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What Is Statistics? 1
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Kelvin Wong/Shutterstock

BEST BUY sells Fitbit wearable technology products that

track a person’s physical activity and sleep quality. The Fitbit
technology collects daily information on a person’s number
of steps so that a person can track calories burned. The
information can be synced with a cell phone and displayed
with a Fitbit app. Assume you know the daily number of
Fitbit Flex 2 units sold last month at the Best Buy store in
Collegeville, Pennsylvania. Describe a situation where the
number of units sold is considered a sample. Illustrate a
second situation where the number of units sold is considered
a population. (See Exercise 11 and LO1-3.)

LEARNING OBJECTIVES
When you have completed this chapter, you will be able to:
LO1-1 Explain why knowledge of statistics is important.
LO1-2 Define statistics and provide an example of how statistics is
applied.
LO1-3 Differentiate between descriptive and inferential statistics.
LO1-4 Classify variables as qualitative or quantitative, and discrete or
continuous.
LO1-5 Distinguish among nominal, ordinal, interval, and ratio levels of
measurement.
LO1-6 List the values associated with the practice of statistics.

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INTRODUCTION
Suppose you work for a large company and your supervisor asks you to
decide if a new version of a smartphone should be produced and sold. You
start by thinking about the product’s innovations and new features. Then,
you stop and realize the consequences of the decision. The product will
need to make a profit, so the pricing and the costs of production and
distribution are all very important. The decision to introduce the product is
based on many alternatives. So how will you know? Where do you start?

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Gregor Schuster/Getty Images
Without experience in the industry, beginning to develop an intelligence
that will make you an expert is essential. You select three other people to
work with and meet with them. The conversation focuses on what you need
to know and what information and data you need. In your meeting, many
questions are asked. How many competitors are already in the market? How
are smartphones priced? What design features do competitors’ products
have? What features does the market require? What do customers want in a
smartphone? What do customers like about the existing products? The
answers will be based on business intelligence consisting of data and
information collected through customer surveys, engineering analysis, and
market research. In the end, your presentation to support your decision
regarding the introduction of a new smartphone is based on the statistics
that you use to summarize and organize your data, the statistics that you use
to compare the new product to existing products, and the statistics to
estimate future sales, costs, and revenues. The statistics will be the focus of
the conversation that you will have with your supervisor about this very
important decision.
As a decision maker, you will need to acquire and analyze data to
support your decisions. The purpose of this text is to develop your
knowledge of basic statistical techniques and methods and how to apply
them to develop the business and personal intelligence that will help you
make decisions.

WHY STUDY STATISTICS?

LO1-1
Explain why knowledge of statistics is important.

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Courtesy of Domo, Inc.

If you look through your university catalogue, you will find that statistics is
required for many college programs. As you investigate a future career in
accounting, economics, human resources, finance, business analytics, or
other business area, you also will discover that statistics is required as part
of these college programs. So why is statistics a requirement in so many
disciplines?
A major driver of the requirement for statistics knowledge is the
technologies available for capturing data. Examples include the technology
that Google uses to track how Internet users access websites. As people use
Google to search the Internet, Google records every search and then uses
these data to sort and prioritize the results for future Internet searches. One
recent estimate indicates that Google processes 20,000 terabytes of
information per day. Big-box retailers like Target, Walmart, Kroger, and
others scan every purchase and use the data to manage the distribution of
products, to make decisions about marketing and sales, and to track daily
and even hourly sales. Police departments collect and use data to provide
city residents with maps that communicate information about crimes
committed and their location. Every organization is collecting and using
data to develop knowledge and intelligence that will help people make
informed decisions, and track the implementation of their decisions. The
graphic to the left shows the amount of data generated every minute
(www.domo.com). A good working knowledge of statistics is useful for
summarizing and organizing data to provide information that is useful and
supportive of decision making. Statistics is used to make valid comparisons
and to predict the outcomes of decisions.
In summary, there are at least three reasons for studying statistics: (1)
data are collected everywhere and require statistical knowledge to make the
information useful, (2) statistical techniques are used to make page 3
professional and personal decisions, and (3) no matter what your
career, you will need a knowledge of statistics to understand the world and
to be conversant in your career. An understanding of statistics and statistical
methods will help you make more effective personal and professional
decisions.

WHAT IS MEANT BY STATISTICS

LO1-2
Define statistics and provide an example of how statistics is applied.

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STATISTICS IN ACTION

A feature of our textbook is called Statistics in Action. Read each

one carefully to get an appreciation of the wide application of
statistics in management, economics, nursing, law enforcement,
sports, and other disciplines.
• In 2019, Forbes published a list of the richest Americans. Jeff
Bezos of Amazon is the richest. His net worth is estimated at
$114 billion. Bill Gates ranks second. Before Bezos, Gates held
the title for 24 years. (www.forbes.com)
• In 2019, the four largest privately owned American companies,
ranked by revenue, were Cargill, Koch Industries, Albertsons,
and Deloitte. (www.forbes.com)
 • In the United States according to September 2019 data, a typical
high school graduate earns $730 per week, a typical college
graduate with a bachelor’s degree earns $1,198 per week, and a
typical college graduate with a master’s degree earns $1,434 per
week. (www.bls.gov/emp/chart-unemployment-earnings-
education.htm)

