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Unformatted text preview: ECON 3200 Introduction to Econometrics Problem set 9 (due date: May 1, 2009) Problem 1 (Wooldridge 16.2) Let corn denote per capita consumption of corn in bushels, at the county level, let price be the price per bushel of corn, let income denote per capita county income, and let rainfall be inches of rainfall during the last corn-growing season. The following simultaneous equations model imposes the equilibrium condition that supply equals demand: corn = & 1 price + 1 income + u 1 ; corn = & 2 price + 2 rainfall + u 2 : Which is the supply equation, and which is the demand equation? Explain. Problem 2. (Wooldridge 16.4) Suppose that annual earnings and alcohol con- sumption are determined by the SEM log ( earnings ) = + 1 alcohol + 2 educ + u 1 ; alcohol = + 1 log ( earnings ) + 2 educ + 3 log ( price ) + u 2 ; where price is a local price index for alcohol, which indicates state and local taxes. Assume that educ and price are exogenous. If 1 , 2 , 1...
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- Spring '08