Continue with Exercise 13.21. Strictly for pedagogical purposes, assume that model (2) is the true demand function.
Question:
Continue with Exercise 13.21. Strictly for pedagogical purposes, assume that model (2) is the true demand function.
a. If we now estimate model (1), what type of specification error is committed in this instance?
b. What are the theoretical consequences of this specification error? Illustrate with the data at hand.
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