The ﬁle concatecdet contains 56 observations on variables related to sales of cocaine

power in northeastern Califonia ever the period 1984 - 1991. These data are a subset

of these used in the study Caulkins, J.P. and R. Padrnan (1993), “Quantity Discounts

and Quality Premia for Illicit Drugs", Journal of the American Statistical Association,

88, "MS-75?. The variable description is as below: Variable Description price

quaint

qual

trend price per gram in USD for a cocaine sale number of grams of cocaine in a given sale quality of the cocaine expressed as percentage purity

a time variable with 1984 = 1 up to 1991 = 8 Consider the regression model in the form: 1. IT.“ price = J31 + 521314!th + ﬁSQHﬂ-I + ﬁqtrcnd + s [Model 1) Based on economic intuition, what signs would you expect on the coefﬁcients .82, 53. and #31? . Inspect the data in the ﬁle concerns-dot using summary statistics (i.e. number of observation, mean, std.dev, min and max], a correlation matrix and a scatter plot matrix for all four variables {eg http : Nwww . sthda . comfenglishz’wikif

scatter—plot—matriees—r—base—graphs} . Estimate Model 1 and report the estimation results together with a suitable col— lection of summary statistics. . Hmv well does the model ﬁt the data? Explain in a descriptive sentence. . Interpret the estimated coefﬁcient of guest, taking care with the units of measure" ment. . Construct a 90% conﬁdence interval estimate for the coefﬁcient of onset. Interpret the result in a sentence. It is claimed that the greater the number of sales, the higher the risk of getting

caught. Thus, sellers are willing to accept a lower price if they can make sales in

larger quantities. Test this hypothesis at the 5% signiﬁcant level. . Test the hypothesis that the quality of cocaine has no inﬂuence on price against the alternative that a premium is paid for better-quality cocaine. What is the expected annual change in the cocaine price based on the model

regression results? Can you suggest why price might be changing in this direction?