Using ordinary least squares, a market analyst estimates the demand function , where is output and is price. In another formulation, she estimates the same function after dividing all prices by 1000. Comparing the two sets of estimates she would find that:
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Using ordinary least squares, a market analyst estimates the demand function log X=α+βlog P+ε, where X is output and P is price. In another formulation, she estimates the same function after dividing all prices by 1000. Comparing the two sets of estimates she would find that: (A) α̂ and β̂ will be the same in both formulations (B) α̂ and β̂ will differ across both formulations (C) α̂ will change but β̂ will not (D) β̂ will change but α̂ will not
Also written as: Using ordinary least squares, a market analyst estimates the demand function log X=alpha+betalog P+epsilon, where X is output and P is price. In another formulation, she estimates the same function after dividing all prices by 1000. Comparing the two sets of estimates she would find that:
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This question is on Log, quadratic and other functional forms, part of Dummy variables and functional forms in Econometrics.
Choosing and interpreting log-log, semi-log, quadratic and reciprocal specifications.
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Question from the DSE 2013 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.