Questions The website a.com publishes data on cars that are sold in the to fuel

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Questions The website a.com publishes data on cars that are sold in the to fuel edmund website on at the back that consumption of US cars, an (old) data set was collected from this attached were for sale in the Usin 2002. The description of the variables of this midterm. vehicle in city was out of the acity (the mileage per gallon gas use of the driving) on and the following output was obtained Model 13: OLS, using observations 1-251 Dependent variable: city Coefficient Std. Error t-ratio p-value 1.39031 23.8954 0.0000 const 33.2219 .0.2649 subcom 2.85507 2.55508 compact 2.82368 0.529729 fullsize 0.925834 0.702594 5.3304 0.0000 1.3177 0.1888 luxury 0.152203 0.557648 0.2729 0.7851 1.58939 0.859509 1.8492 0.0657 sport horse -0.0144873 0.00680939 2.1275 0.0344 0.484407 0.303060 -1.5984 0.1113 Disp -0.674725 0.43624 -1.5467 0.1233 fuel 0.389952 0.0784792 4.9689 msrp 2.26198e-05 2.30734e-05 0.gs08 0,3279 Mean dependent var 20.00797 S.D. dependent var 4.548399 Sum squared resid 1533.265 S.E. of regression 2.522319 0.703544 Adjusted R2 0.692473 63.54858 P-value(F) F(9,241) 1.22e-58 Log likelihood -583.2711 Akaike criterion 1186.542 Schwarz criterion 1221.797 Hannan. 1200.730 -Quinn

Explanation / Answer

Because both the variables are categorical in nature , they are flag variables that can take values 0 and 1

hence substracting this would lead to a loss of information which would not add any value to the model.

example is

subcom=1 and compact =1

then 1-1 = 0 , which means nothing , also

if the 2 variables are different , then too the model would not know from where the information is coming as we are squaring the results

eg

subcom=0 and compact =1 , then difference would be -1 and squaring it would be 1 . We would not be able to interpret the results as to from where the value 1 came .

Is it from

subcom=0 and compact =1

or from

subcom=1 and compact =0

  

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