Problem: We are interested in investigating whether rent rates are influenced by

Question

Problem: We are interested in investigating whether rent rates are influenced by the student population in a collegetown. Let rent be the average monthly rent paid on rental units in a college town in the United States. Let pop denote the total city population, angine the average city income, and petste the student population as a percentage of the total population. One model to test for a relationship is In(rent) = 0 + 1 ln(pop) + 2 ln(avginc) + 3pctstu + u (i) What signs do you expect for 1 and 2? Why? Justify your rationale. (20 points) (i) State the null hypothesis that the size of the student body relative to the population has no ceteris paribus effect on monthly rents. State the alternative that there is a positive effect. (10 points)

Explanation / Answer

(i) B1 is the coefficient of ln(pop) and B1 can be strongly positive as more the population of a city more will be the rent.

Rational: If the population is more there will be more requirement for preople to stay in a particular city and considering rest of the parameters constant more population brings more requirement for the people to have rented house and as the demand supply law stats more requirement and constant supply increases the price and so in this context more population needs more houses and so it leads to higher rent. So the B1 should be +ve.

B2 is the coefficient of ln(avginc) and B2 can be strongly positive as more the avginc of a city more will be the rent.

Rational: If the income of a city is more the people are willing to pay more for the hose rent as they will have more surplus which in economic term we refer as consumer surplus. so here we can conclude that more avg income leads to more rent and so here we can say that B2 should also be +ve

(ii) so here we need to create the null hypothesis stating that size of the student body relative to the population has no effect on the monthly rent. Which ulimately tells us that the coefficient of pctsu i.e. size of the student body relative to the population should be zero since we are saying in the Ho that it doesn't have any relation on the monthly rent.

So.,

Null hypothesis Ho: B3 =0

and alternative hypothesis H1: B3>0 (Since here we are testing against pctstu 's +ve effect on the monthly rent and so it becomes an upper tail test and so here we have > sign in the alternative hypothesis and not =/= )

So., H0: B3=0

and H1: B3 >0

Hope the above ans has helped you in understanding the problem. Pls upvote the ans if it has really helped you. good Luck!!

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.