Problem

To get some practice with the t-test, let’s return to the model of iPod prices on eBay t...

To get some practice with the t-test, let’s return to the model of iPod prices on eBay that was developed in Exercise 11 in Chapter 3. That equation was:

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

SCRATCHi = 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

a. Create and test hypothesis for the coefficients of NEW and SCRATCH at the 5-percent level. (Hint: Use the critical value for 120 degrees of freedom.) b. In theory, the more bidders there are on a given iPod, the higher the price should be. Create and test hypotheses at the 1-percent level to see if this theory can be supported by the results. c. Based on the hypothesis tests you conducted in parts a and b, are there any variables that you think should be dropped from the equation? Explain. d. If you could add one variable to this equation, what would it be? Explain. (Hint: All the iPods in the sample are silver-colored, 4 GB Apple iPod minis.)

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Solutions For Problems in Chapter 5