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# 48 - Chapter 3 Exercise Solutions Principles of...

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Chapter 3, Exercise Solutions, Principles of Econometrics, 3e 48 EXERCISE 3.11 (a) For all houses in sample: Hypotheses: 02 :8 0 H β= against 12 0 H β ≠ Calculated t -value: (81.3890 80) 1.9185 0.724 t =− = Critical t -value: (0.975,878) 1.963 c tt ±= ± = ± Decision: Do not reject 0 H because 1.963 0.724 1.963 << . We conclude that the data is consistent with the conjecture that an additional square foot of living space is associated with an increase in the sale price of the house by \$80. (b) For houses that are vacant at time of sale: Hypotheses: 0 H against 0 H β ≠ Calculated t -value: (69.9080 80) 2.2675 4.45 t = Critical t -value: (0.975,463) 1.965 c ± = ± Decision: Reject 0 H because 4.45 1.965 <− We conclude that, for houses that are vacant at time of sale, an additional square foot of living space is not associated with an increase in the sale price of the house by \$80. (c) For houses that are occupied at time of sale: Hypotheses: 0 H against 0 H β ≠ Calculated t -value: (89.2588 80) 3.0394 3.05 t = Critical t -value: (0.975,413) 1.966 c ± = ± Decision: Reject 0 H because 3.05 1.966 > . We conclude that, for houses that are occupied at time of sale, an additional square foot of
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