This question can be rephrased in two, subtly different ways: what are
statistics and what is statistics? To answer the first question, a statistic is a
number used to communicate a piece of information. Examples of statistics
are:
• The inflation rate is 2.3%.
• Your grade point average is 3.5.
• The price of a new Tesla Model S sedan is $81,190.
Each of these statistics is a numerical fact and communicates a very limited
piece of information that is not very useful by itself. However, if we
recognize that each of these statistics is part of a larger discussion, then the
question “what is statistics” is applicable. Statistics is the set of knowledge
and skills used to organize, summarize, and analyze data. The results of
statistical analysis will start interesting conversations in the search for
knowledge and intelligence that will help us make decisions. For example:
• The inflation rate for the calendar year was 2.3%. By applying
statistics we could compare this year’s inflation rate to the past
observations of inflation. Is it higher, lower, or about the same? Is
there a trend of increasing or decreasing inflation? Is there a
relationship between interest rates and government bonds?
• Your grade point average (GPA) is 3.5. By collecting data and
applying statistics, you can determine the required GPA to be admitted
to the Master of Business Administration program at the University of
Chicago, Harvard, or the University of Michigan. You can determine
the likelihood that you would be admitted to a particular program. You
may be interested in interviewing for a management position with
Procter & Gamble. What GPA does Procter & Gamble require for
 college graduates with a bachelor’s degree? Is there a range of
acceptable GPAs?
• You are budgeting for a new car. You would like to own an electric car
with a small carbon footprint. The price, according to Kelley Blue
Book, for a 2020 Tesla Model S sedan is $81,190. By collecting
additional data and applying statistics, you can analyze the
alternatives. For example, another choice is a hybrid car that runs on
both gas and electricity. A 2020 Toyota Prius Prime can be purchased
for about $27,750. Another hybrid, the 2020 Chevrolet Bolt EV, costs
$37,495. What are the differences in the cars’ specifications? What
additional information can be collected and summarized so that you
can make a good purchase decision?
Another example of using statistics to provide information to evaluate
decisions is the distribution and market share of Frito-Lay products. Data
are collected on each of the Frito-Lay product lines. These data include the
market share and the pounds of product sold. Statistics is used to present
this information in a bar chart in Chart 1–1. It clearly shows Frito-Lay’s
dominance in the potato, corn, and tortilla chip markets. It also shows the
absolute measure of pounds of each product line consumed in the United
States.
These examples show that statistics is more than the presentation of
numerical information. Statistics is about collecting and processing
information to create a conversation, to stimulate additional questions, and
to provide a basis for making decisions. Specifically, we define statistics
as:

STATISTICS The science of collecting, organizing, presenting,

analyzing, and interpreting data to assist in making more effective
decisions.

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CHART 1–1 Frito-Lay Volume and Share of Major Snack Chip
Categories in U.S. Supermarkets

In this book, you will learn the basic techniques and applications of
statistics that you can use to support your decisions, both personal and
professional. To start, we will differentiate between descriptive and
inferential statistics.

TYPES OF STATISTICS
LO1-3
Differentiate between descriptive and inferential statistics.

When we use statistics to generate information for decision making from

data, we use either descriptive statistics or inferential statistics. Their
application depends on the questions asked and the type of data available.

Descriptive Statistics
Masses of unorganized data—such as the census of population, the weekly
earnings of thousands of computer programmers, and the individual
responses of 2,000 registered voters regarding their choice for president of
the United States—are of little value as is. However, descriptive statistics
can be used to organize data into a meaningful form. We define descriptive
statistics as:

DESCRIPTIVE STATISTICS Methods of organizing, summarizing,

and presenting data in an informative way.

The following are examples that apply descriptive statistics to

summarize a large amount of data and provide information that is easy to
understand.
• There are a total of 46,837 miles of interstate highways in the United
States. The interstate system represents only 1% of the nation’s total
 roads but carries more than 20% of the traffic. The longest is I-90,
which stretches from Boston to Seattle, a distance of 3,099 miles. The
shortest is I-878 in New York City, which is 0.70 mile in length.
Alaska does not have any interstate highways, Texas has the most
interstate miles at 3,232, and New York has the most interstate routes
with 28.
• Americans were expected to spend an average of $162 on Valentine’s
Day–related gifts in 2019. Predictions indicated that people would
spend an average of $6.94 on their pets. (www.forbes.com)
Statistical methods and techniques to generate descriptive statistics are
presented in Chapters 2 and 4. These include organizing and summarizing
data with frequency distributions and presenting frequency distributions
with charts and graphs. In addition, statistical measures to summarize the
characteristics of a distribution are discussed in Chapter 3.

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Inferential Statistics
Sometimes we must make decisions based on a limited set of data. For
example, we would like to know the operating characteristics, such as fuel
efficiency measured by miles per gallon, of sport utility vehicles (SUVs)
currently in use. If we spent a lot of time, money, and effort, all the owners
of SUVs could be surveyed. In this case, our goal would be to survey the
population of SUV owners.

POPULATION The entire set of individuals or objects of interest or the

measurements obtained from all individuals or objects of interest.

However, based on inferential statistics, we can survey a limited number of

SUV owners and collect a sample from the population.

SAMPLE A portion, or part, of the population of interest.

