Question

In a cross section regression of 48 states, the following linear demand for per-capita cans of soda was found: Cans = 159.17 – 102.56 Price + 1.00 Income + 3.94Temp Coefficients Standard Error t Stat Intercept 159.17 94.16 1.69 Price -102.56 33.25 -3.08 Income 1.00 1.77 0.57 Temperature 3.94 0.82 4.83 R-Sq = 54.1%; R-Sq(adj) = 51.0%; T critical value = 2.0 From the linear regression results in the cans case above, we know that: Price is insignificant Income is significant Temp is significant As price rises for soda, people tend to drink more of it All of the coefficients are significant

Answer 1

Observations

In case of coefficient for Price,

Absolute value of observed t (3.08) is more than critical value of t (2.0), we can say that Price is significant

In case of coefficient for Income,

Absolute value of observed t (0.57) is less than critical value of t (2.0), we can say that Income is insignificant

In case of coefficient for Temp,

Absolute value of observed t (4.83) is higher than critical value of t (2.0), we can say that Temp is significant

Coefficient for Price is negative, Price and quantity demanded are negatively related.

With the help of above observations, we can analyze given alternative options as under

Price is insignificant - False

Income is significant - False

Temp is significant -True

As price rises for soda, people tend to drink more of it -False

All of the coefficients are significant- False

Correct option is

Temp is significant