MATLAB: An Introduction with Applications
MATLAB: An Introduction with Applications
6th Edition
ISBN: 9781119256830
Author: Amos Gilat
Publisher: John Wiley & Sons Inc
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The following equation describes the median housing price in a community in terms of amount of
pollution (nox for nitrous oxide) and the average number of rooms in houses in the community (rooms):
log(price) = Bo + B1 log(nox) + B2rooms + u
(a) Why might nox (or more precisely, log(nox)) and rooms be negatively correlated? If this is the case, does the
simple regression of log(price) on log(nox) produce an upward or a downward biased estimator of ß,?
Using the data in HPRICE2, the following equations were estimated:
log(price)
= 11.71 – 1.043 log(nox), n = 506, R²
.264.
log(price)
= 9.23 – .718 log(nox) + .306 rooms, n = 506, R² = .514.
(b) Is the relationship between the simple and multiple regression estimates of the elasticity of price with
respect to nox what you would have predicted, given your answer in part (a)? Does this mean that -.718
is closer to the true elasticity than -1.043?
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Transcribed Image Text:The following equation describes the median housing price in a community in terms of amount of pollution (nox for nitrous oxide) and the average number of rooms in houses in the community (rooms): log(price) = Bo + B1 log(nox) + B2rooms + u (a) Why might nox (or more precisely, log(nox)) and rooms be negatively correlated? If this is the case, does the simple regression of log(price) on log(nox) produce an upward or a downward biased estimator of ß,? Using the data in HPRICE2, the following equations were estimated: log(price) = 11.71 – 1.043 log(nox), n = 506, R² .264. log(price) = 9.23 – .718 log(nox) + .306 rooms, n = 506, R² = .514. (b) Is the relationship between the simple and multiple regression estimates of the elasticity of price with respect to nox what you would have predicted, given your answer in part (a)? Does this mean that -.718 is closer to the true elasticity than -1.043?
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