If the observed values of the dependent and independent variables are transformed into their natural logarithms, then each estimated slope coefficient is equal to the elasticity of the dependent variable with respect to the corresponding independent variable.

Question

Quizplus · Accepted Answer

When both dependent and independent variables in a regression model are transformed into their natural logarithms, the estimated slope coefficients directly represent the elasticity of the dependent variable with respect to the independent variables. This is because elasticity measures the percentage change in the dependent variable resulting from a one percent change in an independent variable, which is exactly what the logarithmic transformation captures.

If the Observed Values of the Dependent and Independent Variables