 Samples often are used to obtain reliable estimates of population
parameters. (Sampling is discussed in Chapter 8.) In the process, we make
trade-offs between the time, money, and effort to collect the data and the
error of estimating a population parameter. The process of sampling SUVs
is illustrated in the following graphic. In this example, we would like to
know the mean or average SUV fuel efficiency. To estimate the mean of the
population, six SUVs are sampled and the mean of their MPG is calculated.

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STATISTICS IN ACTION

Where did statistics get its start? In 1662 John Graunt published an
article called “Natural and Political Observations Made upon Bills of
Mortality.” The author’s “observations” were the result of a study
and analysis of a weekly church publication called “Bill of
Mortality,” which listed births, christenings, and deaths and their
causes. Graunt realized that the Bills of Mortality represented only a
fraction of all births and deaths in London. However, he used the
data to reach broad conclusions or inferences about the impact of
disease, such as the plague, on the general population. His logic is an
example of statistical inference. His analysis and interpretation of
the data are thought to mark the start of statistics.

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So, the sample of six SUVs represents evidence from the population that we
use to reach an inference or conclusion about the average MPG for all
SUVs. The process of sampling from a population with the objective of
estimating properties of a population is called inferential statistics.

INFERENTIAL STATISTICS The methods used to estimate a

property of a population on the basis of a sample.

Inferential statistics is widely applied to learn something page 6

about a population in business, agriculture, politics, and
government, as shown in the following examples:
• Television networks constantly monitor the popularity of their
programs by hiring Nielsen and other organizations to sample the
preferences of TV viewers. During the week of November 25, 2019,
The Tonight Show Starring Jimmy Fallon was viewed by 2.38 million
people in the 18–49 age group. The Late Show with Stephen Colbert
led the age group with 3.05 million viewers
(https://tvbythenumbers.zap2it.com/tag/jimmy-kimmel-live-
ratings/). These program ratings are used to make decisions about
advertising rates and whether to continue or cancel a program.
• During the week of October 1, 2019, Gallup polled a random sample
of 1,526 adults, aged 18 years and older, living in the United States
and the District of Columbia regarding their view of “Big Business.”
In the 18-to-29-year age group, 44% indicated having a positive image
of Big Business, while over 50% of the respondents in older age
groups indicated a positive image of Big Business. In general, we can
infer that older age groups view Big Business more positively than the
18-to-29-year age group.
(https://news.gallup.com/poll/270296/americans-dislike-big-
business.aspx)
A feature of our text is self-review problems. There are a number of
them interspersed throughout each chapter. The first self-review follows.
Each self-review tests your comprehension of preceding material. The
answer and method of solution are given in Appendix D. You can find the
answer to the following self-review in 1–1 in Appendix D. We recommend
that you solve each one and then check your answer.

SELF-REVIEW 1–1
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The answers are in Appendix D.

The Atlanta-based advertising firm Brandon and Associates asked a sample

of 1,960 consumers to try a newly developed chicken dinner by Boston
 Market. Of the 1,960 sampled, 1,176 said they would purchase the dinner if
it were marketed.
(a) Is this an example of descriptive statistics or inferential statistics?
Explain.
(b) What could Brandon and Associates report to Boston Market regarding
acceptance of the chicken dinner in the population?

TYPES OF VARIABLES
LO1-4
Classify variables as qualitative or quantitative, and discrete or continuous.

There are two basic types of variables: (1) qualitative and (2) quantitative
(see Chart 1–2). When an object or individual is observed and recorded as a
nonnumeric characteristic, it is a qualitative variable or an attribute.
Examples of qualitative variables are gender, beverage preference, type of
vehicle owned, state of birth, and eye color. When a variable is qualitative,
we usually count the number of observations for each category and
determine what percent are in each category. For example, if we observe
variable eye color, what percent of the population has blue eyes and what
percent has brown eyes? If the variable is type of vehicle, what percent of
the total number of cars sold last month were SUVs? Qualitative variables
are often summarized in charts and bar graphs (Chapter 2).

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CHART 1–2 Summary of the Types of Variables

When a variable can be reported numerically, it is called a page 7

quantitative variable. Examples of quantitative variables are the
balance in your checking account, the number of gigabytes of data used on
your cell phone plan last month, the life of a car battery (such as 42
months), and the number of people employed by a company.
 Quantitative variables are either discrete or continuous. Discrete
variables can assume only certain values, and there are “gaps” between the
values. Examples of discrete variables are the number of bedrooms in a
house (1, 2, 3, 4, etc.), the number of cars (326, 421, etc.) arriving at Exit 25
on I-4 in Florida near Walt Disney World in an hour, and the number of
students in each section of a statistics course (25 in section A, 42 in section
B, and 18 in section C). We count, for example, the number of cars arriving
at Exit 25 on I-4, and we count the number of statistics students in each
section. Notice that a home can have 3 or 4 bedrooms, but it cannot have
3.56 bedrooms. Thus, there is a “gap” between possible values. Typically,
discrete variables are counted.
Observations of a continuous variable can assume any value within a
specific range. Examples of continuous variables are the air pressure in a
tire and the weight of a shipment of tomatoes. Other examples are the
ounces of raisins in a box of raisin bran cereal and the duration of flights
from Orlando to San Diego. Grade point average (GPA) is a continuous
variable. We could report the GPA of a particular student as 3.2576952. The
usual practice is to round to 3 places—3.258. Typically, continuous
variables result from measuring.

