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Description of Hypothesis Testing

The average price of regular gasoline in the continental US states and the District of Columbia was $3.74 on August 18, 2008. Alaska and Hawaii are not included as the gas prices there are much higher than the continental US. The price of gasoline in the eleven western states of the US (Daily Fuel Gauge Report) on the same day is given below. Test the hypothesis that the average price of gasoline in the western states is higher than the national average for Continental USA and the District of Columbia, i.e., higher than $3.74. Use level of significance α = 0.05.

California $4.04
Arizona $3.72
Colorado $3.83
Idaho $4.01
Montana $3.97
Nevada $3.84
New Mexico $3.77
Oregon $3.92
Utah $4.04
Washington $3.99
Wyoming $3.90

Solution Preview

Solution:

Step 1: Set up the hypotheses:

Null hypothesis H0:
Alternative hypothesis Ha:

Step 2: Decision rule:

If the test t-statistic t>1.796, then we should reject the null hypothesis H0.

Step 3: ...

Solution Summary

The solution provides a description of hypothesis testing. The average price of regular gasoline in the continental United States and the District of Columbia is determined.

$2.19