Statistics for

Business and Economics

8th Global Edition

Chapter 1

Using Graphs to Describe Data

1
 Chapter Goals
After completing this chapter, you should be able to:
◼ Explain how decisions are often based on incomplete
information
◼ Explain key definitions:
 Population vs. Sample
 Parameter vs. Statistic
 Descriptive vs. Inferential Statistics

◼ Describe random sampling and systematic sampling

◼ Explain the difference between Descriptive and Inferential
statistics
◼ Identify types of data and levels of measurement

2
 Chapter Goals
(continued)
After completing this chapter, you should be able to:
◼ Create and interpret graphs to describe categorical

variables:
◼ frequency distribution, bar chart, pie chart, Pareto diagram
◼ Create a line chart to describe time-series data
◼ Create and interpret graphs to describe numerical
variables:
◼ frequency distribution, histogram, ogive, stem-and-leaf display
◼ Construct and interpret graphs to describe relationships
between variables:
◼ Scatter plot, cross table
◼ Describe appropriate and inappropriate ways to display
data graphically
3
1.1
Decision Making in an
Uncertain Environment

Everyday decisions are based on incomplete

information

Examples:

◼ Will the job market be strong when I graduate?

◼ Will the price of Yahoo stock be higher in six months
than it is now?
◼ Will interest rates remain low for the rest of the year if
the federal budget deficit is as high as predicted?

4
 Decision Making in an
Uncertain Environment
(continued)

Data are used to assist decision making

◼ Statistics is a tool to help process, summarize, analyze,

and interpret data

5
 Key Definitions

◼ A population is the collection of all items of interest or

under investigation
◼ N represents the population size
◼ A sample is an observed subset of the population
◼ n represents the sample size

◼ A parameter is a specific characteristic of a population

◼ A statistic is a specific characteristic of a sample

6
 Population vs. Sample

Population Sample

Values calculated using Values computed from

population data are called sample data are called
parameters statistics
7
 Examples of Populations

◼ Names of all registered voters in the United

States
◼ Incomes of all families living in Daytona Beach
◼ Annual returns of all stocks traded on the New
York Stock Exchange
◼ Grade point averages of all the students in your
university

8
 Random Sampling

Simple random sampling is a procedure in which

◼ each member of the population is chosen strictly by

chance,
◼ each member of the population is equally likely to be
chosen,
◼ every possible sample of n objects is equally likely to
be chosen

The resulting sample is called a random sample

9
 Systematic Sampling

For systematic sampling,

◼ Assure that the population is arranged in a way that is not

related to the subject of interest
◼ Select every jth item from the population…
◼ …where j is the ratio of the population size to the
sample size, j = N/n
◼ Randomly select a number from 1 to j for the first item
selected

The resulting sample is called a systematic sample

10
 Systematic Sampling
(continued)

Example:
Suppose you wish to sample n = 9 items from a
population of N = 72.

j = N / n = 72 / 9 = 8

Randomly select a number from 1 to 8 for the first item to

include in the sample; suppose this is item number 3.

Then select every 8th item thereafter

(items 3, 11, 19, 27, 35, 43, 51, 59, 67)

11
Descriptive and Inferential Statistics

Two branches of statistics:

◼ Descriptive statistics
◼ Graphical and numerical procedures to summarize
and process data

◼ Inferential statistics
◼ Using data to make predictions, forecasts, and
estimates to assist decision making

12
 Descriptive Statistics

◼ Collect data
◼ e.g., Survey

◼ Present data
◼ e.g., Tables and graphs

◼ Summarize data
◼ e.g., Sample mean =
X i

13
 Inferential Statistics

◼ Estimation
◼ e.g., Estimate the population
mean weight using the sample
mean weight
◼ Hypothesis testing
◼ e.g., Test the claim that the
population mean weight is 140
pounds

Inference is the process of drawing conclusions or

making decisions about a population based on
sample results
14
1.2
Classification of Variables

Data

Categorical Numerical

Examples:
◼ Marital Status
◼ Are you registered to Discrete Continuous
vote?
◼ Eye Color Examples: Examples:
(Defined categories or ◼ Number of Children ◼ Weight
groups) ◼ Defects per hour ◼ Voltage
(Counted items) (Measured characteristics)

15
 Measurement Levels

Differences between
measurements, true Ratio Data
zero exists
Quantitative Data

Differences between
measurements but no Interval Data
true zero

Ordered Categories
(rankings, order, or Ordinal Data
scaling)
Qualitative Data

Categories (no
ordering or direction) Nominal Data
16
1.3-
Graphical
1.5 Presentation of Data

