Question

Three years​ ago, the mean price of an existing​ single-family home was ​$243,779. A real estate broker believes that existing home prices in her neighborhood are higher.

​(a)	Determine the null and alternative hypotheses.
​(b)	Explain what it would mean to make a Type I error.
​(c)	Explain what it would mean to make a Type II error.

Answer 1

a) We need to test if the existing home prices in her neighborhood are higher. So, our hypotheses will be:

Ho: = 243779

Ha: > 243779

b) Type I error is associated with the probability of rejecting the true null hypothesis so in this context, it will be:

Reject the null hypothesis and conclude that existing home prices in her neighborhood are higher.whereas in actual, they are the same.

c) Type II error is associated with the probability of not rejecting the false null hypothesis so in this context, it will be:

Fail to reject the null hypothesis and conclude that existing home prices in her neighborhood are not higher.whereas in actual, they are higher.