LEVELS OF MEASUREMENT
LO1-5
Distinguish among nominal, ordinal, interval, and ratio levels of
measurement.

Data can be classified according to levels of measurement. The level of

measurement determines how data should be summarized and presented. It
also will indicate the type of statistical analysis that can be performed. Here
are two examples of the relationship between measurement and how we
apply statistics. There are six colors of candies in a bag of M&M’s. Suppose
we assign brown a value of 1, yellow 2, blue 3, orange 4, green 5, and red 6.
What kind of variable is the color of an M&M? It is a qualitative variable.
Suppose someone summarizes M&M color by adding the assigned color
values, divides the sum by the number of M&M’s, and reports that the mean
color is 3.56. How do we interpret this statistic? You are correct in
concluding that it has no meaning as a measure of M&M color. As a
qualitative variable, we can only report the count and percentage of each
color in a bag of M&M’s. As a second example, in a high school track meet
there are eight competitors in the 400-meter run. We report the order of
finish and that the mean finish is 4.5. What does the mean finish tell us?
Nothing! In both of these instances, we have not used the appropriate
statistics for the level of measurement.

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Ron Buskirk/Alamy Stock Photo
There are four levels of measurement: nominal, ordinal, interval, and
ratio. The lowest, or the most primitive, measurement is the nominal level.
The highest is the ratio level of measurement.

Nominal-Level Data
For the nominal level of measurement, observations of a qualitative
variable are measured and recorded as labels or names. The labels or names
can only be classified and counted. There is no particular order to the labels.

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NOMINAL LEVEL OF MEASUREMENT Data recorded at the

nominal level of measurement are represented as labels or names. They
have no order. They can only be classified and counted.

A classification of M&M candies based on their color is an example of

the nominal level of measurement. We simply classify the candies by color.
There is no natural order. That is, we could report the brown candies first,
the orange first, or any of the other colors first. Recording the variable
gender is another example of the nominal level of measurement. Suppose
we count the number of students entering a football game with a student ID
and report how many are men and how many are women. We could report
either the men or the women first. For the data measured at the nominal
level, we are limited to counting the number in each category of the
variable. Often, we convert these counts to percentages. For example, a
random sample of M&M candies reports the following percentages for each
color:

Color Percent in a bag

Blue 24%
Green 20%
Orange 16%
Yellow 14%
Red 13%
Brown 13%

To process the data for a variable measured at the nominal level, we

often numerically code the labels or names. For example, if we are
interested in measuring the home state for students at East Carolina
University, we would assign a student’s home state of Alabama a code of 1,
Alaska a code of 2, Arizona a 3, and so on. Using this procedure with an
alphabetical listing of states, Wisconsin is coded 49 and Wyoming 50.
Realize that the number assigned to each state is still a label or name. The
reason we assign numerical codes is to facilitate counting the number of
students from each state with statistical software. Note that assigning
numbers to the states does not give us license to manipulate the codes as
numerical information. Specifically, in this example, 1 + 2 = 3 corresponds
to Alabama + Alaska = Arizona. Clearly, the nominal level of measurement
does not permit any mathematical operation that has any valid
interpretation.

Ordinal-Level Data
The next higher level of measurement is the ordinal level. For this level of
measurement a qualitative variable or attribute is either ranked or rated on a
relative scale.
 ORDINAL LEVEL OF MEASUREMENT Data recorded at the
ordinal level of measurement is based on a relative ranking or rating of
items based on a defined attribute or qualitative variable. Variables
based on this level of measurement are only ranked or counted.

Best Business Climate

1. Tennessee
2. Virginia
3. Alabama
4. Texas
5. Utah
6. Indiana
7. South Carolina
8. Florida
9. Nevada
10. Arkansas

For example, many businesses make decisions about where to locate

their facilities; in other words, where is the best place for their business?
Business Facilities (search “Rankings” at https://businessfacilities.com)
publishes a list of the top 10 states for the “best business climate.” The 2019
rankings are shown to the left. They are based on the evaluation of many
different factors, including the cost of labor, business tax climate, quality of
life, transportation infrastructure, educated workforce, and economic
growth potential.
This is an example of an ordinal scale because the states are page 9
ranked in order of best to worst business climate. That is, we
know the relative order of the states based on the attribute. For example, in
2019 Tennessee had the best business climate and Virginia was second.
Utah was fifth, and that was better than South Carolina but not as good as
Alabama. We cannot say that Tennessee’s business climate is five times
better than Utah’s business climate because the magnitude of the difference
between the states is not known. To put it another way, we do not know if
the magnitude of the difference between Tennessee and Virginia is the same
as between Alabama and Texas.
Another example of the ordinal level measure is based on a scale that
measures an attribute. This type of scale is used when students rate
instructors on a variety of attributes. One attribute may be: “Overall, how
do you rate the quality of instruction in this class?” A student’s response is
recorded on a relative scale of inferior, poor, good, excellent, and superior.
An important characteristic of using a relative measurement scale is that we
cannot distinguish the magnitude of the differences between the responses.
We do not know if the difference between “Superior” and “Good” is the
same as the difference between “Poor” and “Inferior.”
Table 1–1 lists the frequencies of 60 student ratings of instructional
quality for Professor James Brunner in an Introduction to Finance course.
The data are summarized based on the order of the scale used to rate the
instructor. That is, they are summarized by the number of students who
indicated a rating of superior (6), good (26), and so on. We also can convert
the frequencies to percentages. About 43.3% (26/60) of the students rated
the instructor as good.

