Download EC 332 Assignment #2 50 points Due: Wednesday May 16, 2012 at

EC 332
Assignment #2
50 points
Due: Wednesday May 16, 2012 at 10:30 AM
--------------------------------------------------------------------------------------------------------------------------------Total
/50
First and Last Name:
------------------------------------------------------------------------------------------------------------- ------------------Type your name above and staple all your word-processed answers to the back of this sheet
Important notes in regard to all assignments:
A.
All 3 assignment answers should be word processed with written explanation of graphs (if any) and be
organized in response to questions asked.
B.
Working together to perform econometric tasks (whether regression or non-regression techniques) is
fine, but when it comes to write your report you should do your own writing.
C.
office visit for assignment greatly boost your grade. By office visit, you are on the right track with your
answers to assignment questions.
D.
Keep your answers organized. For example, question #1 has parts “A” through “E”, so you should keep
these parts in order by writing 1A), 1B), etc.
---------------------------------------------------------------------------------------------------------------------------------------------------
1. (10 points)
Using data file “br2”
A. write your econometric model for price, square foot, number of bedrooms, number of full baths, age,
owner, pool, traditional, fireplace, and waterfront, knowing that price is the dependent variable.
B. Run your regression and write the quantified model.
C. By using gladder” command you will find that quantitative variables do not have a normal distribution
pattern. The model can be improved by log transformation of quantitative variables. Transform these
variables and run the regression and write the quantified model.
D. What is the price of a home that is 2200 square foot and has 4 bedrooms, 2 full baths, nontraditional, not a
waterfront, and it is 9 years old. Be careful, you variables are transformed. Show work.
E. Calculate forecast interval. Show work.
2. (18 points) Over the past ten years, actual price and quantity of dolls sold are stored in the data file called
“dolls”
A. Write your structural equations of demand and supply, knowing that only a time trend as exogenous
variable is included in the supply equation.
B. Write your econometric demand and supply models with their hypothesized signs.
C. Estimate the demand function using 2SLS and report your quantified demand.
What is the slope of the demand line? Interpret this slope coefficient?
D. Can you estimate the supply function? Yes No Why?
E. Calculate price elasticity of demand and total revenue (TR) for the entire price range.
F. Copy and paste price, quantity demanded, TR, and price elasticity sorted by price.
G. By looking at the numbers from part F, what do you observe in terms of relationship between price, price
elasticity, and total revenue? Explain
H. Graph and paste the demand line. Be careful!
3.
A.
B.
C.
D.
E.
F.
G.
H.
I.
J.
(20 points) Use the data file called “2sls” to answer the following questions:
This data file contains information on advertising, price, and quantity sold of a product called “Z”.
Generate a “t” as trend
Using a trend line called “t”) in the supply equation, write your theoretical structural equations of
demand and supply.
Write your econometric models of supply and demand with hypothesized signs.
Run your 2SLS regression assuming a linear relationship between all variables and write quantified
models.
Start all over. Write your new econometric models of supply and demand in a double-log format.
Run your 2SLS regression and write quantified supply and demand models.
Which model is better (part D vs. part F) and why?
Using results from part “F,” write the demand equation in original format (not in log).
Show price elasticity of demand based on 1997 values after your response to part H above.
Based on your answer to part “I”, do you suggest a price increase or decrease to expand total revenue?
Explain