The demand for roses. The following table gives quarterly data on these variables:
Yt
= £]1 + £]2X2t
+ £]3X3t + £]4X4t
+ £]5lnX5t + Ut
lnYt
= £]1 + £]2lnX2t
+ £]3lnX3t + £]4lnX4t
+ £]5lnX5t + Ut
(a) Estimate the linear model. Interpret the results.
(b) Estimate the log-linear model. Interpret the results.
(c) £]2, £]3
and
£]4
give,
respectively, the own price, the cross
price and the income elasticities of
demand.
What are their priori sign? Do the result concur with the priori expectation?
(Suggested
Answer)
(d) How would you compute the own price, cross price and income elasticities
for the linear model?
(Suggested
Answer)
(e) Based on your analysis, which model, if any, would you choose and
why? (Suggested
Answer)