TABLE 1–1 Rating of a Finance Professor

Rating Frequency Percentage

Superior 6 10.0%
Good 26 43.3%
Average 16 26.7%
Poor 9 15.0%
Inferior 3 5.0%
Interval-Level Data
The interval level of measurement is the next highest level. It includes all
the characteristics of the ordinal level, but, in addition, the difference or
interval between values is meaningful.

INTERVAL LEVEL OF MEASUREMENT For data recorded at the

interval level of measurement, the interval or the distance between
values is meaningful. The interval level of measurement is based on a
scale with a known unit of measurement.

The Fahrenheit temperature scale is an example of the interval level of

measurement. Suppose the high temperatures on three consecutive winter
days in Boston are 28, 31, and 20 degrees Fahrenheit. These temperatures
can be easily ranked, but we can also determine the interval or distance
between temperatures. This is possible because 1 degree Fahrenheit
represents a constant unit of measurement. That is, the distance between 10
and 15 degrees Fahrenheit is 5 degrees, and is the same as the 5-degree
distance between 50 and 55 degrees Fahrenheit. It is also important to note
that 0 is just a point on the scale. It does not represent the absence of the
condition. The measurement of zero degrees Fahrenheit does not represent
the absence of heat or cold. But by our own measurement scale, it is cold! A
major limitation of a variable measured at the interval level is that we
cannot make statements similar to 20 degrees Fahrenheit is twice as warm
as 10 degrees Fahrenheit.
Another example of the interval scale of measurement is page 10
women’s dress sizes. Listed below is information on several
dimensions of a standard U.S. woman’s dress.

image

Why is the “size” scale an interval measurement? Observe that as the size
changes by two units (say from size 10 to size 12 or from size 24 to size
26), each of the measurements increases by 2 inches. To put it another way,
the intervals are the same.
 There is no natural zero point for dress size. A “size 0” dress does not
have “zero” material. Instead, it would have a 24-inch bust, 16-inch waist,
and 27-inch hips. Moreover, the ratios are not reasonable. If you divide a
size 28 by a size 14, you do not get the same answer as dividing a size 20
by a size 10. Neither ratio is equal to two, as the “size” number would
suggest. In short, if the distances between the numbers make sense, but the
ratios do not, then you have an interval scale of measurement.

Ratio-Level Data
Almost all quantitative variables are recorded on the ratio level of
measurement. The ratio level is the “highest” level of measurement. It has
all the characteristics of the interval level, but, in addition, the 0 point and
the ratio between two numbers are both meaningful.

RATIO LEVEL OF MEASUREMENT Data recorded at the ratio

level of measurement are based on a scale with a known unit of
measurement and a meaningful interpretation of zero on the scale.

Examples of the ratio scale of measurement include wages, units of

production, weight, changes in stock prices, distance between branch
offices, and height. Money is also a good illustration. If you have zero
dollars, then you have no money, and a wage of $50 per hour is two times
the wage of $25 per hour. Weight also is measured at the ratio level of
measurement. If a scale is correctly calibrated, then it will read 0 when
nothing is on the scale. Further, something that weighs 1 pound is half as
heavy as something that weighs 2 pounds.
Table 1–2 illustrates the ratio scale of measurement for the variable,
annual income for four father-and-son combinations. Observe that the
senior Lahey earns twice as much as his son. In the Rho family, the son
makes twice as much as the father.
Chart 1–3 summarizes the major characteristics of the various levels of
measurement. The level of measurement will determine the type of
statistical methods that can be used to analyze a variable. Statistical
methods to analyze variables measured on a nominal level are discussed in
 Chapter 15. Statistical methods to analyze variables measured on an interval
or ratio level are presented in Chapters 9 through 14.

TABLE 1–2 Father–Son Income Combinations

Name Father Son

Lahey $80,000 $ 40,000
Nale 90,000 30,000
Rho 60,000 120,000
Steele 75,000 130,000

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CHART 1–3 Summary and Examples of the Characteristics for

Levels of Measurement

SELF-REVIEW 1–2
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(a) The mean age of people who listen to talk radio is 42.1 years. What level
of measurement is used to assess the variable age?
(b) In a survey of luxury-car owners, 8% of the U.S. population own luxury
cars. In California and Georgia, 14% of people own luxury cars. Two
variables are included in this information. What are they and how are
they measured?

EXERCISES
 The answers to the odd-numbered exercises are in Appendix C.
1. What is the level of measurement for each of the following
variables?
a. Student IQ ratings.
b. Distance students travel to class.
c. The jersey numbers of a sorority soccer team.
d. A student’s state of birth.
e. A student’s academic class—that is, freshman, sophomore, junior,
or senior.
f. Number of hours students study per week.
2. Slate is a daily magazine on the Web. Its business activities can be
described by a number of variables. What is the level of
measurement for each of the following variables?
a. The number of hits on their website on Saturday between 8:00
a.m. and 9:00 a.m.
b. The departments, such as food and drink, politics, foreign policy,
sports, etc.
c. The number of weekly hits on the Sam’s Club ad.
d. The number of years each employee has been employed with
Slate.
3. On the Web, go to your favorite news source and find examples of
each type of variable. Write a brief memo that lists the variables and
describes them in terms of qualitative or quantitative, discrete or
continuous, and the measurement level.
4. For each of the following, determine whether the group is a sample
or a population.
a. The participants in a study of a new cholesterol drug.
b. The drivers who received a speeding ticket in Kansas City last
month.
c. People on welfare in Cook County (Chicago), Illinois.
d. The 30 stocks that make up the Dow Jones Industrial Average.

page 12
ETHICS AND STATISTICS
LO1-6
List the values associated with the practice of statistics.

