Suppose you have many observations of the price of refrigerators, with other characteristics including their energy cost as well as whether or not they are stainless steel. Now, suppose you ran the standard linear regression of price on energy cost: Pricei = ?0 + ?1 Energy Costi + Ui and got an estimate of ?1. Now, suppose you know that stainless steel refrigerators are more popular (i.e., sell for higher prices holding all other characteristics constant) and tend to be in more energy efficient (i.e., lower energy cost) refrigerator models. What should you expect your estimate of ?1 in the following regression Pricei = ?0* + ?1*Energy Costi + ?2* Stainless Steeli + Ui to be?
A. ?1* > ?1
B. ?1* = ?1
C. ?1* < ?1
D. You cannot tell from the information given.
Answer: A
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