To investigate the relationship between the price of wine and consumption of wine, an economist estimates...
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To investigate the relationship between the price of wine and consumption of wine, an economist estimates the following regression using a sample of 32 individuals for one week in 2013: log (wine) 4.2514 - 0.8328 log (price), (0.8911) (0.0031) n= 32, R = 0.89. wine denotes the amount of wine consumed per week in milliters (a medium glass contains 175ml), and price denotes the average price of a medium glass of wine of a selection of wines during the week in GBP (£). The numbers in parentheses are the standard errors. (a) (3 marks) Discuss what would happen to the parameter estimate of the slope co- efficient if we had measured the amount of wine consumed per week in number of medium glasses instead of millilitrs. Explain your answer. (b) (5 marks) You are asked to test the hypothesis that the demand for wine has an elas- ticity equal to -1 against a two-sided alternative, using a 5% level of significance. Clearly stating any assumptions you may need, carry out this test. (c) (5 marks) Construct a 95% confidence interval for the price elasticity of demand and discuss how this interval can be used to carry out the test in (b). (d) A famous TV chef suggests in a taik show that the demand for wine is less elastic (i.e., less negative) for people who have eaten at a restaurant during the week, arguing that eating in a restaurant encourages people to drink wine regardless of the price. To test this theory, the economist defines a dummy variable D, that takes the value 1 if individual i ate at a restaurant during the week, and 0 otherwise. She obtains the following regression result: log (wine) 4.2133 – 0.8218 log (price) + 0.0889D x log (price), (0.8911) (0.002s) (0.0011) n= 32, - 0.92. i. (3 marks) How does this regression help in assessing the TV chef's claim? i. (4 marks) Conduct a test that may offer support for the TV chef's claim. Clearly specify the null and the alternative hypothesis. Explain clearly why your test is effective in answering the question of interest. To investigate the relationship between the price of wine and consumption of wine, an economist estimates the following regression using a sample of 32 individuals for one week in 2013: log (wine) 4.2514 - 0.8328 log (price), (0.8911) (0.0031) n= 32, R = 0.89. wine denotes the amount of wine consumed per week in milliters (a medium glass contains 175ml), and price denotes the average price of a medium glass of wine of a selection of wines during the week in GBP (£). The numbers in parentheses are the standard errors. (a) (3 marks) Discuss what would happen to the parameter estimate of the slope co- efficient if we had measured the amount of wine consumed per week in number of medium glasses instead of millilitrs. Explain your answer. (b) (5 marks) You are asked to test the hypothesis that the demand for wine has an elas- ticity equal to -1 against a two-sided alternative, using a 5% level of significance. Clearly stating any assumptions you may need, carry out this test. (c) (5 marks) Construct a 95% confidence interval for the price elasticity of demand and discuss how this interval can be used to carry out the test in (b). (d) A famous TV chef suggests in a taik show that the demand for wine is less elastic (i.e., less negative) for people who have eaten at a restaurant during the week, arguing that eating in a restaurant encourages people to drink wine regardless of the price. To test this theory, the economist defines a dummy variable D, that takes the value 1 if individual i ate at a restaurant during the week, and 0 otherwise. She obtains the following regression result: log (wine) 4.2133 – 0.8218 log (price) + 0.0889D x log (price), (0.8911) (0.002s) (0.0011) n= 32, - 0.92. i. (3 marks) How does this regression help in assessing the TV chef's claim? i. (4 marks) Conduct a test that may offer support for the TV chef's claim. Clearly specify the null and the alternative hypothesis. Explain clearly why your test is effective in answering the question of interest.
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d log Cueine 42S14 083 lov n32 R 089 so a8 wee age measuking the omount of wine Co... View the full answer
Related Book For
Statistics for Business and Economics
ISBN: 978-0132930192
8th edition
Authors: Paul Newbold, William Carlson, Betty Thorne
Posted Date:
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