Question

Are rent rates influenced by the student population in a college town? Let rent be the average monthly rent paid on rental units in a college town in the United States. Let pop denote the total city population, avginc the average city income, and pctstu the student population as a percentage of the total population. One model to test for a relationship is log1rent 2 5 b0 1 b1log1pop2 1 b2log1avginc2 1 b3pctstu 1 u. (i) State the null hypothesis that size of the student body relative to the population has no ceteris paribus effect on monthly rents. State the alternative that there is an effect. (ii) What signs do you expect for b1 and b2? (iii) The equation estimated using 1990 data from RENTAL for 64 college towns is

Answer 1

Step-by-step explanation:

The regression equation is correctly written as:

log(rent) = β₀+β₁log(pop)+β₂log(avginc)+β₃pctstu+μ

1. this question requires us to State the null hypothesis that size of the student body relative to the population has no ceteris paribus effect on monthly rents.

null hypothesis

H₀ : β₃ = 0 (no effect exists)

alternative that there is an effect.

H₁ : β ≠ 0

2.

Due to increased demand when population is increased, the higher the number of people living in the city then there is a great likelihood that rent would increase. β1 will therefore be positive, all things being equal.

as average income rises, so also would rent as the people would have more money and therefore there would be increased demand for housing. This increase in demand would then cause a surge in the price of rent.  β₂ would therefore be positive .

the last question you posted is incomplete so i was unable to go ahead with it.