2. Consider a product market with a supply function Q = Bo + B1P + u, a demand function Q = Yo + u, and a market equilibrium condition Q = Q', where u and u are mutually independent i.i.d. random variables, both with a mean of zero. You have a data set of (Pi, Qi) in equilibrium. a. Show that P; and u are correlated. b. Show that the OLS estimator for 31 is inconsistent.
2. Consider a product market with a supply function Q = Bo + B1P + u, a demand function Q = Yo + u, and a market equilibrium condition Q = Q', where u and u are mutually independent i.i.d. random variables, both with a mean of zero. You have a data set of (Pi, Qi) in equilibrium. a. Show that P; and u are correlated. b. Show that the OLS estimator for 31 is inconsistent.
Chapter3: Preferences And Utility
Section: Chapter Questions
Problem 3.13P
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![2. Consider a product market with a supply function Q = Bo + Bị Pi + u, a demand
function Q = Yo + u, and a market equilibrium condition Q = Q, where u and u
are mutually independent i.i.d. random variables, both with a mean of zero. You have
a data set of (P, Qi) in equilibrium.
a. Show that P; and u are correlated.
b. Show that the OLS estimator for 31 is inconsistent.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F27da7cfc-6aa3-4649-bc58-88fba4a008ac%2F75db0009-25bf-4dfa-8f43-480d3530e1f0%2Fmgoxjto_processed.jpeg&w=3840&q=75)
Transcribed Image Text:2. Consider a product market with a supply function Q = Bo + Bị Pi + u, a demand
function Q = Yo + u, and a market equilibrium condition Q = Q, where u and u
are mutually independent i.i.d. random variables, both with a mean of zero. You have
a data set of (P, Qi) in equilibrium.
a. Show that P; and u are correlated.
b. Show that the OLS estimator for 31 is inconsistent.
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