Suppose You Have Many Observations of the Price of Refrigerators

question 26

Multiple Choice

Suppose you have many observations of the price of refrigerators, with other characteristics including their energy cost as well as whether or not they are stainless steel. Now, suppose you ran the standard linear regression of price on energy cost: Price_i = β₀ + β₁ Energy Cost_i + U_i and got an estimate of β₁. Now, suppose you know that stainless steel refrigerators are more popular (i.e., sell for higher prices holding all other characteristics constant) and tend to be in more energy efficient (i.e., lower energy cost) refrigerator models. What should you expect your estimate of β₁ in the following regression Price_i = β₀* + β₁*Energy Cost_i + β₂* Stainless Steel_i + U_i to be?

• A) β₁* < β₁
• B) β₁* > β₁
• C) β₁* = β₁
• D) You cannot tell from the information given.

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Definitions:

Inherited Genetic Mutations

Genetic alterations passed from parent to offspring that can lead to certain diseases or physical abnormalities.

Reproductive Systems

The biological systems in both males and females that are involved in the production and facilitation of offspring through sexual reproduction.

Digestive System

A complex bodily system comprising the gastrointestinal tract and accessory organs like the liver and pancreas, essential for processing food and absorbing nutrients.

Socioeconomic Factors

The social and economic experiences and realities that shape an individual's or group's behavior, attitudes, and opportunities.