Question

Are rent rates influenced by the student population in a college town? To examine this, Ansah, Jones,Tungara, and Whaley (2012) collrct data on the following variables: rent - the average monthly rent paid on rental units in a college town in the U.S; pop - total city population; avginc - average city income; pctstu - the student population as a percentage of total population. The authors estimate the model:

log(rent) = β1 + β2log(pop) + β3log(avginc) + β4pctstu + u

(a) State the null hypothesis that size of the student body relative to the population has no ceteris paribus eect on monthly rents. State the alternative hypothesis that there is an effect.

(b) What signs do you expect for β1 and β2?

(c) Using data for 1990 for 64 college towns, suppose Ansah, Jones,Tungara, and Whaley (2012) estimate the following: log(drent) = 0.043 + 0.066log(pop) + 0.507log(avginc) + 0.0056

pctstu se (0.844) (0.039) (0.081) (0.0017)

What is wrong with the statement:"A 10% increase in population is associated with a 6.6% increase in rent?"

Answer 1

a) Null Hypothesis:

Alternative Hypothesis

b) Considering that the average standard of living of people in US increases overtime and also considering inflation, should be positive.

As avginc of the people will increase, the purchasing power of the people will increase. Poor, homeless people might start renting places to live in and richer people might try to shift to better houses. The jist again will be that the demand for houses will increase and the rent will shoot up and even should be positive.

c) Considering the dependent variable to be log(rent) as mentioned previously, it is 1% increase in population that will cause the rent to increase by 6.6%. This will be a log-log model. If it is drent, for accurate answer define what is drent.

Thank You and Best of Luck :)