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Cigarette demand log form exercise

# Cigarette demand log form exercise - . ,1985and1995. ln Qit...

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This exercise concerns regressions used to estimate the demand for cigarettes. The unit of observation is the state in a given year. Variables are observed in the 48 continuous US states for two years, 1985 and 1995. The regression model is 01 2 ln ln ln . it it it it QP I u β ββ = +++ In this equation, “ln” denotes “natural logarithm,” it Q denotes quantity demanded of cigarettes in state I, year t , and similarly it P denotes price of cigarettes and it I denotes income, again for state I , year t . The rest of the notation should be familiar from class. The functional form of this regression – being linear in the logarithmic variables – is called “double log.” In a double log regression equation, slope coefficients measure elasticities, i.e., the percentage change in the dependent variable associated with a 1 percent change in the independent variable. Thus, the two slope coefficients above refer to the price and income elasticity of demand for cigarettes.

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Cigarette demand log form exercise - . ,1985and1995. ln Qit...

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