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Unformatted text preview: ECON 414 SOLUTION TO HOMEWORK 4 Spring 2011 3.4 (i) A larger rank for a law school means that the school has less prestige; this lowers starting salaries. For example, a rank of 100 means there are 99 schools thought to be better. (ii) 1 > 0, 2 > 0. Both LSAT and GPA are measures of the quality of the entering class. No matter where better students attend law school, we expect them to earn more, on average. 3 , 4 > 0. The number of volumes in the law library and the tuition cost are both measures of the school quality. (Cost is less obvious than library volumes, but should reflect quality of the faculty, physical plant, and so on.) (iii) This is just the coefficient on GPA , multiplied by 100: 24.8%. (iv) This is an elasticity: a one percent increase in library volumes implies a .095% increase in predicted median starting salary, other things equal. (v) It is definitely better to attend a law school with a lower rank. If law school A has a ranking 20 less than law school B, the predicted difference in starting salary is 100(.0033)(20) = 6.6% higher for law school A. 3.10 (i) Because 1 x is highly correlated with 2 x and 3 x , and these latter variables have large partial effects on y , the simple and multiple regression coefficients on 1 x can differ by large amounts. We have not done this case explicitly, but given equation (3.46) and the discussion with a single omitted variable, the intuition is pretty straightforward....
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- Spring '11