Using OLS estimation methodology, the study of Morelli and Smith (2015) uses a cross sectional data of 2490 cars for the year 2013 to estimate the factors affecting the price of automobiles in the state of California. The estimation results of regressing the price variable on a set of explanatory variables are shown in Model (1), where the numbers in parentheses are the robust standard errors of the coefficients.

????? = 5647.02 + 5.77 ????ℎ? + 23.64 ??? + 3573.09 ???????      (1)

              (1042.20)      (1.50)              (13.74)            (1230)

???_?^2= 0.65, ? = 2490

Where price is in U.S. dollars, weight is in pounds, mpg is the number of miles per gallon, and foreign is a dummy variable that takes 1 if the ith car is foreign and 0 if domestic.

1. Interpret the above results and discuss whether the signs and statistical significance of the coefficients are as expected.
2. What is the predicted price for a Buick Regal car that weights 3,450 lbs. and with 22 mpg? And what is the predicted price for a Toyota Corolla that weights 2,310 lbs.and with 18 mpg?
3. If in the year 2013 the actual price of Buick Regal was $25,500 and that of Toyota Corolla was $23,640, use the results of point (b) to determine whether your model over or under predicting the price of each car?
4. In one specification, the authors have included the length of the ith car, length, as an additional regressor to Model (1), where length is measured in inches. The resulting regression results are shown in Model (2) as follows,

              ????? = 5524.02 + 6.54 ????ℎ? + 22.73 ??? + 3568.11 ??????? − 93.48 ?????ℎ       (2)

   (1033.10) (4.85)               (13.68)             (1232)                      (32.87)

???_?^2 = 0.92, ? = 2490

If the F-statistic of the coefficients of the four included variables in Model (2) is equal to 54.32, does the inclusion of the variable length in Model (2) creates an econometric problem? Explain in details.

5. In one last specification of the model, the authors have included the size of the trunk of the ith car, trunk, as an additional regressor to Model (1), where trunk is measured in cubic feet. The resulting regression results are shown in Model (3) as follows,

               ????? = 5631.24 + 4.95 ????ℎ? + 25.99 ??? + 3650.22 ??????? + 88.31 ????? (3)

                         (1144.67)    (1.62)              (13.54)             (1285.29)                 (44.38)

???_?^2 = 0.75, ? = 2490

Suppose that the correlations between the variable trunk and the variables price, weight, mpg, and foreign are equal to 0.25, 0.49, -0.38, and -0.36, respectively. Based on these correlations, refer to Model (1) and discuss the direction of the bias of each coefficient of the three included variables. What is your opinion about including the variable trunk as an additional regressor in Model (3)? Does the inclusion of the variable trunk violate any of the OLS assumptions? Explain in details.

Suppose that there are four people who enjoy a public good. One person has a willingness to pay for the public good of 20 - Q, while the other three each have a willingness to pay of 10 -Q/3.

a) Derive the aggregate willingness to pay?

b) Suppose that the marginal cost of providing the public good is 10. What is the efficient level of the public good, and how much will be supplied if there is no policy in place?

c) What is the deadweight-loss loss relative to the efficient solution - if there is no policy in place?

1. A million dollar lottery winner decides to quit working. How can you explain this behavior using economics?

2. How does outsourcing affect wages and unemployment in the short run and the long run?

3. If workers became more productive (produced more output in the same amount of time), what would happen to the demand for labor, the wages of labor, and the number of workers employed?

4. Why is it difficult to determine the amount of wage discrimination in the workplace?

5. Which anti-poverty program (welfare, in-kind transfer, or EITC) creates the strongest incentive for recipients to work? Why?

Briefly synopsize your understanding of how financial markets function. In addition, give your observation or perception on the failings of Financial Markets to certain segments of the population.

PermalinkReply

What did Smith mean by the Division of Labor and why did he see it as crucial to explaining the Wealth of Nations? What is the cause of the Division of Labor, for Smith? How does the division of labor increase productivity, in his view? What is the effect on workers? Explain how Smith's work on the division of labor challenges the standard neo-classical account of the economy built on the assumption of constant returns, and how it supports a different argument for free trade than we get from Ricardo's theory of comparative advantage

Does it still make sense to you to start counting people as either in or out of the labor force at 16 years old, or do you think this age is unrealistic in our modern society?

