Exploring Economics
8th Edition
ISBN: 9781544336329
Author: Robert L. Sexton
Publisher: SAGE Publications, Inc
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Question
Chapter 4, Problem 6P
To determine
(a)
The effect of the
To determine
(b)
The effect of the expected price of Chevrolets to rise in future on the demand for Chevrolets in U.S.
To determine
(c)
The effect of the rise in the income of Americans on the demand for Chevrolets.
To determine
(d)
The effect of the fall in the price of gasoline on the demand for Chevrolets.
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Problem 3
Simple Bivariate Regression
Consider the following bivariate regression model:
NAMEUIN
Page 1 of 2
=
Hourly Wages, Bo+B₁Education; + &
where Education measures the years of experience at the job for an individual and
Hourly Wage is the hourly wage in dollars. The subscript i indexes various people. You run
a bivariate OLS regression to estimate Bo and B₁.
Suppose you estimate B = 10 and B
a.
0
= 2
How do you interpret the estimates ßo and ß₁ in this context? (3 points)
1
b. Define the terms "predicted/fitted value" and "residual”. (3 points)
c. Suppose that for some individual, the predicted value of Hourly Wage is $20, and
the residual is 2. What is the actual Hourly wage for the individual? Show your
work. (4 points)
d. Suppose that some individual has 10 years of Education, and his actual hourly wage
is $35. What is the predicted outcome and residual for this individual? Show your
work. (5 points)
Problem 1
The Core Model
Suppose you are interested in studying the effect of workers' training (measured by the
number of training hours) on employee productivity (measured by output per hour).
a. What is the dependent and independent variable in this setting? (2 points)
b. How would you write this relationship using the Core Model? (3 points)
C.
Do you expect the slope coefficient ẞ₁, (which shows relation between teacher's
experience and test scores) to be positive or negative? Explain your reasoning. (5
points)
d. Name any two factors that are likely included in the error term of your model? (5
points)
Problem 2
Endogeneity
Suppose you are interested in how social media usage affects students' academic
performance. Consider the following model:
GPA; = ßo + ß₁Social Media Hours; + ɛ;
where GPA, is the grade point average of a student and Social Media Hours; measures
how many hours the student spends on social media every week. Each student is denoted by
the subscript i.
a.
What is the dependent variable Y in this setting? What is the independent variable X
in this setting? (4 points)
b. What does Bo
C. What does ẞ1
= 3 mean? (2 points)
= 0.2 mean? (3 points)
d. What is the condition for the independent variable Social Media Hours; to be
endogenous? (5 points)
e. Is the independent variable likely to be endogenous? Why or why not? (3 points)
f. If yes, describe a scenario where the independent variable is endogenous. (3 points)
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