1.An economist has been commissioned by the US government to assess the effect of a large waste incinerator that has been built in the state of Massachusetts on house prices in the vicinity. She begins by proposing a simple regression model given by

where:

is the selling price of houses ($) and is the distance from the house to the incinerator (yards) and denotes the natural logarithm. Applying OLS to data on 321 properties that had sold recently in the area gave the following results:

Dependent Variable: LOG(PRICE)

Method: Least Squares

Sample: 1321

Variable

Coefficient

Std. Error

t-Statistic

Prob.

C

8.606005

0.421047

20.43954

0.0000

LOG(DISTANCE)

0.317219

0.048110

6.593685

0.0000

R-squared

0.119943

Adjusted R-squared

0.117185

S.E. of regression

0.411701

F-statistic

43.47668

Prob(F-statistic)

0.000000

a)Interpret the key results from this model and stating the hypotheses, conduct a t test of the statistical significance of at the 5% level.