20211104 Class Activity 3

Name: 潘氏春瓊 (Quinn)

Student ID: 11096020

Exercise 7/ P.104:

a. The dependent variable is: PRICE

The independent variable is: BIDRS
The dummy variables are: NEW and SCRATCH
b. An equation representing the relationship between the price and the condition of
the iPod is expected to be:
(+) (-) (+)
PRICEi = β0 + β1NEWi + β2SCRATCHi + β3BIDRSi + ɛi
where: PRICEi = the price at which the ith iPod sold on eBay
NEWi = a dummy variable equal to 1 if the ith iPod was new, 0 otherwise
SCARTCHi = a dummy variable equal to 1 if the ith iPod had a minor
cosmetic defect, 0 otherwise
BIDRSi = the number of bidders on the ith iPod
Explain:
The coefficient β1 indicates that the price can be increased if the iPod is new, the
slopes (SCRATCH and BIDRS) remain constant. The coefficient β 3 illustrates
that the higher number of bidders lead to the higher the iPod’s price. Since the
condition of the iPod is new and the bidders of the iPod is high can be expected to
increase the price of the iPod. So that I expected positive coefficients for both
variables.
The coefficient β 2 shows that if the iPod have a scratch or other defect, the price
of the iPod can be decreased, the slopes remain constant. Hence, I predicted the
relationship between this variable and the dependent variable is negative.
c. Yes. Because whether the iPod’s condition is still the same, we can not control the
number of bidders within 3 weeks which can still be able to influence the price of
the iPod. So I am concerned that the observations are not comparable during the
time change, however it may be able to use because the time period is short.
d. ^
PRICE = 109.24 + 54.99NEWi – 20.44SCRATCHi + 0.73BIDRSi
(5.43) (5.11) (0.59)
t= 10.28 - 4.00 1.23
N = 215
Explain: The data set contains 215 observations. The number in parentheses is
the estimated standard error of the estimated coefficient, which means the
standard error of β1 is estimated 5.43, for β2 is 5.11 and for β3 is 0.59. The t-value
is used to test the hypothesis that the true value of the coefficient β 1; β2 and β3 are
different from zero.
 The equation using Rezende’s data shows that: if the bidders increase by 1, the
price of the iPod is increase 0.73 unit.
β1 = 54.99 means that the price of the new iPod is 54.99 higher than for the used
iPods, holding SCRATCH and BIDRS constant.
β2 = - 20.44 means that the price of the scratched iPod is 20.44 lower than for
other defect, holding NEW and BIDRS contant.
e. There are some missing items should be included in the data output in part d. such
as the degree of freedom R2; adjusted R2 and other items.
f.

The R2 of the model accounted for 0.439229 which means 43,9229% observations
can be explained by the model’s inputs and 56,0771% can be explained by other
variables outside the model and random errors. The value of the R2 is under half
which could be considered the relationship between a dependent and independent
variables can be explained quite fair by a linear regression equation.