D SUMMARY OUTPUT Regression Statistics Multiple R R-Square Adjusted R-Square Standard Error 4 0.76 0.57 0.49 47.13 Observations 25 10 Analysis of Variance Degrees of Freedom Sum of Squares Mean Square 15234.14 11 Significance F 12 Regression Residual 60936.56 6.86 .03 13 20 44431.27 2221.56 14 Total 24 105367.84 15 t-Statistic Upper 95% 223.32 16 Coefficients Standard Error P-Value Lower 95% 17 50.60 Intercept Price of Residential Heating Fuel 136.96 43.46 3.15 0.01 18 -91.69 29.09 -3.15 0.01 -149.49 -33.89 19 Price of Natural Gas 43.88 9.17 4.79 0.00 25.66 62.10 20 Price of Electricity -11.92 8.35 -1.43 0.17 -28.51 4.67 21 Income -0.050 0.3500 -0.14 0.90 -0.75 0.65
As newly appointed “Energy Czar,” your goal is to reduce the total demand for residential heating fuel in your state. You must choose one of three legislative proposals designed to accomplish this goal: (a) a tax that would effectively increase the price of residential heating fuel by $1, (b) a subsidy that would effectively reduce the price of natural gas by $3, or (c) a tax that would effectively increase the price of electricity (produced by hydroelectric facilities) by $4. To assist you in your decision, an economist in your office has estimated the demand for residential heating fuel using a linear demand specification. The regression results are presented as follows. Based on this information, which proposal would you favor? Explain.
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