Question: An economist is interested in examining how an individual's cigarette consumption (C) may be influenced by the price for a pack of cigarettes (P) and
An economist is interested in examining how an individual's cigarette consumption (C) may be influenced by the price for a pack of cigarettes (P) and the individual's annual income (I). Using data from
50 individuals, she estimates a log-log model and obtains the following regression results.
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p-values = (0.0000) (0.0045) (0.3996)
a. Interpret the value of the elasticity of demand for cigarettes with respect to price.
b. At the 5% significance level, is the price elasticity of demand statistically significant?
c. Interpret the value of the income elasticity of demand for cigarettes.
d. At the 5% significance level, is the income elasticity of demand statistically significant? Is this result surprising? Explain.
In(c)
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a As the price increases by one unit the consumption decreases ... View full answer
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