1. (5 marks) Consider the following model of household consumption, C;: C = Bo+Bị Yi+By Y tu where Y, denotes the annual income of household i, and u; is the error

term. As- sume we have a random sample of 2,024 households. What does the error term u represent? (You can use examples to illustrate your explanation.) Why do we include the quadratic term Y² in this model? random campling and r 2 (5 marke) Explain the differencol