ps8_ProblemSet - + 0.536*TREND...

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Price Analysis AEM 4150 Fall 2008 Homework Assignment #8 Due Date: Tuesday November 11, 2008 1. Answer all of the following short questions. Be careful to use the appropriate terminology in each circumstance: (a) True or False. Principal source of price seasonality originates from the demand side for most agricultural commodities. Briefly explain if you think it is false. (b) T or F. A major reason why there is so much fluctuation in ag prices is that quantity demanded and supplied is not very sensitive to price changes. Briefly explain if you think it is false. (c) What is the leverage effect? (d) Why is the downward phase of hog production cycle shorter than the corresponding upward phase? (e) In chapter 4, we estimated the following coke demand equation, Qcoke = 1.794 + 0.003*ADVcoke -0.004*ADVjuice +0.810*AGE2044
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Unformatted text preview: + 0.536*TREND -7.503*RPcoke+0.073*RPjuice+0.765*RINCOME. Interpret the coefficient for TREND. 2. Price Trend. We observe that (i) children of the baby boomers are graduating from high school in record numbers, and (ii) U.S. college tuition has been trending upward. Use a diagram to illustrate how (i) contributes to (ii). Briefly explain. 3. The following Cobweb model was estimated for the juice market: Q t s = P t-1 Q t d = 23 - 0.8P t P o = 15 a) Calculate equilibrium price and quantity at time 1 (i.e., t = 1). b) Calculate equilibrium price and quantity at time 2. c) Calculate equilibrium price and quantity at time 3. d) Carefully graph the Cobweb model. Include arrows to indicate direction of causality. e) What happens to equilibrium price and quantity over time? Why?...
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