Example 1

The mayor of a small city claims that the average income in his city is $35,000 with a
standard deviation of $5000. We take a sample of 64 families, and find that their average
income is $30,000. Is his claim correct?
• Step 1 State the hypotheses and identify the claim.
H0: µ = 35,000 (mayor is correct) versus Ha: µ ≠ 35,000 (mayor is wrong)
• Step 2 Find the critical value(s) from the appropriate table.
Start by assuming that H0 is true and µ0 = 35,000, x̅ = $3000; n = 64; σ = $5000
Choose confidence level 95%, c = 95% the significant level denote by
α = (1 – c) = (1 - 0.95) = 0.05
• Step 3 Compute the test value & find the P-value.
Test Statistic x̅ = $3000 lies
Example 1
Traditional Method using Critical Value Approach
Since two tail test α = 0.05/2 = 0.025. Since the calculated value z = -8 .

Locate at the z table the accumulative area

to the left of 0.975.
The zcv value of critical value is 1.96

Compare the observed value of z and zcv

z < zcv i.e -8 < -1.96, Reject the H0
Example 1
Using P-value Method
The rejection of this two tailed test of hypothesis is found in both tails of the normal
probabilty distribution. Since the observed value of test statistic z = -8 . The smallest rejection
region that can be use and still reject H0 is |z| > 8. For this rejection region, the value of α is
the p-value:
Locate at the z table z= -8.
For z values less than -3.49
use 0.0001
p-value = P(z > 8) + P(z < -8)
= 2P(z < -8) = 2(0.0001) =
0.0002 ≈ 0
Using P-Value Method
−P-value < α Reject the H0
−P-value ≥ α Fail to Reject the H0
Example 1
• Step 4 Make the decision to reject or not reject the null hypothesis
Notice that the two-tailed p-value is actually twice the tail area corresponding to the
calculated value of the test statistic. If the p-value = 0.0002 is less than or equal to the
preassigned level of significance α, H0 can be rejected. For this test, you can reject at the
1% or the 5% level of significance.
From the Empirical Rule, values more than three standard deviations away from the mean
are considered extremely unlikely. Such a value would be extremely unlikely to occur if
indeed H0 is true, and would give reason to reject H0.
The probability that µ = 35,000 and that we have observed such a small sample mean just
by chance is nearly zero.
• Step 5 Summarize the results.
Since the observed sample mean, $30,000 is so unlikely, we choose to reject H0: µ = 35,000
and conclude that the mayor’s claim is incorrect. The p-value is less than 0.01 and 0.05, H0
is rejected. The results are highly significant.
Example 2
The daily yield for a chemical plant has averaged 880 tons for several years. The quality
control manager wants to know if this average has changed. She randomly selects 50 days
and records an average yield of 871 tons with a standard deviation of 21 tons.
• Step 1 State the hypotheses and identify the claim.
H0: µ = 880 versus Ha: µ ≠ 880
• Step 2 Find the critical value(s) from the appropriate table.
Start by assuming that H0 is true and µ0 = 880, x̅ = 871; n = 50; σ = 21
Say α = 0.05
Step 3 Compute the test value & find the P-value.
Test Statistic x̅ = 871 lies
Test statistic :
x − µ 0 871 − 880
z≈ = = −3.03
s/ n 21 / 50
Example 2
Traditional Method using Critical Value Approach
Since two tail test α = 0.05/2 = 0.025. Since the calculated value z = -3.03 .

Locate at the z table the accumulative area

to the left of 0.975.
The zcv value of critical value is 1.96
Compare the observed value of z and zcv

Rejection Region: Reject H0 if z > 1.96 or

z < -1.96. If the test statistic falls in the
rejection region, its p-value will be less than
α = .05.

z = -3.03 falls in the rejection region and

H0 is rejected at the 5% significance level.
Example 2
Using P-value Method
The rejection of this two tailed test of hypothesis is found in both tails of the normal
probability distribution. Since the observed value of test statistic z = -3.03 . The smallest
rejection region that can be use and still reject H0 is |z| > 3.03. For this rejection region, the
value of α is the p-value:
p-value = P(z > 3.03) + P(z < -3.03) = 2P(z < -3.03) = 2(0.0012) = 0.0024

Locate at the z table the observed value of

-3.03. The value is 0.0012.
2(0.0012) = 0.0024

Since our p-value =0.0024 is less

than, we reject H0
Example 2
Using a Rejection Region: To make our decision clear, we choose a significance level,
say α = .01
If the p-value is less than α, H0 is rejected as false. You report that the results are
statistically significant at level
If the p-value is greater than α, H0 is not rejected. You report that the results are
not significant at level

If α = .01, what would be the critical value that marks the “dividing line” between “not
rejecting” and “rejecting” H0?
If p-value < α, H0 is rejected.
If p-value > α, H0 is not rejected.

The dividing line occurs when p-value = a. This is called the critical value of the test
Test statistic > critical value implies p-value < α, H0 is rejected.
Test statistic < critical value implies p-value > α, H0 is not rejected.
Example 2
What is the critical value of z that cuts off exactly α/2 = .01/2 = .005 in the tail of the z
distribution?

For our example,

z = -3.03 falls in
the rejection
region and H0 is
rejected at the
1% significance
level.

Rejection Region: Reject H0 if z > 2.58 or z < -2.58. If

the test statistic falls in the rejection region, its p-value
will be less than α = .01.
Example 2
• Step 4 Make the decision to reject or not reject the null hypothesis.
Notice that the two-tailed p-value is actually twice the tail area corresponding to the
calculated value of the test statistic. If the p-value = 0.0024 is less than or equal to the
preassigned level of significance α, H0 can be rejected. For this test, you can reject at the 1%
or the 5% level of significance.

• Step 5 Summarize the results.

If the p-value is less than .01, H0 is rejected. The results are highly statistically significant.
There is enough evidence to conclude that the average yield has changed.