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lecture2_ECON420

# lecture2_ECON420 - Econometrics The Simple Regression Model...

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Econometrics The Simple Regression Model

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Empirical Question I am looking for a house in Atlanta. know how much morI know the price for a 1000 sqft house and I would like to e I should expect to pay for a larger house. What are the variables that affect the housing prices in Atlanta?

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Empirical Question The object of interest is If I knew this value, I would be able to tell how much the price increases with each additional sqft This is the definition of a slope of a straight line relating housing prices and size. where is the intercept and is the slope . price change in price price change in sqft sqft β = = * price price sqft β = 0 price price sqft β β = + 0 β price β
Linear Regression Model One way to take this into account would be to incorporate all possible other factors in the equation. For now we simply lump all “other factors” together and write 0 * price average effect of sizeon price price sqft other factors β β = + + 1 4 42 4 43

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Data on 34 houses in Atlanta 0 200000 400000 600000 800000 price 1000 2000 3000 4000 5000 6000 sqft
Linear Regression Model What we are fitting a line of the type : Dependent variable I ndependent variable Intercept Slope Coefficients, Parameters There are lots of different lines of this type, one for each possible values of α and β .

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lecture2_ECON420 - Econometrics The Simple Regression Model...

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