Consider the following model of the demand for beer by households. q=B1 + B2pb+ B3pl +...

 

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Consider the following model of the demand for beer by households. q=B1 + B2pb+ B3pl + B4x + e Here q= quantity of beer consumed (liters), pb= price of beer, pl-price of liquor, and x = real income of households. The two prices are expressed relative to the price of all other goods. The data file is beer2.dta and is on the course page in Brightspace. a. On theoretical grounds, what would you expect the signs of B2, B3, and B4 to be? (2 points) b. Estimate this model and write out your equation, with coefficient estimates, standard errors, sample size and R². Also write out the sample means of all variables. (4 points) Do the estimated coefficients have the signs you expected? (1 point) c. Test whether the liquor price coefficient is statistically significant. Use the 5% level of significance, and state H₁ according to your theoretical expectations in a. (2 points) d. Using the information you have provided in b., answer the following: (3 points) (i) Is the demand for beer elastic with respect income, and its own price? (ii) Is beer a strong or weak substitute for, or complement to, liquor? Explain. Consider the following model of the demand for beer by households. q=B1 + B2pb+ B3pl + B4x + e Here q= quantity of beer consumed (liters), pb= price of beer, pl-price of liquor, and x = real income of households. The two prices are expressed relative to the price of all other goods. The data file is beer2.dta and is on the course page in Brightspace. a. On theoretical grounds, what would you expect the signs of B2, B3, and B4 to be? (2 points) b. Estimate this model and write out your equation, with coefficient estimates, standard errors, sample size and R². Also write out the sample means of all variables. (4 points) Do the estimated coefficients have the signs you expected? (1 point) c. Test whether the liquor price coefficient is statistically significant. Use the 5% level of significance, and state H₁ according to your theoretical expectations in a. (2 points) d. Using the information you have provided in b., answer the following: (3 points) (i) Is the demand for beer elastic with respect income, and its own price? (ii) Is beer a strong or weak substitute for, or complement to, liquor? Explain.

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On theoretical grounds what would you expect the signs of B2 B3 and B4 to be The sign of B2 would be positive because an increase in the price of beer ... View the full answer