A Realtor Wants to Predict and Compare the Prices of Homes

question 94

Essay

A realtor wants to predict and compare the prices of homes in three neighboring locations. She considers the following linear models:
Model A: Price = β₀ + β₁ Size + β₂ Age + ε
Model B: Price = β₀ + β₁ Size + β₃ Loc1 + β₄ Loc2 + ε
Model C: Price = β₀ + β₁ Size + β₂ Age + β₃ Loc1 + β₄ Loc2 + ε
where,
Price = the price of a home (in $1,000s)
Size = the square footage (in sq. feet)
Loc1 = a dummy variable taking on 1 for Location 1, and 0 otherwise
Loc2 = a dummy variable taking on 1 for Location 2, and 0 otherwise
After collecting data on 52 sales and applying regression, her findings were summarized in the following table. Note: The values of relevant test statistics are shown in parentheses below the estimated coefficients.
Using Model C, define the null hypothesis for testing the joint significance of the two dummy variables.

Analyze the effects of elasticity on business and economic decisions.

Describe the implications of elasticity on revenue for different types of goods.

Understand the role of substitutes and the broadness of market definition on elasticity.

Appreciate the theoretical underpinnings of supply and demand through the lens of elasticity.

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Definitions:

Voidable

A term applied to a contract that one or both parties have the ability to either withdraw from or enforce.

Good Title

A legal term indicating that a property title is valid and free of any liens or other encumbrances that might hinder its sale or use.

Fair Market Value

The price at which property would sell on the open market between a willing buyer and a willing seller, each having reasonable knowledge of the relevant facts.

Recourse

Recourse refers to the legal right to demand compensation or payment from an individual or entity responsible for a loss, debt, or other obligation.