CHAPTER FOUR

HYPOTHESIS TESTING
3.1. Basic Concepts
What is a Hypothesis?
A hypothesis is a statement about a population. Data are then used to check the
reasonableness of the statement. In statistical analysis we make a claim, that is, state a
hypothesis, collect data, and then use the data to test the assertion.
Hypothesis is a statement about a population parameter developed for the purpose of testing.

In most cases the population is so large that it is not feasible to study all the items,
objects, or persons in the population. As a result, an alternative to measuring or
interviewing the entire population is to take a sample from the population. We can,
therefore, test a statement to determine whether the sample does or does not support
the statement concerning the population.

What is Hypothesis Testing?

Hypothesis testing is a procedure based on sample evidence and probability theory to
determine whether the hypothesis is a reasonable statement. This is also one way of
making inference about population parameter, where the investigator has prior notion
about the value of the parameter.

Hypothesis testing starts with a statement, or assumption, about a population

parameter such as the population mean. The major purpose of hypothesis testing is to
choose between two competing hypotheses about the value of a population parameter.

3.2. Steps in Testing Hypothesis

There is a five-step procedure that systematizes hypothesis testing.
Step 1 - State null and alternate
hypotheses Step 2 - Select a level of
significance
Step 3 - Identify the test statistic
Step 4 - Formulate a decision rule
Step 5 - Make a decision

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Step 1: State the Null Hypothesis (Ho) and the Alternate Hypothesis (H1)
The first step is to state the hypothesis being tested. It is called the null hypothesis,
designated H0.
Null Hypothesis
 Generally speaking, the null hypothesis is developed for the purpose of testing.
 The null hypothesis is a statement that is not rejected unless our sample data
provide convincing evidence that it is false.
Null Hypothesis is a statement about the value of a population parameter.

 It is the hypothesis of equality or the hypothesis of no difference.

Alternate Hypothesis
 Alternate hypothesis is a statement that is accepted if the sample data provide
sufficient evidence that the null hypothesis is false.
 It is assumed to be true when the null hypothesis is false.
 It is the hypothesis of difference.
 Usually denoted by H1 or Ha.
Both the null and alternative hypothesis should be stated before any statistical test
of significance is conducted.
Example: A recent article indicated that the mean age of U.S. commercial aircraft is 15
years. To conduct a statistical test regarding this statement:
Step 1: Determine the null and alternative hypotheses
The H0 represents the current or reported condition.
H0: μ = 15
The alternative hypothesis is that the statement is not true. That is,
H1: μ ≠ 15
N.B. The null hypothesis will always contain the equal sign, but which will never
appear in the alternative hypothesis.

Step 2: Select a Level of Significance

Level of significance is the probability of rejecting the null hypothesis when it is true.
The level of significance is designated α, the Greek letter alpha. It is also sometimes

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called the level of risk. This means that it is the risk you take of rejecting the null
hypothesis when it is really true. The researcher must decide on the level of
significance before formulating a decision rule and collecting sample data.

 By rejecting a true null hypothesis, we committed a Type I error. The probability of

committing a Type I error is α.
Type I Error - Rejecting the null hypothesis, H0, when it is true.
α= Probability of Type I error = P (rejecting H | H is true)
0 0

 The probability of committing another type of error, called a Type II error, is

designated by the Greek letter beta (β).
Type II Error - Accepting the null hypothesis when it is false.
β = Probability of Type II error = P (accepting H | H is false)
0 0

 The following table summarizes the decisions the researcher could make and the
possible consequences.
Researcher
Null Accept H0 Reject H0
Hypothesis
H0 is true Correct Type I error
decision
H0 is false Type II error Correct
decision
Step 3: Select the Test Statistic
 There are many test statistics. In this chapter we use both z and t as the test statistic.
 Tests statistic is a value, determined from sample information, used to determine
whether to reject the null hypothesis.
 In hypothesis testing for the mean (μ) when σ is known or the sample size is large,
K̅ −𝜇
the test statistic z is computed by: 𝑧 =
𝜎/√𝑛

 The z value is based on the sampling distribution of X̅ , which follows the

normal distribution when the sample is reasonably large.
 t test is used for small sample case (n < 30) and population standard deviation is
not known (i.e., sample standard error is known).

