Economics 421Homework #3
Due June 19
1) You have estimated the following demand functions for grape
juice:
GJ=150.83 -.75Pgj+.37Poj + .65Income + .23White + .17Highschool
GJ = 168.19 -.63Pgj+.46Poj +.83Income
based on 100 observations. The residual sum of squares from the first equation is 9756, and for the second equation is 9930. Test the restriction that the coefficients on white and highschool are simultaneously zero.
2) Suppose that you have the following true model:
Y = a + b1X1 + b2X2 + b3X3 + u
but you estimate the model omitting the variable X3. Suppose that X3 is positively correlated with X1, but negatively correlated with X2. Explain as best you can what the consequences are of omitting X3 for estimates of b1 and b2. For example, will the estimates be over estimates or under estimates of the true values?
3)You are to estimate the demand for automobiles. Your purpose is to determine whether demand by city residents is different from demand by non-city residents. Explain how you might do this. Make sure that you describe how to test for differences in intercepts and in slopes.
4)You have estimated a cross sectional model of the automobile demand of individuals and are worried about heteroskedasticity. Explain how you would test for heteroskedasticity, and if it is present how you would correct for it.
5)Using data set 2 which you can download from my homepage, estimate the model Y = a + bX1 + cX2 + u. Evaluate the possibility of multicollinearity and/or heteroskedasticity.
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