On September 20, 2018, Cornell University’s provost issued the following

statement:

Consistent with the university’s Academic Misconduct policy, a

faculty committee conducted a thorough investigation into Professor
Wansink’s research. The committee found that Professor Wansink
committed academic misconduct in his research and scholarship,
including misreporting of research data, problematic statistical
techniques, failure to properly document and preserve research
results, and inappropriate authorship. As provided in Cornell policy,
these findings were thoroughly reviewed by and upheld by Cornell’s
dean of the faculty.

(statements.cornell.edu/2018/20180920-statement-provost-michael-
kotlikoff.cfm)
Professor Wansink resigned from his position at Cornell. Note the series of
findings that describe the nature of unethical statistical practices. Clearly,
the unethical conduct of research has serious consequences for the
researcher and the consumers of the false research outcomes.
Another instance of unethical behavior occurred in 2008 and affected
the lives of thousands of people. Wall Street money manager Bernie Madoff
created a Ponzi scheme designed to swindle billions of dollars from
investors. His misrepresentation of financial information resulted in a
sentence of 150 years in jail. Financial misrepresentations by Enron, in
2001, and Tyco, in 2002, also underscore the need for business students to
understand that these events were based on the misrepresentation of
financial information. In each case, people within each organization
reported financial information to investors that indicated the companies
were performing much better than they actually were. When the true
financial information was reported, the companies were worth much less
than advertised. The result was many investors lost all or nearly all the
money they had invested.
In April 2018, the American Statistical Association approved “Ethical
Guidelines for Statistical Practice” (https://www.amstat.org/ASA/Your-
Career/Ethical-Guidelines-for-Statistical-Practice.aspx). The
Association advises us to practice statistics with integrity and honesty and
urges us to “do the right thing” when collecting, organizing, summarizing,
analyzing, and interpreting data and information. The real contribution of
statistics to society is a moral one. Financial analysts need to provide
information that truly reflects a company’s performance so as not to mislead
individual investors. Information regarding product defects that may be
harmful to people must be analyzed and reported with integrity and honesty.
The guidelines further indicate that when we practice statistics, we need to
maintain an independent and principled point of view when analyzing and
reporting findings and results.
As you progress through this text, we will highlight ethical issues in the
collection, analysis, presentation, and interpretation of statistical
information. We also hope that as you learn about using statistics, you will
become a more informed consumer of information. For example, you will
question a report if the data do not fairly represent the population, if the
report does not include all relevant statistics, or if the presentation of the
report does not include the limitations of the statistical analyses and
possible sources of error.

BASIC BUSINESS ANALYTICS

A knowledge of statistics is necessary to support the increasing need for
companies and organizations to apply business analytics. Business analytics
is used to process and analyze data and information to support a story or
narrative of a company’s business, such as “what makes us page 13
profitable” or “how will our customers respond to a change in
marketing”? In addition to statistics, an ability to use computer software to
summarize, organize, analyze, and present the findings of statistical analysis
is essential. In this text, we will be using very elementary applications of
business analytics using common and available computer software.
Throughout our text, we will use Microsoft Excel and, occasionally,
Minitab. Universities and colleges usually offer access to Microsoft Excel.
Your computer already may be packaged with Microsoft Excel. If not, the
Microsoft Office package with Excel often is sold at a reduced academic
price through your university or college. In this text, we use Excel for the
majority of the applications. We also use an Excel “Add-in” called
MegaStat. If your instructor requires this package, it is available at
www.mhhe.com/megastat. This add-in gives Excel the capability to
produce additional statistical reports. Occasionally, we use Minitab to
illustrate an application. See www.minitab.com for further information.
Minitab also offers discounted academic pricing. The 2016 version of
Microsoft Excel supports the analyses in our text. However, earlier versions
of Excel for Apple Mac computers do not have the necessary add-in. If you
do not have Excel 2016 and are using an Apple Mac computer with Excel,
you can download the free, trial version of StatPlus at
www.analystsoft.com. It is a statistical software package that will integrate
with Excel for Mac computers.
The following example shows the application of Excel to perform a
statistical summary. It refers to sales information from the Applewood Auto
Group, a multi-location car sales and service company. The Applewood
information has sales information for 180 vehicle sales. Each sale is
described by several variables: the age of the buyer, whether the buyer is a
repeat customer, the location of the dealership for the sale, the type of
vehicle sold, and the profit for the sale. The following shows Excel’s
summary of statistics for the variable profit. The summary of profit shows
the mean profit per vehicle was $1,843.17, the median profit was slightly
more at $1,882.50, and profit ranged from $294 to $3,292.