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Step 4: Formulate the Decision Rule
A decision rule is a statement of the specific conditions under which the null
hypothesis is rejected and conditions under which it is not rejected. The region or area
of rejection defines the location of all those values that are so large or so small that the
probability of their occurrence under a true null hypothesis is rather remote.

Critical Value is the dividing point between the region where the null hypothesis is
rejected and region where it is not rejected.

Step 5: Make a Decision

The fifth and final step in hypothesis testing is computing the test statistic, comparing it
to the critical value, and making a decision to reject or not to reject the null hypothesis.

3.3. One - Tailed and Two - Tailed Tests of Significance

 A hypothesis could be directional or non-directional.

A directional hypothesis is one in which the population parameter is structured to be

greater than or equal to or less than or equal to a specified value. This is known as a
one-tailed test (one-sided test) in the parlance of statistical hypothesis.

A non-directional hypothesis is one in which the population parameter is structured to

be equal to a specified value. This is known as a two-tailed test (two-sided test).

3.4. Hypothesis Testing of Population Mean

This topic explains how to conduct a hypothesis test of a mean when the following
conditions are met:

The sampling method is simple random sampling.

The sample is drawn from a normal or near-normal population.
The table below shows three sets of hypotheses. Each makes a statement about how
the populations mean μ is related to a specified value μ0. (In the table, the symbol ≠
means “not equal to ".)

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 Set Null hypothesis Alternative hypothesis Number of tails

1 μ = μ0 μ ≠ μ0 2
2 μ >μ0 μ <μ0 1
3 μ <μ0 μ >μ0 1

The first set of hypotheses (Set 1) is an example of a two-tailed test, since an extreme
value on either side of the sampling distribution would cause a researcher to reject the
null hypothesis. The other two sets of hypotheses (Sets 2 and 3) are one-tailed tests,
since an extreme value on only one side of the sampling distribution would cause a
researcher to reject the null hypothesis.
After specifying  we have the following regions (critical and acceptance) on the
standard normal distribution corresponding to the above three hypothesis.
Summary table for decision rule

Where: Z   n0
X
H1 Reject H0 if Accept H0 if cal

  0 Zcal  Z 2 orZcal  Z / 2 Zcal  Z 2 orZcal  Z / 2

  0 Zcal  Zα Zcal  Z

  0 Zcal  Z Zcal  Z
Examples: Left-Tail Test
Example 1: A trade commission periodically conducts studies designed to test the claims
manufacturers make about their products. A level of a large can of coffee state that the
mean weight is at least 3 pounds of coffee. A random sample of 36 cans of coffee is taken
and the mean weight is found to be 2.92 pounds. The population standard deviation is
0.18 pounds. Do a hypothesis test at one percent level of significance.
Solution
Step 1: Structure of the hypothesis
H0: μ ≥ 3
H1: μ < 3
n = 36, X̅ = 2.92, σ = 0.18
𝜎𝑥̅ = 𝜎/√𝑛 = 0.18/√36 = 0.03

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Step 2: The significance level: α = 0.01
Step 3: The test - statistic X  0
n = 36 > 30, therefore, we apply z - test. Zcal 
 n
α = 0.01 z0.01 = - 2.33 = 2.93−3 = - 2.67
0.03
Calculated z Critical value
Step 4: Decision Rule
- 2.67 - 2.33
Reject H0 if Z cal -zα
Step 5: Make the Decision: Reject H0 or
H1 is accepted!
Example 2: A manager of a chain of store selling dairy products assert that the mean
content the milk containers is at least 32 pounds. Perform a hypothesis test at the 1%
level of significance if the mean content of a random sample of 60 containers is 31.98
pounds and the sample standard deviation is 0.1 pound.
Solution: Step 4: Decision Rule
Step 1: H0: μ ≥ 32 Reject H0 if z cal ≤ - zα
H1: μ < 32 z cal = 𝑥̅ − 𝜇𝑜 = 31.98−32 = - 1.55
n = 60, X̅ = 31.98, s = 0.1 𝑠𝑥 0.0129

