ei = aipi + > Bijpj + Yiy + di, i = 1,..., n j=1 where e; is the consumer's expenditure on good i, pi is the price of good i, y is income and the a;, Bij, Yi, di terms are parameters. You want the specification to be consistent with standard consumer theory and three friends offer the following opinions: (1) "the equation will work for any values of the parameters;" (2) "you need to impose the restrictions Bij = 0, E di = 1;" (3) “you need to impose restrictions such as Bij = -Viaj, Yi 2 0, E-1 Yi = 1, 8; = 0." (a) Explain which of the friends gave sensible advice. (b) Why should you really not listen to the advice of the other friends?
ei = aipi + > Bijpj + Yiy + di, i = 1,..., n j=1 where e; is the consumer's expenditure on good i, pi is the price of good i, y is income and the a;, Bij, Yi, di terms are parameters. You want the specification to be consistent with standard consumer theory and three friends offer the following opinions: (1) "the equation will work for any values of the parameters;" (2) "you need to impose the restrictions Bij = 0, E di = 1;" (3) “you need to impose restrictions such as Bij = -Viaj, Yi 2 0, E-1 Yi = 1, 8; = 0." (a) Explain which of the friends gave sensible advice. (b) Why should you really not listen to the advice of the other friends?
MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
Section: Chapter Questions
Problem 1P
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Transcribed Image Text:2. You plan to use the following specification for an empirical study:
e¡ = a¡P¡ + > BijPj + ViY + di, i = 1, ..., n
j=1
where e; is the consumer's expenditure on good i, pi is the price of good
i, y is income and the ai, Bij, Yi, di terms are parameters. You want the
specification to be consistent with standard consumer theory and three
friends offer the following opinions: (1) "the equation will work for any
values of the parameters;" (2) “you need to impose the restrictions Bij = 0,
E1 di = 1;" (3) “you need to impose restrictions such as Bij = -Y;aj,
Yi 2 0, E=1 Vi = 1, d; = 0."
%3D
(a) Explain which of the friends gave sensible advice.
(b) Why should you really not listen to the advice of the other friends?
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