APPLICATIONS OF SIGNIFICANCE TESTING

1. Estimation of Mean Monthly Rentals

a. Suppose we consider the following data on monthly rentals: 980, 1230, 1320, 1440, 1180, 1050, 1520, 1630, 880, 920. Suppose, further, that the landlord association claims that the true average rental of a low income 3½ room apartment is $1100. The housing authority believes that the average rental is higher. Let the null hypothesis be the landlord association claim and the alternative hypothesis be the housing authority claim. Does the data support the landlord's association claim? What would you report to the housing authority?

b. Suppose that a sample of 10,000 apartments yielded the following results: Using this data, what are your conclusions? What would you report to the housing authority?

2. Applications to Auditing

a. Suppose it is claimed that more efficient record keeping has resulted in a lower error rate in accounting entries than the 3% which has been true in the past. The null hypothesis is that the error rate is .03; the alternate hypothesis is that the error rate is greater that 0.03. In a sample of 15 entries, 2 errors were found. Does the data support the claim in the null hypothesis?

b. In a large study of 1000 entries, 40 errors were found. Does the data support the null hypothesis based upon this experience?