Question

6. An ice cream cone demand regression model is given as:

              Y = β₀ + β₁T + β_2S + u, where:

Y = number of cones (in thousands) sold per week

T = average temperature during the week

S = the price of a cup of frozen yogurt (a substitute for ice cream) in dollars

a. List the independent variables.   c. How many explanatory variables are there in the model?

b. List the regressors.                      d. List the dependent variables.
e. Give a specific example of an omitted variable that might be in the error term in this model?   

Answer 1

• (a) Independent variables are the ones that are changed by the researcher and whose effects are measured. In the above model, there are 2 independent variables i.e T , average temperature during the week and S , the price of a cup of frozen yogurt in dollars.
• (b) Independent variables are also known as explanatory variables. Therefore in the above model there are 2 explanatory variables.
• (c) Independent variables are also called regressors. T and S are the regressors in the above model.
• (d) Dependent variables are the ones that are completely dependent on the independent variables. Y i.e number of cones(in thousand) sold per week is the dependent variable in the above model.
• (e)Availability of raw materials required in production and their prices can be an example of a variable .