EBE 2174/EBQ2074 Econometrics

Tutorial 2 (WE07 &WE09)

Evan Lau

Question 1
Explain how a classical linear regression model can be classified as the best linear unbiased estimator (BLUE).

Question 2
What is meant by the best unbiased or efficient estimator? Why is this important?

Question 3

A random sample of 8 drivers insured with a company and having similar into insurance policies was selected. The
following table lists their driving experience (in years) and monthly auto insurance premiums.

Driving Experience (years) Monthly Auto Insurance Premium ($)

5 64
2 87
12 50
9 71
15 44
6 56
25 42
16 60

(a) Does the insurance premium depend on the driving experience or does the driving experience depend on the
insurance premium? Do you expect a positive or a negative relationship between these two variables?
(b) Compute β 1 and β 2 and write out the estimation regression.
(c) Interpret β 1 and β 2.

Question 4
(a) Lists out the assumptions of the simple linear regression model in terms of the random error, e.
(b) Write out the formula for β 1 and β 2 and how does the slope of the regression line can be calculated?