Virtually All of Chapter 14 Is Spent Discussing the Violation

question 4

Essay

Virtually all of Chapter 14 is spent discussing the violation of the assumption that the error term is independent of the explanatory variables.
(a) Under what circumstances might that assumption be violated?
(b) What would the violation of that assumption be likely to cause?
(c) What general technique is used to rid the equation of this problem? Specifically, how does
it work?

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Definitions:

Caveat Venditor

A principle meaning "let the seller beware", placing the burden on sellers to disclose defects and ensure the product meets certain standards.

Caveat Emptor

“Let the buyer beware.”

Unmerchantable

Referring to goods or products that fail to meet minimum quality standards for sale to consumers or are otherwise unfit for their intended purpose.

Merchantability

A warranty that goods sold meet reasonable quality and usage standards as per the market.