image
Source: Microsoft Excel

image
Tutorial
#20 in
Connect
 Throughout the text, we will encourage the use of computer software to
summarize, describe, and present information and data. To demonstrate the
application of statistical analysis in Excel, Connect includes tutorials
referenced with the icon shown in the left margin. In addition, Connect also
includes data files for many exercises that can be opened directly with
statistical software and spreadsheets.

page 14

CHAPTER SUMMARY

I. Statistics is the science of collecting, organizing, presenting,

analyzing, and interpreting data to assist in making more effective
decisions.
II. There are two types of statistics.
A. Descriptive statistics are procedures used to organize and
summarize data.
B. Inferential statistics involve taking a sample from a population
and making estimates about a population based on the sample
results.
1. A population is an entire set of individuals or objects of interest
or the measurements obtained from all individuals or objects of
interest.
2. A sample is a part of the population.
III. There are two types of variables.
A. A qualitative variable is nonnumeric.
1. Usually we are interested in the number or percent of the
observations in each category.
2. Qualitative data usually are summarized in graphs and bar
charts.
B. There are two types of quantitative variables and they usually are
reported numerically.
1. Discrete variables can assume only certain values, and there are
usually gaps between values.
 A continuous variable can assume any value within a specified
2. range.
IV. There are four levels of measurement.
A. With the nominal level, the data are sorted into categories with no
particular order to the categories.
B. The ordinal level of measurement presumes that one classification
is ranked higher than another.
C. The interval level of measurement has the ranking characteristic
of the ordinal level of measurement plus the characteristic that the
distance between values is a constant size.
D. The ratio level of measurement has all the characteristics of the
interval level, plus there is a 0 point and the ratio of two values is
meaningful.

CHAPTER EXERCISES

5. Explain the difference between qualitative and quantitative

variables. Give an example of qualitative and quantitative
variables.
6. Explain the difference between a sample and a population.
7. Explain the difference between a discrete and a continuous
variable. Give an example of each not included in the text.
8. For the following situations, would you collect information using
a sample or a population? Why?
a. Statistics 201 is a course taught at a university. Professor Rauch
has taught nearly 1,500 students in the course over the past 5
years. You would like to know the average grade for the course.
b. As part of a research project, you need to report the average
profit as a percentage of revenue for the #1-ranked corporation
in the Fortune 500 for each of the last 10 years.
c. You are looking forward to graduation and your first job as a
salesperson for one of five large pharmaceutical corporations.
Planning for your interviews, you will need to know about each
company’s mission, profitability, products, and markets.
 d. You are shopping for a new digital music player such as the
Apple iPod. You would like to estimate the typical amount of
memory for a digital music player.
9. Exits along interstate highways were formerly numbered
successively from the western or southern border of a state.
However, the Department of Transportation changed most of them
to agree with the numbers on the mile markers along the highway.
a. What level of measurement were data on the consecutive exit
numbers?
b. What level of measurement are data on the milepost numbers?
c. Discuss the advantages of the newer system.
10. A poll solicits a large number of college undergraduates page 15
for information on the following variables: the name of
their cell phone provider (AT&T, Verizon, and so on), the numbers
of minutes used last month (200, 400, for example), and their
satisfaction with the service (Terrible, Adequate, Excellent, and so
forth). What is the level of measurement for each of these three
variables?
11. Best Buy sells Fitbit wearable technology products that track a
person’s activity. For example, the Fitbit technology collects daily
information on a person’s number of steps so that a person can
track calories burned. The information can be synced with a cell
phone and displayed with a Fitbit app. Assume you know the daily
number of Fitbit Flex 2 units sold last month at the Best Buy store
in Collegeville, Pennsylvania. Describe a situation where the
number of units sold is considered a sample. Illustrate a second
situation where the number of units sold is considered a
population.
12. Using the concepts of sample and population, describe how a
presidential election is unlike an “exit” poll of the electorate.
13. Place these variables in the following classification tables. For
each table, summarize your observations and evaluate if the
results are generally true. For example, salary is reported as a
continuous quantitative variable. It is also a continuous ratio-
scaled variable.
a. Salary
b. Gender
 c. Sales volume of digital music players
d. Soft drink preference
e. Temperature
f. SAT scores
g. Student rank in class
h. Rating of a finance professor
i. Number of home video screens

image

image
14. Using data from such publications as the Statistical Abstract of the
United States, Forbes, or any news source, give examples of
variables measured with nominal, ordinal, interval, and ratio
scales.
15. The Struthers Wells Corporation employs more than 10,000 white-
collar workers in its sales offices and manufacturing facilities in
the United States, Europe, and Asia. A sample of 300 U.S.
workers revealed 120 would accept a transfer to a location outside
the United States. On the basis of these findings, write a brief
memo to Ms. Wanda Carter, Vice President of Human Services,
regarding all white-collar workers in the firm and their willingness
to relocate.
16. AVX Home Entertainment Inc. recently began a “no-hassles”
return policy. A sample of 500 customers who recently returned
items showed 400 thought the policy was fair, 32 thought it took
too long to complete the transaction, and the rest had no opinion.
On the basis of this information, make an inference about
customer reaction to the new policy.
17. image MarkLines is an online portal (www.marklines.com) that
reports automotive industry data. The table below shows the
number of cars sold in the United States in 2018 and 2019. The
top 22 manufacturers, plus others, are listed here. Sales data often
are reported in this way to compare current sales to last year’s
sales.
This image icon indicates that the data are available in Connect.
You will be able to download the data directly into statistical
software from this site.

