According to the National Association of Home Builders the m

According to the National Association of Home Builders, the mean price of an existing singlefamily home in 2009 was $218,600. A real estate broker believes that the mean price has decreased since 2009 because of the recent credit crunch. Define the parameter(s) of the real estate broker is interested in. What type of the data and problem is. Determine the null hypothesis H_0 and alternative hypothesis H_1. Explain what it would mean to make a Type I error in the context of this problem. Explain what it would mean to make a Type II error in the context of this problem.

Solution

a)

He is interested in the present mean price, whether or not it is less than $218600.. It is a ratio, quantitative variable.

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b)

Ho: u >= 218600
Ha: u < 218600

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c)

A type I error is incorrectly rejecting a true null hypothesis.

Thus, it is concluding that the mean price is less than 218600, when in fact, it is not.

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d)

A type II error is incorrectly failing to reject a false null hypothesis.

Thus, it is concluding that the mean price is not less than 218600, when in fact, it is.