b) Do you think this equation includes an irrelevant variable? If so, which one,

Question

b) Do you think this equation includes an irrelevant variable? If so, which one, and how would it affect the other coefficients?

Suppose you want to estimate the price of an iPad at the internet auction site eBay, and you obtain the following equation: PRICE 109.24 54.99NEW 20.44SCRATCH0.73BIDDERS (5.34) (0.59) N 215 where the standard errors are in parentheses, and: PRICEi is the price at which iPad i is sold on eBay - NEW is a dummy variable that is 1 if iPad i is new i SCRATCHi is a dummy variable that is 1 if iPad i has any scratches BIDDERSi is the number of bidders on iPad i

Explanation / Answer

from above we need to check test stat fopr each variable which is equal to estimate of variable/std error for variable

degree of freedom =n-p =215-4 =211

for New ; test stat =(54.99/5.34)=10.2978 ; p vlaue =0.0000

for Scratch;test stat =-20.44/5.11 =-4 ; p value =0.0000

for Bidders  test stat = 0.73/.59 =1.2373 ; p value =0.2174

as absolute test stat for bidders is low or p value is considerably high ; therefore varibale bidder is an irrelevant variable.

as it does not have any significant effect it may distort the relationship between price and other independent variables,

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