Instruction 16-4 A Certain Type of Rare Gem Serves as a Status

question 74

Multiple Choice

Instruction 16-4
A certain type of rare gem serves as a status symbol for many of its owners. In theory, for low prices, the demand decreases as the price of the gem increases. However, experts hypothesise that when the gem is valued at very high prices, the demand increases with price due to the status owners believe they gain in obtaining the gem. Thus, the model proposed to best explain the demand for the gem by its price is the quadratic model:
Y = β₀ + β₁X + β₂X² + ^ε
where Y = demand (in thousands) and X = retail price per carat.
This model was fit to data collected for a sample of 12 rare gems of this type. A portion of the computer analysis obtained from Microsoft Excel is shown below:
Note: Std. Error = Standard Error
-Referring to Instruction 16-4,and noting that this model includes both a linear and a quadratic term,what is the correct interpretation of the coefficient of multiple determination?

• A) 98.8% of the total variation in demand can be explained by the linear relationship between demand and price.
• B) 98.8% of the total variation in demand can be explained by the addition of the square term in price.
• C) 98.8% of the total variation in demand can be explained by just the square term in price.
• D) 98.8% of the total variation in demand can be explained by the quadratic relationship between demand and price.

---

Definitions:

Farm Price Supports

Government subsidies designed to maintain the income of farmers by stabilizing the prices of agricultural products.

Corporate Farms

Large-scale agricultural operations owned or operated by companies rather than individuals or families, often involved in intensive farming practices.

Agriculture

The practice of cultivating the soil, growing crops, and raising livestock for human consumption and use.

Productive Sectors

Parts of the economy that are directly involved in producing goods and services, contributing to the economic output.