◼ Data in raw form are usually not easy to use

for decision making
◼ Some type of organization is needed
◼ Table

◼ Graph

◼ The type of graph to use depends on the

variable being summarized

17
 Graphical
Presentation of Data
(continued)
◼ Techniques reviewed in this chapter:

Categorical Numerical
Variables Variables

• Frequency distribution • Line chart

• Cross table • Frequency distribution
• Bar chart • Histogram and ogive
• Pie chart • Stem-and-leaf display
• Pareto diagram • Scatter plot

18
1.3
Tables and Graphs for
Categorical Variables

Categorical
Data

Tabulating Data Graphing Data

Frequency
Distribution Bar Pie Pareto
Table Chart Chart Diagram

19
 The Frequency
Distribution Table
Summarize data by category
Example: Hospital Patients by Unit
Hospital Unit Number of Patients Percent
(rounded)

Cardiac Care 1,052 11.93

Emergency 2,245 25.46
Intensive Care 340 3.86
Maternity 552 6.26
Surgery 4,630 52.50
Total: 8,819 100.0
(Variables are
categorical)

20
 Graph of Frequency Distribution

◼ Bar chart of patient data

21
 Cross Tables

◼ Cross Tables (or contingency tables) list the

number of observations for every combination
of values for two categorical or ordinal
variables

◼ If there are r categories for the first variable

(rows) and c categories for the second
variable (columns), the table is called an r x c
cross table

22
 Cross Table Example

◼ 3 x 3 Cross Table for Investment Choices by Investor

(values in $1000’s)
Investment Investor A Investor B Investor C Total
Category
Stocks 46 55 27 128
Bonds 32 44 19 95
Cash 15 20 33 68

Total 93 119 79 291

23
 Graphing
Multivariate Categorical Data
(continued)

◼ Side by side horizontal bar chart

24
 Graphing
Multivariate Categorical Data
(continued)

◼ Stacked bar chart

25
 Vertical
Side-by-Side Chart Example
◼ Sales by quarter for three sales territories:
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
East 20.4 27.4 59 20.4
West 30.6 38.6 34.6 31.6
North 45.9 46.9 45 43.9

26
 Bar and Pie Charts

◼ Bar charts and Pie charts are often used

for qualitative (categorical) data

◼ Height of bar or size of pie slice shows the

frequency or percentage for each
category

27
 Bar Chart Example

Hospital Number
Unit of Patients

Cardiac Care 1,052

Emergency 2,245 Hospital Patients by Unit
5000
Intensive Care 340
Maternity 552
patients per year
Number of 4000
Surgery 4,630
3000

2000

1000

0
Cardiac

Emergency

Intensive

Surgery
Maternity
Care

Care
28
 Pie Chart Example

Hospital Number % of
Unit of Patients Total
Hospital Patients by Unit
Cardiac Care 1,052 11.93
Emergency 2,245 25.46 Cardiac Care
12%
Intensive Care 340 3.86
Maternity 552 6.26
Surgery 4,630 52.50

Emergency
Surgery 25%
53%

Intensive Care
(Percentages 4%
are rounded to Maternity
the nearest 6%
percent)
29
 Pareto Diagram

◼ Used to portray categorical data

◼ A bar chart, where categories are shown in
descending order of frequency
◼ A cumulative polygon is often shown in the
same graph
◼ Used to separate the “vital few” from the “trivial
many”

30
 Pareto Diagram Example

Example: 400 defective items are examined

for cause of defect:
Source of
Manufacturing Error Number of defects
Bad Weld 34
Poor Alignment 223
Missing Part 25
Paint Flaw 78
Electrical Short 19
Cracked case 21
Total 400

31
 Pareto Diagram Example
(continued)

Step 1: Sort by defect cause, in descending order

Step 2: Determine % in each category

Source of
Manufacturing Error Number of defects % of Total Defects
Poor Alignment 223 55.75
Paint Flaw 78 19.50
Bad Weld 34 8.50
Missing Part 25 6.25
Cracked case 21 5.25
Electrical Short 19 4.75
Total 400 100%
32
 Pareto Diagram Example
(continued)
Step 3: Show results graphically
Pareto Diagram: Cause of Manufacturing Defect
60% 100%
% of defects in each category

90%

cumulative % (line graph)

50%
80%

70%
(bar graph)

40%

60%

30% 50%

40%

20%
30%

20%
10%

10%

0% 0%
Poor Alignment Paint Flaw Bad Weld Missing Part Cracked case Electrical Short

33
1.4
Graphs to Describe
Time-Series Data

◼ A line chart (time-series plot) is used to show

the values of a variable over time

◼ Time is measured on the horizontal axis

◼ The variable of interest is measured on the

vertical axis

34
Line Chart Example

35
1.5
Graphs to Describe
Numerical Variables

Numerical Data

Frequency Distributions Stem-and-Leaf

and Display
Cumulative Distributions

Histogram Ogive

36
 Frequency Distributions

What is a Frequency Distribution?