𝑠𝑥̅ - 1.55 > - 2.33

= 𝑠/√𝑛 = 0.1/√60 = 0.0129 Step 5: Pass a Decision: Don't Reject H0!
Step 2: α = 0.01
Step 3: Test - statistic, n ≥ 30, Apply z -
test
Examples: Right-Tail Test
Example 1: A large department stock check issues its credit card. The research
director is to find out if the mean monthly unpaid balance is at most 400 birr. The level
of significance is 5%. A random sample of 172 unpaid balances revealed the sample
mean to be 407 birr and the standard deviation of the sample to be 38 birr. Perform a
test.
Step 1: n = 172 ≥ 30 Use z -test
H0 : μ ≤ 400 Step 4: Decision Rule
H1 : μ > 400 Reject H0 if z cal z α
n = 172, X̅ = 407, s = 38 z cal = 𝑥̅ − 𝜇𝑜 = 407−400 = 2.42
𝑠𝑥̅ = 𝑠/√𝑛 z0.45 = 1.64 𝑠𝑥̅ 2.9

= 38/√172 = 2.9 2.42 1.64

Step 2: α = 0.05, Step 5: Decision: Reject H0.

Step 3: Test - statistic

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Example 2: A company that specializes in products for home gardening has developed
a new plant food that has been designed to increase the growing height of plant. The
new plant food is tested on a sample of 12 plants of a type known to have a mean
growing height of at most 18 inches. Results showed a sample mean height of 19.4
inches and a sample standard deviation of 3 inches. Assume a normal distribution and
using a 10% level of significance is there any reason to believe that the new plant food
increases plant height?
Solution: Step 4: Decision Rule
Step 1: H0: μ ≤ 18 tcal = 𝑥̅ − 𝜇𝑜 = 19.4−18 = 1.62
H1: μ > 18 𝑠𝑥 0.8

n = 12, X̅ = 19.4, s = 3 (tα, v) = (t0.1, n - 1)

𝑠𝑥 Critical value = (t0.1, 11) = 1.363
= 𝑠/√𝑛 = √12 = 0.866 Reject H0 if cal. t ≥ tα, v
3/
Step 2: α = 10% = 0.10
1.62 1.363
Step 3: Test statistic n = 12 < 30, use t -
test Step 5: Decision Reject H0
Examples: Two - Tailed Test
Example 1: A manufacturer of a new cheaper type of light bulbs claims that his
products just as well made and just as reliable as the higher priced competitive light
bulbs. The average life of the other light bulbs is known to be 5000 hrs. In order to
examine the manufacturers claim 50 of his bulbs are left on until they turn on. The
average length of life in sample is 5100 hrs with a 5% level of significance. Assume that
the population std. dev. is 500 hrs. Is either sufficient evidence to reject the
manufacturers claim?
Solution:
Step 1: Structure of the hypothesis: H0: μ = 5000hrs n = 50, α = 0.05, α/2 = 0.025, σ =
500
H1: μ ≠ 5000hrs 𝜎𝑥̅ = 𝜎/√𝑛 = 00/√ 0 = 70.711
Step 2: Significance level Step 4: Decision Rule
α = 0.05, α/2 = 0.025 Reject H0 if
Zcal  Z 2 orZcal  Z / 2
Step 3: Test statistic 1.414 > -1.96
n = 50 > 30 use z - test Step 5: Make a Decision:
Z0.025 = - 1.96 Don't Reject H0.

