# 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 t^{2}to 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 R^{2} 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 + dP _{R}*

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

Dependent Variable: Q | R^{2} |
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 |

P_{R} |
-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 R^{2} is high.

b. Yes, except that the R^{2} is too low to be convincing. The rest of the results (p-values, expected signs) are satisfactory.

c. No; though the R^{2} 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?

Answer:

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**Question 18**

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What are the values for the own-price (E), income (E_{M}), and cross-price (E_{XR}) elasticities?

Select one:

a. E =2.60, E_{M} = 0.0048, E_{XR} = 1.230

b. E = -0.43, E_{M} = 0.307, E_{XR} = -0.287

c. E =-3.31, E_{M} = 3.83, E_{XR} = -3.50

d. E = -8.6, E_{M} = 0.0184, E_{XR} = -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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**Question text**

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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**Question text**

If *P _{R}* 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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