How did Franklin Roosevelt seek to pull the U.S. out of the Great Depression? To what extent did his policies work?

a. Josiah Bartlett collects 2 goods, carving knives (C) and antique books (B). His utility function is U(C, B) = 2C + B (they are perfect substitutes). Find Josiah’s demand curve for carving knives if he has $100 to spend and the price of antique books is $10.

b. Josiah's assistant Charlie collects the same two goods but has a different utility function: U(C, B) = min{2C, B} (they are perfect complements). Find Charlie’s demand curve for carving knives if he has $100 to spend and the price of antique books is $10.

Do you think the numerous state agencies in Texas reflect democracy in action, or do they work against the ideal of democracy? Give reasons for your answer.

Prepare a summary report of Migros Ticaret A.Ş. retail company which will open new stores in Bulgaria consisting of the following components .

1. An overview of economic conditions that might affect start-up costs and financing alternatives for the proposed global business enterprise.
2. A description (and estimate of amounts) of the necessary start-up costs.
3. A synopsis of financing alternatives that might be used in this situation.
4. Recommend actions that might be taken to obtain financing for the proposed global business enterprise.  Provide evidence to support your recommendations.

The Caribbean needs sustainable development.What is the extent to which it is feasible for the Caribbean to practice sustainable tourism?

1. Low interest rates, at the zero lower bounds, are testing the limits of the conventional IS-LM model. Briefly explain what the lower zero bound means and what it would imply for the shape of the LM curve. Why would monetary policy be ineffective in this environment?

Consider the following two investment alternatives, in which Alternative II is more economically attractive than Alternative I:

                                                        Alternative I                Alternative II

            Initial Investment                    $10,000                       $40,000

            Useful life                               5 years                         10 years

            Terminal market value            $1,000                         $5,000

            Annual expenses                     $20,000                             $7,000

            EUAC (12%), approx.            $22,617                         $13,800

Determine the percent change in the annual expenses for Alternative I that would make the two investments equally attractive. (Enter your answer as a positive or negative number without the percent % sign.)

1. Suppose a market is in equilibrium (i.e., S=D and profits are normal). If demand increases in this market, the equilibrium price will _____________. Ceteris paribus, what effect will this have on profits?  ______________. What happens next to this market and why? __________________. As a result, what happens to price at the new equilibrium? _______________

2. What does the “double price move” or “price reversal” refer to?

3. At equilibrium in an oligopoly, the size of economic profits will usually depend on the strength of ____________

4. Cartels – What they are and what they seek to do?

5. Suppose a market that had been in equilibrium experiences an increase in demand that result in a higher price for the product. What should you expect to happen to the price in the future and why?

6. We have described oligopoly as often having two very different faces. On the one hand, we often see oligopolies where the firms behave as __________________. On the other hand, we often see oligopolies where firms behave as ______________________

7. In a purely competitive market, an innovation that lowers cost will cause the market price to _________________________

8. Do cost reductions in monopolies or oligopolies usually lead to price reductions? __________. What might happen instead? _______________________________

9. What produces a “natural monopoly?” ____What are patent monopolies? ____

Please describe how an union may behave by strategically exploiting Marshall’s 4 rules.

Marshall's Rules:

Marshall rules for the elasticity of labor demand Alfred Marshall (1842-1924) described the “rules of derived demand”: Labor demand is more elastic the greater...

1 ... the elasticity of substitution; - the more capital and labor are substitutes, the more easily the firm can replace capital for labor when w increases;

2 ... the price elasticity of output; - w ?? p ?, so the more output responds to p the more the firm wants to reduce labor when w increases;

3 ... the labor share in total cost of production; - w ? increases total costs more when production is labor intensive; when w ? firms reduce labor more in sectors where labor share of costs large. (note: true if elast. product demand > elast. substitution)

4 ... the supply elasticity of the other inputs; - if the supply of factors that can replace labor is large, the firm will substitute away from labor more easily when w increases;