C16.8 Use the data set in FISH.RAW, which comes from Graddy (1995), to do this exer- cise. The data set is also used in Computer Exercise C12.9. Now, we will use it to esti- mate a demand function for fish. (i) Assume that the demand equation can be written, in equilibrium for each time period, as log(totqty,) =

a, log(avgprc,) + B0 + Bmon, + Btues, + wed, + Bthurs, + u so that demand is allowed to differ across days of the week. Treating the price variable as endogenous, what additional information do we need to consistently estimate the demand-equation parameters? (ii) The variables wave2, and wave3, are measures of ocean wave heights over the past several days. What two assumptions do we need to make in order to use wave2, and wave3, as IVs for log(avgprc,) in estimating the demand equation?

(iii) Regress log(avgprc,) on the day-of-the-week dummies and the two wave measures. Are wave2, and wave3, jointly significant? What is the p-value of the test? (iv) Now, estimate the demand equation by 2SLS. What is the 95% confi- dence interval for the price elasticity of demand? Is the estimated elas- ticity reasonable? (v) Obtain the 2SLS residuals, . Add a single lag, the demand equation by 2SLS. Remember, use as its own instru- ment. Is there evidence of AR(1) serial correlation in the demand equa- tion errors? (vi) Given that the supply equation evidently depends on the wave variables, what two assumptions would we need to make in order to estimate the price elasticity of supply? (vii) In the reduced form equation for log(avgprc,), are the day-of-the-week dummies jointly significant? What do you conclude about being able to estimate the supply elasticity?