Question

The university claims that the average cost of accommodation(μo) within five kilometers is 2000 JD per academic year. A university student is preparing her budget for her first year at the university. She is concerned that the university’s estimate is too low. Having taken AP statistics, she decides to perform the following test of Hypothesis; Ho: μ = 2000 JD Ha: μ ˃ 2000 JD (a)- Describe the type I and type II for this problem (b)- Which of the two errors I or II has more serious consequences for the student, and Why?

Subject: Probability and statistics

Answer 1

(a)

Type I error : Rejecting the Null hypothesis when actually Null hypothesis is true.

In this example, Type I error is that the student rejects the hypothesis that average cost of accomodation is 2000 and believes that cost is greater than 2000. But actually the Null hypothesis is true, which means that the average cost of accomodation is 2000.  

In this scenerio student will budget more money for accomodation.

Type II error: Failing to reject the Null hypothesis when actuall Null hypothesis is false.

In this example, Type II error is when student fails to reject the Null hypothesis; i,e. student believes that the average cost of accomodation is equal to 2000. But actually the Null hypothesis is false, i.e. average cost of accomodation is greater than 2000.

In this scenerio student will budget less money for accomodation and will be in serious trouble.

(b) Type II error has more serious consequences as student has budgeted less money for accomodation.