3) The folowing equation relates housing prices in Sackville to the distance fro

Question

3) The folowing equation relates housing prices in Sackville to the distance from the university, the number of rooms and the average ambient noise in decibels measured in the house's yard. log(price) oB log(distMTA)+Prooms+Bnoise u a) (5 points) What is the probable sign of ? What is the interpretation of A ? Explain. b) (5 points) Why might distMTA [or more precisely log(distMTA)] and noise be negatively correlated? c) (5 points) If distMTA and noise are negatively correlated, does the following regression produce an upward or downward biased estimator of A?

Explanation / Answer

a) As with the increase of distance from the university the price will decrease so we may say that B1 may have negative sign.

B1 represents increase in log(price) if log(distMTA) increases one unit.

b) If the university is more distant then there will be less noise so they are negatively correlated.

c) It will give an upward biased estimator

d) Yes here as we discussed B1 is negative

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