◼ A frequency distribution is a list or a table …
◼ containing class groupings (categories or
ranges within which the data fall) ...
◼ and the corresponding frequencies with which
data fall within each class or category

37
Why Use Frequency Distributions?

◼ A frequency distribution is a way to

summarize data
◼ The distribution condenses the raw data
into a more useful form...
◼ and allows for a quick visual interpretation
of the data

38
 Class Intervals
and Class Boundaries

◼ Each class grouping has the same width

◼ Determine the width of each interval by
largest number − smallest number
w = interval width =
number of desired intervals

◼ Use at least 5 but no more than 15-20 intervals

◼ Intervals never overlap
◼ Round up the interval width to get desirable
interval endpoints

39
 Frequency Distribution Example

Example: A manufacturer of insulation randomly

selects 20 winter days and records the daily
high temperature

data:

24, 35, 17, 21, 24, 37, 26, 46, 58, 30,
32, 13, 12, 38, 41, 43, 44, 27, 53, 27

40
 Frequency Distribution Example
(continued)

◼ Sort raw data in ascending order:

12, 13, 17, 21, 24, 24, 26, 27, 27, 30, 32, 35, 37, 38, 41, 43, 44, 46, 53, 58

◼ Find range: 58 - 12 = 46
◼ Select number of classes: 5 (usually between 5 and 15)
◼ Compute interval width: 10 (46/5 then round up)

◼ Determine interval boundaries: 10 but less than 20, 20 but

less than 30, . . . , 60 but less than 70

◼ Count observations & assign to classes

41
 Frequency Distribution Example
(continued)
Data in ordered array:
12, 13, 17, 21, 24, 24, 26, 27, 27, 30, 32, 35, 37, 38, 41, 43, 44, 46, 53, 58

Relative
Interval Frequency Percentage
Frequency
10 but less than 20 3 .15 15
20 but less than 30 6 .30 30
30 but less than 40 5 .25 25
40 but less than 50 4 .20 20
50 but less than 60 2 .10 10
Total 20 1.00 100
42
 Histogram

◼ A graph of the data in a frequency distribution

is called a histogram
◼ The interval endpoints are shown on the
horizontal axis
◼ the vertical axis is either frequency, relative
frequency, or percentage
◼ Bars of the appropriate heights are used to
represent the number of observations within
each class
43
 Histogram Example

Interval Frequency
Histogram : Daily High Tem perature
10 but less than 20 3
20 but less than 30 6 7 6
30 but less than 40 5
40 but less than 50 4
6 5
50 but less than 60 2 5 4
Frequency

4 3
3 2
2
1 0 0
(No gaps 0
between 0 0 10 10 2020 30 30 40 40 50 50 60 60 70
bars) Temperature in Degrees
44
 Histograms in Excel

1
Select Data Tab 2
Click on Data Analysis

45
 Histograms in Excel
(continued)

3
Choose Histogram

(
Input data range and bin
range (bin range is a cell
4 range containing the upper
interval endpoints for each class
grouping)

Select Chart Output

and click “OK”
46
 Questions for Grouping Data
into Intervals

◼ 1. How wide should each interval be?

(How many classes should be used?)

◼ 2. How should the endpoints of the

intervals be determined?
◼ Often answered by trial and error, subject to
user judgment
◼ The goal is to create a distribution that is
neither too "jagged" nor too "blocky”
◼ Goal is to appropriately show the pattern of
variation in the data

47
 How Many Class Intervals?

◼ Many (Narrow class intervals) 3.5

3
◼ may yield a very jagged distribution 2.5

Frequency
with gaps from empty classes 2
1.5

◼ Can give a poor indication of how 1

0.5
frequency varies across classes 0

4
8
12
16
20
24
28
32
36
40
44
48
52
56
60
More
Temperature

◼ Few (Wide class intervals) 12

10
◼ may compress variation too much and

Frequency
8

yield a blocky distribution 6

4
◼ can obscure important patterns of 2

variation. 0
0 30 60 More
Temperature
(X axis labels are upper class endpoints)

