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Marietta College

Marietta College . Spring 2011 Econ 420: Applied Regression Analysis Dr. Jacqueline Khorassani. Week 11. Tuesday, March 22. Exam 2. Thursday March 24. Return Asst 16. Use Chick (Chapter 6) data set Variables are defined on Page 172

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Marietta College

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  1. Marietta College Spring 2011 Econ 420: Applied Regression Analysis Dr. Jacqueline Khorassani Week 11

  2. Tuesday, March 22 Exam 2

  3. Thursday March 24

  4. Return Asst 16 • Use Chick (Chapter 6) data set • Variables are defined on Page 172 • Assuming that the elasticity of per capita chicken consumption with respect to the price of chicken is constant, estimates Y as a function of PC, PB and YD. • Is the demand for chicken elastic or inelastic? Why? • Attach your work.

  5. Return and discuss Exam 2 • Everyone was correct A slight problem Can’t write Pi= 41.21+ 1 GDPNi -26.81 DPCi + єi Why? You don’t know the true betas Can write Pi^= 41.21+ 1 GDPNi -26.81 DPCi

  6. t-test H0: βGDPN ≤0 HA: βGDPN >0 H0: βDPC ≥0 HA: βDPC<0 df = 29 critical t = 1.699 Note: At 5% level of significance, you reject H0 in favor of HA in both tests

  7. 3. Bias <0 Bias = βomitted * rGDPN, omitted <0 Two possibility: • βomitted >0 and rGDPN, omitted <0 • βomitted <0 and rGDPN, omitted >0 Is PP a good candidate? No Patent may result in monopoly  may increase P βPP >0 More patents in more developed nations rGDPN, PP >0

  8. Is IPC a good candidate? Not necessarily Competition may result in lower P βIPC <0 Is there more or less competition in developed nations? rGDPN, IPC > ??? Is CVN a good candidate? YES P is price and CVN is quantity demanded P and CVN are expected to be negatively correlated βCVN <0 Drugs are normal goods (the higher income (GDPN) the higher demand for drugs) rGDPN, CVN >0

  9. 4. Yes, when you add CVN to the set of independent variables  estimated coefficient on GDPN goes up from 1 to 1.52 and it is significant. 5. Positive and declining effect of GDPN on P Quadratic Function Pi^= 41.95+ 0.5 GDPNi + 0.005 GDPNSQi-26.25 DPCi Need to do t-test

  10. H0: βGDPN ≤0 HA: βGDPN >0 H0: βGDPSQ ≥0 HA: βGDPSQ<0 At 5% level of significance, you can’t reject H0 in favor of HA in both tests Didn’t find evidence for theory

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