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 Z cal = 𝑥̅ − 𝜇𝑜 = 5100−5000 = 1.414
𝜎𝑥 70.71

3.5. Hypothesis Testing of Proportion

In this section we show how to conduct a hypothesis test about a population proportion
p. using po to denote the hypothesized value for the population proportion, the three
forms for a hypothesis test about a population proportion are as follows.

The methods used to conduct the hypothesis test are similar to those used for
hypothesis tests about a population mean. The only difference is that we use the sample
proportion and its standard error to compute the test statistic.
Example: Over the past year, 20% of the customers of ABC Company were women. In
an effort to increase the proportion of women customers, ABC implemented a special
promotion designed to attract women customers. One month after the promotion was
implemented; the manager requested a statistical study to determine whether the
proportion of women customer had increased. The manager specified that a level of
significance of α = 0.05 be used in carrying out this hypothesis test. Suppose a random
sample of 400 customers was selected, and that 100 of the customers were women.
The null and alternative hypothesis tests are as follows:
Step 1: Ho: p ≤ 0.20
Ha: p > 0.20
100
The proportion of women in the sample is 𝑝̅ = = 0.25
400
Step 2: α = 0.05; Z 0.05 = -1.65
Step 3: Test statistic; use Z - test
Step 4: Decision Rule

The standard error of is given by

The sampling distribution of 𝑝̅ can be approximated by a normal distribution

The value of the test statistic is

Step 5: Decision Reject Ho if Z cal ≥ Z α

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 2.50 ≥ -1.65
Therefore; Reject H0

Exercises
1. A workers’ union is on strike for higher wages. The union claims that the mean
salary for teachers is at most Birr 8,400 per year. The legislator does not want to
reject the union’s claim, however, unless the evidence is very strong against it.
Assume that salaries follow a normal distribution and the population standard
deviation is known to be Birr 3000. A random sample of 64 teachers is obtained,
and the sample mean is Birr, 9,400. Test if the state legislator accepts the unions’
claim or not at 1% significance level.
2. A fertilizer company claims that the use of its product will result in a yield of at
least 35 quintals of wheat per hectare, on average, Application at the fertilizer to
a randomly selected 36 sample hectares resulted in a yield of 34quintals per
hectare. Assume the population standard deviation is 5 quintals and yields per
hectare are normally distributed. Test the company’s claim at 1% level of
significance.
3. Bridge stone claims that its tires have a mean life of 35,000 miles. A random
sample of 16 of these tires is tested if the sample mean is 33,000 miles. Assume
that the population standard deviation is 3000 miles and the lives of tires are
approximately normally distributed. Test the company’s claim using a 5% level
of significance.
4. A department head assumes that workers are idle for 75 minutes or less per
day. A random sample of 25 workers was taken and the mean idle time was
found to be 84 minutes per day with a sample standard deviation of 20 minutes.
Assuming that the population is approximately normally distributed, using a 5%
level of significance to test the contractor’s assumption.
5. A director of a secretarial school claims that its graduates can type at least 50
words per minute on average. Suppose you want to hire some of these

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 graduates if the director’s claim is true; and you test the typing speed of 18 of
the graduates and obtain a mean of 40 words per minute with a sample variance
of 720. Assuming the typing speed for the graduates of the secretarial school is
normally distributed, test the director’s claim and decide whether to hire the
graduates or not, using a 5% level of significance.
6. A magazine claims that 25% of its readers are college students. A random
sample of 200 readers is taken. It is found that 42 of these readers are college
students. Use a 10% level of significance and test the magazine’s claim.
7. Suppose that an economist states that greater than 35% of Addis’s labour force
in unemployed. You don’t know if the economist’s estimate is too high or too
low. Thus, you want to test the economist’s claim using a 5% level of
significance. You obtain a random sample of 400 people in the labour force, of
whom 128 are unemployed. Would you reject the economist’s claim?

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