Question

In which of the following scenarios would a dummy variable be most useful?

Multiple Choice

a. What if we increase the price of greeting cards by 5%?

b.How do our greeting cards sales compare to our pencil sales?

c.What if we stop selling greeting cards?

d.How have Valentine’s Day greeting cards affected our monthly sales for the past two years?

Answer 1

A dummy variable is one that takes only the value 0 or 1 to indicate presence or absence of some categorical effect which might affect the outcome.

in the given choices, dummy variable would be most useful in the option d.'How have valentine 'a day greeting cards affected our monthly sales for the past two years?

It is because this is the only option where the absence or presence of valentine's day can be represented by dummy variable and will have an effect on sales of greeting cards. In the other options, there is no categorical or seasonal event which might have an impact on outcome.