A Realtor Wants to Predict and Compare the Prices of Homes

question 14

Short Answer

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 B, compute the predicted difference between the price of homes with the same square footage located in Location 2 and Location 3.

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Definitions:

Size Constancy

A perceptual process by which humans perceive objects as having a constant size, despite changes in the distance from which we view them.

Retinal Disparity

The slight difference in the images projected on the two retinas, which contributes to depth perception in binocular vision.

Stereopsis

The perception of depth and three-dimensional structure obtained on the basis of visual information deriving from two eyes by individuals with normally developed binocular vision.

Figure-Ground

A perceptual principle referring to the organization of visual elements into foreground figures that stand out against a background.