48
 The Cumulative
Frequency Distribuiton
Data in ordered array:
12, 13, 17, 21, 24, 24, 26, 27, 27, 30, 32, 35, 37, 38, 41, 43, 44, 46, 53, 58

Cumulative Cumulative
Class Frequency Percentage
Frequency Percentage

10 but less than 20 3 15 3 15

20 but less than 30 6 30 9 45
30 but less than 40 5 25 14 70
40 but less than 50 4 20 18 90
50 but less than 60 2 10 20 100
Total 20 100

49
 The Ogive
Graphing Cumulative Frequencies
Upper
interval Cumulative
Interval endpoint Percentage
Less than 10 10 0
10 but less than 20 20 15
20 but less than 30 30 45 Ogive: Daily High Temperature
30 but less than 40 40 70
40 but less than 50 50 90 100
Cumulative Percentage
50 but less than 60 60 100
80
60
40
20
0
10 20 30 40 50 60
Interval endpoints
50
 Stem-and-Leaf Diagram

◼ A simple way to see distribution details in a

data set

METHOD: Separate the sorted data series

into leading digits (the stem) and
the trailing digits (the leaves)

51
 Example
Data in ordered array:
21, 24, 24, 26, 27, 27, 30, 32, 38, 41

◼ Here, use the 10’s digit for the stem unit:

Stem Leaf
◼ 21 is shown as 2 1
◼ 38 is shown as 3 8

52
 Example
(continued)
Data in ordered array:
21, 24, 24, 26, 27, 27, 30, 32, 38, 41

◼ Completed stem-and-leaf diagram:

Stem Leaves
2 1 4 4 6 7 7
3 0 2 8
4 1

53
 Using other stem units

◼ Using the 100’s digit as the stem:

◼ Round off the 10’s digit to form the leaves

Stem Leaf
◼ 613 would become 6 1
◼ 776 would become 7 8
◼ ...
◼ 1224 becomes 12 2

54
 Using other stem units
(continued)

◼ Using the 100’s digit as the stem:

◼ The completed stem-and-leaf display:

Data: Stem Leaves

6 136
613, 632, 658, 717, 722, 750, 7 2258
776, 827, 841, 859, 863, 891,
894, 906, 928, 933, 955, 982, 8 346699
1034, 1047,1056, 1140, 1169, 9 13368
1224 10 356
11 47
12 2
55
 Scatter Diagrams

◼ Scatter Diagrams are used for paired

observations taken from two
numerical variables

◼ The Scatter Diagram:

◼ one variable is measured on the vertical

axis and the other variable is measured

on the horizontal axis

56
 Scatter Diagram Example
Average SAT scores by state: 1998
Verbal Math
Alabama 562 558
Alaska 521 520
Arizona 525 528
Arkansas 568 555
California 497 516
Colorado 537 542
Connecticut 510 509
Delaware 501 493
D.C. 488 476
Florida 500 501
Georgia 486 482
Hawaii 483 513

…
W.Va. 525 513
Wis. 581 594
Wyo. 548 546
57
 Scatter Diagrams in Excel

1 Select the Insert tab

2 Select Scatter type from
the Charts section

3 When prompted, enter the data range, desired legend, and

desired destination to complete the scatter diagram

58
1.6
Data Presentation Errors

Goals for effective data presentation:

◼ Present data to display essential information
◼ Communicate complex ideas clearly and
accurately
◼ Avoid distortion that might convey the wrong
message

59
 Data Presentation Errors
(continued)

◼ Unequal histogram interval widths

◼ Compressing or distorting the
vertical axis
◼ Providing no zero point on the
vertical axis
◼ Failing to provide a relative basis
in comparing data between
groups

60
 Chapter Summary

◼ Reviewed incomplete information in decision

making
◼ Introduced key definitions:
◼ Population vs. Sample
◼ Parameter vs. Statistic
◼ Descriptive vs. Inferential statistics
◼ Described random sampling
◼ Examined the decision making process

61
 Chapter Summary
(continued)
◼ Reviewed types of data and measurement levels
◼ Data in raw form are usually not easy to use for decision
making -- Some type of organization is needed:
 Table  Graph

◼ Techniques reviewed in this chapter:

◼ Frequency distribution ◼ Line chart

◼ Cross tables ◼ Frequency distribution
◼ Bar chart ◼ Histogram and ogive
◼ Pie chart ◼ Stem-and-leaf display
◼ Pareto diagram ◼ Scatter plot

62