STA-2023

Statistics for Business and Economics

Text Book: McClave, Benson and Sincich, 12th edition
Vocabulary (Revised: Aug. 2014)

Chapter 1: Statistical Methods

 Statistics is a branch of science dealing with methods used

for collecting, organizing, summarizing, analyzing and
interpreting data sets

 Descriptive Statistics consists of the procedures used to

organize and summarize data sets, as well as to describe
their major characteristics

 Inferential Statistics consists of the procedures used to

make estimations and decisions about a population based
on the information contained in a representative sample

 Population is the set of all units (subjects or objects) of

interest in any statistical study

 Sample is a subset of units chosen from the defined

population with the purpose of making a statistical
inference about the population

 Representative Sample is a sample that reflects the

relevant characteristics of the population. Representative
samples can be obtained by using sampling techniques
 Simple Random Sampling is the most basic probability
sampling technique. It involves a single list of all units of
the population which are given an equal chance to be
included in the sample

 Census is a type of statistical study conducted on the

entire population

 Sampling survey is a type of statistical study that involves

sample units and a questionnaire

 Units are the individuals (subjects or objects) included in

any statistical study

 Variables are characteristics that vary from one unit to

another

 Qualitative (Categorical) data are the observations

describing an attribute or categorical characteristic of the
individuals

 Quantitative data are the observations/measurements

describing a numerical characteristic of the individuals

 Data/Data Set is the set of all observations/measurements

collected for one or more variables on a particular set of
units
Chapter 2: Descriptive Statistics

Frequency table is a way of organizing and summarizing the

information contained in a data set

Elements of a frequency table

Classes
Class limits
Class boundaries
Frequency or count frequency
Relative frequency
Percent frequency

Frequency graphs for categorical data

 Bargraph: unattached bars on a rectangular system

 Pareto chart: bargraph where the bars are arranged in
decreasing order of frequency from left to right
 Piechart: circle graphs

Frequency graphs for quantitative data

 Histogram: connected bars on a rectangular coordinate

system
 Stem & Leaf plot

Frequency Distribution Curves

 Frequency Distribution Curve for a quantitative data set
is a smooth curve that fits the relative frequency
histogram.
Three typical patterns of frequency curves:
 Bell curve is symmetric and mound shaped
 Skewed to the right has a long right tail
 Skewed to the left has a long left tail

Measures of Central Tendency (Center)

 Mean is the simple average calculated over all data points

 Median is a value located at the middle of the distribution
when the data points are arranged in order
 Mode is the most frequent or repeated data point

Modal Class of grouped data is the class (category or interval)

with the highest frequency

Measures of Variability (Spread)

 Range is the distance between the endpoints (highest and

lowest values) of the data set

 Standard deviation is a measure of the average distance

of all data values relative to the mean

Outliers are extremely high or low data values disconnected

from the rest of the data set

Chebyshev and Empirical Rules provide the expected percent

of data values falling within 1, 2, and 3 standard deviations of
the mean

Percentiles are measures of relative standing that describe the

percent of data points falling below or at any given data value
Quartiles (Q1, Q2, Q3) are special percentiles that divide the
data set in four (evenly weighted) subsets

Interquartile Range (IQR) is the distance between the first and

third quartile (Q3 - Q1). It describes the spread of the central
50% of the data set.

Five Number Summary is a way of describing a data set using

five special percentiles (Min, Q1, Q2, Q3, Max)

Box and Whiskers Plot is the graphical representation of the

Five Number Summary
 Chapter 3: Probability

Random Experiment is an observable activity whose outcome

can not be predicted with certainty

Sample Space is the set of all basic outcomes of a random

experiment

Sample points are the elements of the sample space

Event is any subset of basic outcomes of a random experiment

Impossible Event is an event containing no sample points

Certain Event is an event containing all sample points of the

sample space

Tree Diagram is a graphical tool used to determine the sample

space of random experiments

Venn Diagram is a way of graphically portraying the sample

space and various events

Mutually Exclusive Events are events that do not share any

sample point

Compound Events:

 Intersection of two events A and B is the compound event

containing the sample points that belong to both A and B

 Union of two events A and B is the compound event

containing the sample points that belong to either A or B
  Complement of any event A is the compound event
containing the sample points that belong to S (sample
space) and do not belong to A

Conditional Probability is a probability calculated on a

reduced sample space. This reduced sample space is given by a
pre-established event or condition

Independent Events are events such that the occurrence of one

of them does not affect the probability of the other

Contingency Table is a two-way table containing frequency

data on two categorical variables

Probability Tree is a tree diagram involving probabilities of

given events

Probability Rules:

 Addition P(A U B) = P(A) + P(B) – P(A ∩ B)

 Complement P( AC ) = 1 – P(A)

 Conditional P(A│B) = P(A ∩ B) / P(B)

 Multiplication P(A ∩ B) = P(A) P(B│A) or

= P(B) P(A│B)
 Chapter 4, Part I: Discrete Probability Distributions

Random Variable is a numerical variable whose values are

associated with a random experiment and therefore cannot be
predicted with certainty

Types of random variables: Discrete and Continuous.

