Question

Consider a scenario in which we decide to compare the price of our textbook on eBay versus in the University bookstore. For that purpose, we collect 8 observations of sold used copies of the book on eBay. The average price on eBay is $60. We also compute the sample standard deviation of $20. The price at the University bookstore is $75 for a used copy.

Please construct a 95% significance test for the hypothesis that the average price of the used book on eBay is equal to $75 and state the results of the test here.

Question 1 options:

	The test fails to reject the null hypothesis that the average price on eBay is 75 dollars.
	The test rejects the null hypothesis that the average price on eBay is 75 dollars.
	None of the above, as such a test cannot be constructed

Answer 1

H0: = 75

Ha: 75

Test statistics

t = - / S / sqrt(n)

= 60 - 75 / 20 / sqrt(8)

= -2.1213

This is test statistics value.

df = n-1 = 8-1 = 7

t critical value at 0.05 significance level for 7 df = 2.365

Since test statistics value is between critical value interval, that is between -2.365 and 2.365,

we do not have sufficient evidence to reject H0.

We conclude at 0.05 level that the test fails to reject the null hypothesis that the average price on

eBay is 75 dollars.