Solution_five - Problem Set #5 Solutions 1. (i) The...

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Unformatted text preview: Problem Set #5 Solutions 1. (i) The coefficient on the food price variable is the price elasticity of demand; the coefficient on the income variable is the income elasticity of demand ; and the coefficient on the trend variable shows approximately the percentage change in food demand with respect to a one year passage in time, all other things being equal. The intercept as usual is the value of the dependent variable when all the explanatory variables equal zero. In this context, it has no particular significance other than to center the regression line at the sample mean point. (ii) A linear trend is included in the model to account for common trends in the variables, which could lead to spurious correlation between the y and xs. 2. t lincome lfoodp dq o lfo t t t 013 . 890 . 611 . 847 . 1 (0.508) (0.082) (0.063) (0.001) n=48, R 2 = 0.96. A one percent increase in price is predicted to decrease quantity of food demanded by approximately .611 percent; a one percent increase in income is predicted to increase approximately ....
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This note was uploaded on 03/30/2008 for the course ECG 561 taught by Professor Wohlgenant during the Spring '08 term at N.C. State.

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Solution_five - Problem Set #5 Solutions 1. (i) The...

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