Suppose the Relationship Between Temperature and Demand for Electricity Is

question 12

Multiple Choice

Suppose the relationship between temperature and demand for electricity is non-linear, due to the high demand for electricity when it is both very cold and very hot outside. What is the risk of estimating the effect of price on demand for electricity by the regression equation: Electricity Consumption_t = α₀ + α₁Price_t + α₂Temperature_t + U_t?

• A) The estimate of α₁ will be biased.
• B) The sample will not be representative.
• C) Electricity consumption will be censored from above.
• D) None of the answers is correct.

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Definitions:

Quantifiable

Capable of being measured or expressed as a quantity, enabling numerical assessment or comparison.

System II

A term often used in psychology to describe the deliberative, analytical form of cognition that requires concentration and is slower than intuitive thinking.

Intuitive Thinking

A cognitive process that involves making judgments and solving problems based on implicit knowledge and feelings, rather than explicit reasoning.

Reasoning

The mental process of generating conclusions, judgments, or inferences from facts or premises.