Car Sales
Manufacturer Jan.– Jan.–
Dec.2019 Dec.2018
GM (Est.) 2,877,590 2,951,200
Ford 2,406,188 2,485,222
Toyota 2,383,349 2,426,674
FCA (Est.) 2,203,663 2,235,204
Honda 1,608,170 1,604,828
Nissan 1,345,681 1,493,877
Hyundai 710,007 677,946
Subaru 700,117 680,135
Kia 615,338 589,673
VW 363,322 354,064
Mercedes (includes 357,730 354,137
Sprinter)
BMW 324,826 311,014
Mazda 278,552 300,325
Audi 224,111 223,323
Tesla (Est.) 178,950 126,150
Mitsubishi 121,046 118,074
Volvo 108,234 98,263
Land Rover 94,736 92,143
Porsche 61,568 57,202
 Car Sales
Manufacturer Jan.– Jan.–
Dec.2019 Dec.2018
MINI 36,092 43,684
Jaguar 31,051 30,483
Others 16,724 19,346
smart 680 1,276

page 16

a. Using computer software, compare 2018 sales to the 2019 sales

for each manufacturer by computing the difference. Make a list
of the manufacturers that increased sales from 2018 to 2019;
make a list of manufacturers that decreased sales.
b. Using computer software, compare 2018 sales to 2019 sales for
each manufacturer by computing the percentage change in
sales. Make a list of the manufacturers in order of increasing
percentage changes. Which manufacturers are in the top five in
percentage change? Which manufacturers are in the bottom five
in percentage change?
c. Using computer software, first sort the data using the 2019
year-to-date sales. Then, design a bar graph to illustrate the
2018 and 2019 year-to-date sales for the top 10 manufacturers.
Also, design a bar graph to illustrate the percentage change for
the top 10 manufacturers. Compare these two graphs and
prepare a brief written report.
18. The following chart depicts the average amounts spent by
consumers on holiday gifts.
image
Source: Microsoft Excel

Write a brief report summarizing the amounts spent during page 17

the holidays. Be sure to include the total amount spent and
the percent spent by each group.
19. The following chart depicts the earnings in billions of dollars for
ExxonMobil for the period 2005 until 2019. Write a brief report
discussing the earnings at ExxonMobil during the period. Was one
year higher than the others? Did the earnings increase, decrease,
or stay the same over the period?
image
Source: Microsoft Excel

DATA ANALYTICS

20. image Refer to the North Valley Real Estate data, which report
information on homes sold in the area last year. Consider the
following variables: selling price, number of bedrooms, township,
and mortgage type.
a. Which of the variables are qualitative and which are
quantitative?
b. How is each variable measured? Determine the level of
measurement for each of the variables.
21. image Refer to the Baseball 2019 data, which report information
on the 30 Major League Baseball teams for the 2019 season.
Consider the following variables: number of wins, payroll, season
attendance, whether the team is in the American or National
League, and the number of home runs hit.
a. Which of these variables are quantitative and which are
qualitative?
b. Determine the level of measurement for each of the variables.
22. image Refer to the Lincolnville School District bus data, which
report information on the school district’s bus fleet.
a. Which of the variables are qualitative and which are
quantitative?
b. Determine the level of measurement for each variable.

PRACTICE TEST
There is a practice test at the end of each chapter. The tests are in two
parts. The first part includes 10 to 15 objective questions, usually in a
fill-in-the-blank format. The second part includes problems. In most
cases, it should take 30 to 45 minutes to complete the test. The
problems will require a calculator. Check your answers against those
provided in Appendix C in the back of the book.

Part 1—Objective
1. The science of collecting, organizing, presenting, analyzing, and
interpreting data to assist in making more effective decisions is
referred to as _______.
2. Methods of organizing, summarizing, and presenting data in an
enlightening way are called _______.
3. The methods used to estimate a value of a population on page 18
the basis of a sample are called _______.
4. A portion, or part, of the group of interest is referred to as a
_______.
5. The entire set of individuals or objects of interest or the
measurements obtained from all individuals or objects of interest
is known as a _______.
6. With the _______ level of measurement, the data are sorted into
categories with no particular order to the categories.
7. The _______ level of measurement has a significant zero point.
8. The _______ level of measurement presumes that one
classification is ranked higher than another.
9. The _______ level of measurement has the characteristic that the
distance between values is a constant size.
10. Is the number of bedrooms in a house a discrete or continuous
variable? _______.
11. The jersey numbers on baseball uniforms are an example of the
_______ level of measurement.
12. What level of measurement is used when students are classified by
eye color? _______.
Part 2—Problems
1. Thirty million pounds of snack food were eaten during a recent
Super Bowl Sunday. The chart below describes this information.

image

a. Estimate, in millions of pounds, the amount of potato chips

eaten during the game.
b. Calculate approximately the ratio of potato chips consumed to
popcorn consumed (twice as much, half as much, three times as
much, etc.).
c. What percent of the total consists of potato chips and tortilla
chips?
2. There are 14 freshmen, 18 sophomores, 10 juniors, and 6 seniors
enrolled in an introductory finance class. Answer the following
questions.
a. What is the level of measurement for this student data?
b. What percent of the students are either freshmen or
sophomores?