SCALING AND UNITS OF MEASUREMENT

SCALING AND UNITS OF MEASUREMENT

VIJAYA BHARATHIII MA ECONOMICSMADRAS CHRISTIAN COLLEGE

CHANGING MEASUREMENT UNITS:SCALING VARIABLESWe have data of import of crude oilSource: Oil Companies & DGCIS Having simple linear regression modelV = + Q + eQ- Quantity is Independent Variable ( million tons )V- Cost is Dependent Variable(Crores of Rupees)

? What happens when we change scale of dependent variable? What will happen if independent variables scale is changed? What kind of change will it bring in the interpretation

Running regression to the simple linear regression model.

We get-

= -356119.731 = 5.565t value = 11.920Sig value= .000R Square= .905

V = + Q + e

Coefficient of slope variable change

Coefficient of intercept term DOES NOT change

Statistical Interpretation DOES NOT changeScaling Independent Variable:

Scaling dependent variableCoefficient of slope variable change

Coefficient of intercept term change

Statistical Interpretation DOES NOT change

Running Regression we get: xV = x + (x)Q + eV= -3561.197 + .056 Q + e

= -3561.197 = .056 t value = 11.920Sig value= .000R Square= .905

Scaling Both the Independent and Dependent Variables: Coefficient of slope variable change

Coefficient of intercept term change

Statistical Interpretation DOES NOT change

COMPARING THE CHANGES:

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