 Discrete random variables are random variables defined

on isolated real numbers. They are typically used for
counting.

 Continuous random variables are random variables

defined on a line interval of real numbers. They are
typically used for measuring.

Discrete Probability Distribution is a table, graph or formula

assigning probabilities to each value of a discrete random
variable.

Probability Histogram is a graphical representation of a

discrete probability distribution, associating the heights of bars
with the given probabilities.

Point-line probability graph is a graphical representation of a

discrete probability distribution, associating the heights of
vertical lines with the given probabilities.

Mean μ of a discrete probability distribution is the expected

value of any given discrete random variable “X”. The expected
value of “X” takes into account not only the X-values but also
their associated probabilities.
Standard Deviation σ of a discrete probability distribution
describes the variability of any discrete random variable “X”
relative to the mean μ. It takes into account not only the
deviation of X-values relative to the mean but also their
associated probabilities.

Binomial experiment is a random experiment involving a

number of identical and independent trials in which there are
only two possible outcomes (success and failure).

Binomial random variable is a discrete random variable

describing the number of successes in a binomial experiment.

Parameters of the binomial probability distribution are the

number of trials “n” and the rate of success “p” (probability of
success for each trial).

Poisson experiment is a random experiment in which the

number of occurrences of a given event during a specified
period of time is observed. The occurrences of the event are
assumed to be random and independent one to another.

Poisson random variable is a discrete random variable

describing the number of occurrences of a given event during a
specified period of time.

Parameter of the Poisson probability distribution is the

population or historical mean number of occurrences of the
given event during a specified period of time.
Chapter 4, Part II: Continuous Probability Distributions

Continuous random variable is a random variable that can

assume any value inside an interval of real numbers.

Density curve is a smooth curve associated with the relative

frequency graph of a continuous random variable

Continuous Probability Distribution is the probability model

for a continuous random variable where probabilities are
calculated as areas under the associated density curve

Normal random variable is a continuous random variable with

a density curve that is smooth, symmetric, and bell-shaped.

Normal or Bell Curve is the density curve for a normal

random variable

Normal probability distribution is the probability model for a

normal random variable.

Parameters of a normal probability distribution are the mean

and standard deviation of the associated normal random
variable.

Normal population is a population where a normal random

variable has been defined.

Standard normal variable is a normal random variable with a

mean of zero and standard deviation of one.

Z-scores are values of the standard normal variable. They

indicate the number of standard deviations that any raw score
(or value of any normal random variable) deviates from the
mean.
Chapter 5. Sampling Distributions

Review of basic concepts from chapter 1

 Inferential statistics scheme

 Population
 Sample
 Representative sample
 Simple random sampling
 Statistical inference

Parameter is a descriptive numerical measure of the

population. Parameters are fixed numbers usually unknown
because the associated population is very large

Statistic is a descriptive numerical measure of a sample.

Statistics are used to estimate parameters and vary from
sample to sample.

Sampling Distribution is the probability distribution (model)

associated with any statistic when repeated samples (of the
same size) are drawn from the defined population.

Central Limit Theorem is a statistical property stating that the

sampling distribution of the sample mean is approximately
normal when the sample size is large enough.
Chapter 6. Estimation with confidence intervals

Estimation is the process of estimating or predicting the value

of a population parameter using a random sample and an
estimator.

Estimator is a formula or statistic defined on sample data with

the purpose of estimating a parameter.

Estimate is a numerical result obtained by substituting the

sample data on any given estimator.

Types of estimates: point estimate and interval estimate.

Point estimate consists of a single figure used to predict the

value of a population parameter.

Interval estimate consists of a numerical range where the

parameter is expected to fall with certain confidence.

Confidence coefficient is a probability that measures the

reliability of any interval estimate.

Confidence level is the confidence coefficient expressed as a

percentage.

Confidence interval is an interval estimate calculated with a

specified confidence level.

Margin of error is a measure of the error of estimation

involving the given confidence level and sample size.
Precision of any confidence interval is associated with the
margin of error of the estimate. The precision is better as the
margin of error is smaller. Hence, the narrower the confidence
interval the more precise the interval estimate is.
Chapter 7. Tests of Hypotheses based on a single sample

 Research hypothesis is a statement or claim about

population parameters that can be tested using sample
data.

 Statistical hypotheses are the null and alternative

hypotheses.

 Alternative hypothesis (Ha) describes the research

hypothesis of the problem.

 Null hypothesis (Ho) describes the opposite of the

alternative hypothesis.

 Test Statistic is a formula that summarizes the statistical

evidence collected in any test of hypotheses.

 Rejection region is the set of values of the test statistic

indicating sufficient/convincing evidence against Ho.

 Type I error consists of rejecting the null hypothesis Ho

when Ho is actually true.

 Type II error consists of failing to reject the null

hypothesis Ho when Ho is actually false.

 Alpha designates the probability of type I error.

 Beta designates the probability of type II error.

 p-value is a probability that measures the strength of the
evidence against Ho (that is, in favor of Ha). The p-value
of any statistical test describes the observed probability of
type I error.