We are interested in studying cigarette demand by young adults. Lets consider the following model: ncaj = β0 + β1price + β2age + β3income + u a)Consider now an extension of the model that allow the effect of the price to differ by age. Holding all other factors fixed, is the effect of price on ncaj constant? (Thi
We are interested in studying cigarette demand by young adults. Lets consider the
following model:
ncaj = β0 + β1price + β2age + β3income + u
a)Consider now an extension of the model that allow the effect of the
price to differ by age. Holding all other factors fixed, is the effect of price on
ncaj constant? (This part is theoretical and you do not have to estimate the
model.)
b) Now consider the following model:
ln(ncaj) = β0 + β1ln(price) + β2age + β3income + u
Using the same sample above we have obtained the following results:
ln\(ncaj) = 1.17− 0.69price + 0.06age + 0.009income
Is there enough evidence to say that an increase of 1000 dollars in income,
while keeping price and age fixed, increases cigarette consumption by less
than 1%?
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