answer and show work for all parts (i, ii, iii) (ii) With inc on the x-axis, dra
ID: 1146332 • Letter: A
Question
answer and show work for all parts (i, ii, iii)
(ii) With inc on the x-axis, draw a graph of the estimated MPC amdnI 6 Using data from 1988 for houses sold in Andover, Massachusetts, from Kiel and McClain (1995, the following equation relates housing price (price) to the distance from a recently built garbage incin- erator (dist): log(price) 940 0.312 log(dist) 135, R2-0.162. , (i) Interpret the coefficient on log(dist). Is the sign of this estimate what you expect it to be? (ii) Do you think simple regression provides an unbiased estimator of the ceteris paribus elasticity of price with respect to dist? (Think about the city's decision on where to put the incinerator.) ii) What other factors about a house affect its price? Might these be correlated with distance from the incinerator?Explanation / Answer
1) The coefficient on log(dist) signifies the expected %change in price per 1% change in dist. Thus an increase in the distance from a recently built garbage incinerator to the house increases the price of the house and provides the positive sign of the coefficient is in line with what is expected; and further signifies that population do not prefer staing closer to the garbage incinerator.
2) When the city decides to place incinerator far away from luxurious residential area, then it displays that log(dist) will be positively correlated with housing quality. It violates SLR.4, and thus the OLS estimates are biased.
3) There are many other factors that may affect the housing price are supply and demand of houses such as demographics and economic growth among others. The size of the house, age of home and quality of nearby schools are also correlated with distance from incinerator. Furthermore there are environmental issues like air pollution and health hazarad that may arise in the areas with garbage incinerator.
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