Consider the following estimated regression equation: Price i = 109.24 + 54.99 N

Question

Consider the following estimated regression equation:

Pricei = 109.24 + 54.99 Newi – 20.44 Scratchi + 0.73 Bidrsi

P - Values =          (0.000)              (0.001)            (0:455)

where:

Pricei = the price at which the ith iPod sold on eBay

Newi = a dummy variable equal to 1 if the ith iPod was new, 0 otherwise

Scratchi = a dummy variable equal to 1 if the ith iPod had a minor cosmetic defect, 0 otherwise

Bidrsi = the number of bidders on the ith iPod

Form a hypothesis test for the coefficients of Newi. What do you conclude based on the

P-values? Is the coefficient Newi statistically significant? Explain

Is the same coefficient economically significant? Explain

Explanation / Answer

Since p value is 0.000 for Newi which implies that new ith ipod sold have a significant price differemce as compared to old.

Yes it should be economically significant because if the difference is not significant then every seller wants to sell old and every buyer will purcahase new ipod and there will be no transaction of second hand ipod or old ipods

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