1. 1 AAEC 4302 STATISTICAL METHODS IN AGRICULTURAL RESEARCH Chapter 1.

2. 2 Introduction Econometrics involves special statistical methods that are most suitable for analyzing economic data/relations Linear regression is a primary tool for empirical economic and biological analyses

3. 3 The first step in a linear regression analysis is to state a behavioral relation based on economic or biological theories or plain reasoning The second step is to state this relation as an equation Linear Regression Analysis p 2

4. 4 Example of a Linear Regression Model u is the error term takes into account other factors that affect the dependent variable Y, such as:  Individually unimportant variables  Error in the measurement of Y  Pure chance Identity vs. behavioral equation The model is an abstraction from reality

5. 5 Brief Review of Functions and Graphs Many functions are not straight lines  Their slope can be viewed as the slope of the straight line drawn tangent to the curve at that point  Slope is interpreted as the ratio of the change in Y to a change in X that results from moving along the curve just a small distance from the original point

6. 6 A Brief Review of Elasticity Elasticity = A linear function has a constant slope, but its elasticity varies throughout the function The slope and the elasticity change along a non-linear function