green party.
The margin of error is _____ percentage points.
What would you say about the usefulness of this information?

n
p p
Z p
) 1 (
2 /

o
2 /
, ,
o
Z n p


III. The Precision of Confidence Intervals
The margin of error tells us about the precision of the interval.

It depends on Z, , and n.


The population standard deviation is fixed for a given population.
- The margin of error (width of the interval) will be greater when the population
standard deviation is large.

The greater the level of confidence, the larger Z is and the wider the interval.
- A more precise interval can be obtained by reducing the confidence level.

The larger the sample size, the smaller the margin of error.

Sample size has a major effect on the precision of the confidence interval.

How to calculate the sample size needed that will result in a confidence interval with a specified
precision:




_________________________________________________________________________________
Example: An importer of Herbs and Spices claims that the average weight of packets of saffron is 20
grams. The populations standard deviation is 1.8 grams.
Calculate the sample sized needed to construct a 99% confidence interval with a margin of error of
+ 0.5.

For 99%, Z
/2
= 2.5758


A sample size of ______ would allow us to construct a 99% confidence interval with a margin of error
of 0.5.
_____________________________________________________________________
Example: In a poll of 200 voters, 88 stated that they will vote for the Green party candidate.
Calculate the sample sized needed to construct a 95% confidence interval with a margin of error of +
0.01.

For 95%, Z
/2
= 1.96
p =






A sample size of ______ would allow us to construct a 95% confidence interval with a margin of error
of 0.01.
_____________________________________________________________________
n
Z
o
c
o 2 /
=
2
2 /
|
.
|

\
|
=
c
o
o
Z
n )) 1 ( (
2
2 /
p p
Z
n |
.
|

\
|
=
c
o


IV. Confidence Intervals for Differences between Means and Proportions
Ex: Is the average commuting time by bus faster than by car?

Ex: Is the percentage of people likely to vote for candidate A larger than the percentage of people likely
to vote for candidate B?

The distribution for the difference between two normal independent random variables is normal with a
mean equal to the difference of the means and the variance equal to the sum of the variances.
If and


then

(for large n)



The confidence interval for differences between population means is:
point estimate + (critical value)(standard error)

The (1 )(100%) confidence interval for 1 2:




Or, if the standard deviation is unknown:




For sample proportions that are normally distributed, the difference between the proportions will also be
normally distributed.
If and


then




The confidence interval for differences between population proportions is:
point estimate + (critical value)(standard error)

The (1 )(100%) confidence interval for p1 p2:






|
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1
2
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2
2
2
1
2
1
2 / 2 1
n n
Z x x
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+
2
2
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1
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2 / 2 1
n
s
n
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Z x x +
o
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=
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, ~
n
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t t
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=
2
2 2 2
2 2 2 2
) 1 (
, ~
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t t
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+

= =

2
2 2
1
1 1 2
2 1 2 1 2 1 2 1
) 1 ( ) 1 (
, ~
n n
N p p
p p p p
t t t t
o t t u
2
2 2
1
1 1
2 / 2 1
) 1 ( ) 1 (
n
p p
n
p p
Z p p

+

o


How to interpret:
Let the confidence interval for the difference between means be A < 1 2 < B

Case 1: If A and B are both positive, then we can be (1-)(100%) confident that
1 is greater than 2 by an amount ranging from A to B.

Case 2: If A and B are both negative, then we can be (1-)(100%) confident that
1 is less than 2 by an amount ranging from A to B.

Case 3: If A and B have different signs, then the interval contains 1 2 = 0.
We can be (1-)(100%) confident that A is equal to B.

___________________________________________________________________
Example: Designers of rowing equipment investigate the difference between the mean weights (kg)of
male and female rowing teams. Random samples of male and female rowers are selected.


Calculate the 95% confidence interval for the difference in mean weights between male and female
rowers.
Well need the difference in means, Z, s, and n.









We are 95% confident that the difference between the mean weights of male and female rowers is
between

Both the lower and upper limits are positive.
1 > 2
The average weight for male rowers is greater than the average weight for female rowers.

Lower Limit: 1 > 2 by
Upper Limit: 1 > 2 by

We are 95% confident that the mean weight of male rowers exceeds the mean weight of female rowers
by.

We cannot assume that the weight of any individual male rower exceeds the weight of any individual
female rower.
_______________________________________________________________________


Example: Here are the results for polls taken in 2 locations.


Calculate the 90% confidence interval for the difference in proportions who will vote for the Green party
in area A and Area B.

Well need p, the difference in p, Z, and n.












We are 90% confident that the difference between the two proportions is between

Both the lower and upper limits are positive.
1 > 2
The proportion of voters supporting the Green party in area A exceeds the
proportion of voters supporting the Green party in area B.

Lower Limit: 1 > 2 by
Upper Limit: 1 > 2 by

We are 90% confident that 1 > 2.


____________________________________________________________________
Concepts:
Interpreting confidence intervals and their precision


Skills:
Construct a 90%, 95% and 99% confidence interval for means and proportions

Calculate the sample size needed in order to construct a confidence interval of a specified margin of
error
- means and proportions

Construct a 90%, 95% and 99% confidence interval for the difference between means or proportions.