4 The following regression equation examines the relationshi

4. The following regression equation examines the relationship between house prices (in dollars) and the number of parks in a city houseprice 225, 000+4,500parks Interpret the coefficient on the number of parks What is the predicted house price in a city with 20 parks? In a city with 40 parks? How many parks would there need to be in a city in order for the predicted house price to be 500,000 dollars? Suppose that a house in a town with 12 parks sells for 194,000 dollars. What is the error in the predicted house price? New York City has 1,700 parks. What is the predicted house price in NY? Do you think this is reasonable? If no, explain the shortcoming of the regression a. b. c. d. e.

Solution

a. For 1 increase in number of park, there would be Rs. 4500 increase in price of houses
b. For 20 number of parks, Price =225000+4500*20 = 315000
For 40 number of parks, Price =225000+4500*40 = 405000
c. 500000 = 225000+4500*20
275000 = 4500*n
‘n = 61

d.

P

A

Error

279000

194000

85000

e. =225000+4500*1700 = 7875000
Since the equation is a linear form, it needs to consider other factors like disposable income, purchasing power and in real terms the prices cannot keep increasing with the increase in prices

P	A	Error
279000	194000	85000