# ECONOMICS

Question 15

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The regression results for model 4 are notable because

Select one:

a. adding the redundant D variable to the seasonally adjusted data causes the coefficient estimates for t and t2to be dramatically different than they were in models 2 and 3.

b. adding a redundant seasonal dummy to already seasonally-adjusted data results in the D variable being insignificant, as expected, and the model’s explanatory power is essentially the same as models 2 and 3.

c. making the seasonal adjustment in the dependent variable, in addition to adding the D dummy, yields the best results in terms of significant coefficients, explanatory power, and expected signs.

d. the adjusted R2 is higher than in the comparable model 3 (without the D).

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Conlan Enterprises has the following demand function:

Q = a + bP + cM + dPR

where Q is the quantity demanded of the product Conlan Enterprises sells, P is the price of that product, M is income, and PR is the price of a related product.  The regression results are:

 Dependent Variable: Q R2 F-ratio p-value on F Observations: 32 0.7984 36.14 0.0001 Variable Parameter Estimate Standard Error T-ratio P-value Intercept 846.30 76.70 11.03 0.0001 P -8.60 2.60 -3.31 0.0026 M 0.0184 0.0048 3.83 0.0007 PR -4.3075 1.230 -3.50 0.0016

Question 16

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Do you think these regression results will generate good sales estimates for Conlan?

Select one:

a. Yes; the parameter estimates have expected signs, the individual coefficients are statistically significant at the 1% level, and the R2 is high.

b. Yes, except that the R2 is too low to be convincing. The rest of the results (p-values, expected signs) are satisfactory.

c. No; though the R2 is good and the variables have the expected signs, the estimated coefficients are not statistically significant.

d. No; the estimated coefficient for P should be positive, not negative.

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Now assume that the income is \$10,000, the price of the related good is \$40, and Conlan chooses to set the price of its product at \$30.

Question 17

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What is the estimated number of units sold given the data above?

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Question 18

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What are the values for the own-price (E), income (EM), and cross-price (EXR) elasticities?

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a. E =2.60, EM = 0.0048, EXR = 1.230

b. E = -0.43, EM = 0.307, EXR = -0.287

c. E =-3.31, EM = 3.83, EXR = -3.50

d. E = -8.6, EM = 0.0184, EXR = -4.3075

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Question 19

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If P increases by 5%, what would happen (in percentage terms) to quantity demanded?

Select one:

a. Q changes by 5% * -0.43 = -2.15%.

b. Q decreases by 0.43%.

c. Q decreases by 5%.

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Question 20

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If M increases by 8%, what would happen (in percentage terms) to quantity demanded?

Select one:

a. Q falls by 0.307%.

b. Q decreases by 0.48%.

c. Q increases by 1.84%.

d. Q increases by 8% * 0.307 = 2.45%.

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Question 21

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If PR decreases by 4%, what would happen (in percentage terms) to quantity demanded?

Select one:

a. Q rises by 1.15%.

b. Q increases by 1.230%.

c. Q increases by 4.3075%.

d. Q falls by 4% * -0.287 = 1.15%.

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