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Production technologies, terroir, and quality of Bordeaux wine. In addition to state-of-the-art technologies, the production of quality wine is strongly influenced by the natural endowments of the grape-growing region鈥攃alled the 鈥渢erroir.鈥 The Economic Journal (May 2008) published an empirical study of the factors that yield a quality Bordeaux wine. A quantitative measure of wine quality (y) was modeled as a function of several qualitative independent variables, including grape-picking method (manual or automated), soil type (clay, gravel, or sand), and slope orientation (east, south, west, southeast, or southwest).

  1. Create the appropriate dummy variables for each of the qualitative independent variables.
  2. Write a model for wine quality (y) as a function of grape-picking method. Interpret the鈥檚 in the model.
  3. Write a model for wine quality (y) as a function of soil type. Interpret the鈥檚 in the model.
  4. Write a model for wine quality (y) as a function of slope orientation. Interpret the鈥檚 in the model.

Short Answer

Expert verified
  1. To represent the 3 qualitative independent, 7 dummy variables will be created.
  2. A model for wine quality (y) as a function of the grape-picking method can be written as x6=0where x1represents the grape-picking method.
  3. A model for wine quality (y) as a function of soil type can be written as y=0+1x6+2x3where localid="1649839735830" x2and localid="1649839743019" x3both represent soil type.
  4. A model for wine quality (y) as a function of the grape-picking method can be written as y=0+1x4+2x5+3x6where x4,x5and localid="1662363239978" x6 represents slope orientation.

Step by step solution

01

Creating dummy variables

The qualitative independent variables here are the grape-picking method, soil type, and slope orientation.

Let x1be a grape-picking method, where x1=1when it is manual and x1=0when it is automated.

Since the soil type is categorized into three types, (k-1) = 2 no of dummy variables will be used

x2= soil type where value of x2= 1 if soil type is clay; role="math" localid="1649840223066" x2= 0 if soil type is gravel

role="math" localid="1649840195626" x3= soil where value of role="math" localid="1649840208029" x3= 1 if soil type is sand; role="math" localid="1649840215484" x3= 0 if soil type is gravel

Similarly, slope orientation has 4 types hence (k-1) = 3dummy variables will be introduced in the model

x4= slope orientation where x4= 1 if slope orientation is east; 0 otherwise

x5= slope orientation where x5= 1 if slope orientation is west; 0 otherwise

x6= slope orientation where x6= 1 if slope orientation is southeast; 0 otherwise

Therefore, to represent the 3 qualitative independent, 7 dummy variables will be created.

02

Dummy variable model

A model for wine quality (y) as a function of the grape-picking method can be written as y=0+1x1where x1represents the grape-picking method.

0represents the wine quality (y) at a base level (here base level means the level when x1= 0, meaning the wine quality when the grapes are picked automatically)

1 represents the changes in wine quality (y) when the grape-picking is manual.

03

Dolt variable imitation

A model for wine quality (y) as a function of soil type can be written as y=0+1x2+2x3where x2and x3both represent soil type.

0represents the wine quality (y) at a base level (here base level means the level when x2= 0 and x3= 0, meaning the wine quality when the soil type is gravel)

1represents the changes in wine quality (y) when the soil type is clay.

2represents the changes in wine quality (y) when the soil type is sand.

04

Dunce variable representation

A model for wine quality (y) as a function of the grape-picking method can be written as y=0+1x4+2x5+3x6where x4,x5and x6represents slope orientation.

0represents the wine quality (y) at a base level (here base level means the level when x4= 0, x5= 0, and x6= 0 meaning the wine quality when the slope orientation is southwest)

1represents the changes in wine quality (y) when the slope orientation is east.

2represents the changes in wine quality (y) when the slope orientation is west.

3represents the changes in wine quality (y) when the slope orientation is southeast.

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