Question

2.According to www.city-data, the mean price for a detached house in Franklin County, OH in 2009 was $192,723. Suppose we know that the standard deviation was $42,000. Check the three assumptions associated with the Central Limit Theorem. What is the probability that a random sample of 75 detached houses in Franklin County had a mean price greater than $190,000 in 2009

Answer 1

0.7123 = 71.23% probability that a random sample of 75 detached houses in Franklin County had a mean price greater than $190,000 in 2009.

Explanation:

To solve this question, we need to understand the normal probability distribution and the central limit theorem.

Normal Probability Distribution

Problems of normal distributions can be solved using the z-score formula.

In a set with mean
`\mu` and standard deviation
`\sigma`, the z-score of a measure X is given by:

`Z = (X - \mu)/(\sigma)`

The Z-score measures how many standard deviations the measure is from the mean. After finding the Z-score, we look at the z-score table and find the p-value associated with this z-score. This p-value is the probability that the value of the measure is smaller than X, that is, the percentile of X. Subtracting 1 by the p-value, we get the probability that the value of the measure is greater than X.

Central Limit Theorem

The Central Limit Theorem establishes that, for a normally distributed random variable X, with mean
`\mu` and standard deviation
`\sigma`, the sampling distribution of the sample means with size n can be approximated to a normal distribution with mean
`\mu` and standard deviation
`s = (\sigma)/(√(n))`.

For a skewed variable, the Central Limit Theorem can also be applied, as long as n is at least 30.

The mean price for a detached house in Franklin County, OH in 2009 was $192,723. Suppose we know that the standard deviation was $42,000.

This means that
`\mu = 192723, \sigma = 42000`

Sample of 75:

This means that
`n = 75, s = (42000)/(√(75))`

What is the probability that a random sample of 75 detached houses in Franklin County had a mean price greater than $190,000 in 2009?

1 subtracted by the p-value of Z when X = 190000. So

`Z = (X - \mu)/(\sigma)`

By the Central Limit Theorem

`Z = (X - \mu)/(s)`

`Z = (190000 - 192723)/((42000)/(√(75)))`

`Z = -0.56`

`Z = -0.56` has a p-value of 0.2877

1 - 0.2877 = 0.7123

0.7123 = 71.23% probability that a random sample of 75 detached houses in Franklin County had a mean price greater than $190,000 in 2009.