Suppose you were to run a regression of leisure travel expenditures by households on household income.We would expect that households with low incomes do not travel much.High-income households may or may not travel much,depending on the household's preferences for travel.The results from this regression will be subject to:
A)multicollinearity.
B)specification bias.
C)autocorrelation.
D)heteroscedasticity.

Question

Quizplus · Accepted Answer

Heteroscedasticity is likely because the variance of the error terms could vary across different levels of household income. Low-income households might have little variation in travel expenditures (since they can't afford much travel), while high-income households could show a wide range of travel expenditures based on personal preferences, leading to a spread of error terms that increases with income.

Suppose You Were to Run a Regression of Leisure Travel