Suppose you estimate a population regression function where Y represents the amo

Question

Suppose you estimate a population regression function

where Y represents the amount of insurance purchases in millions of dollars,
X1 represents the income of the buyer of insurance in thousands of dollars,
X2 is a dummy variable equaling 1 if the individual is male and
X3, X4 and X5 represent the region of the country in which the purchaser resides (X3 = 1 if purchaser is from Northeast; X4 = 1 if purchaser is from South, X5 = 1 if purchaser is from Midwest (the omitted region is West).

Estimating this regression you obtain:

From the regression above, the region with the highest expected insurance amount purchased holding all else constant is:

a) Northeast

b) South

c) Midwest

d) West

e) Cannot be determined with the information given

Regresstion Table Coefficient Constant 0.15 X1 0.02 X2 0.25 X3 0.15 X4 -0.05 X5 0.07

Explanation / Answer

The coefficient of X3 is the highest among the regions and that represents the Northeast region so demand would be highest in this region.

Option A is correct.

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