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Econometrics

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Moderate

Interpreting the Estimated Constant Parameter

EMETRC-ZRGD16

Consider the estimated regression model, $P = 5.45 + 1.89 \text{Holiday}$, where $P$ represents the price of a particular toy in stores across the United States and Holiday is a binary (dummy) variable that equals 1 during major holidays (e.g., Holiday=1 at Christmas and Holiday=0 otherwise).

Which statement is TRUE?

A

The average price of the toy is $5.45 for all days that are not holidays.

B

The average price of the toy is $1.89 for all days that are not holidays.

C

During holidays, prices drop due to increased supply of toys at stores.

D

During periods that are not holidays, the price of toys is higher because customers have fewer substitutes to consider.

E

During holidays, all stores increase their prices of the toy by approximately $1.90